An article for families of rising high school juniors and seniors.

How to understand financial aid

What to do when you aren’t eligible for Financial Aid?

I just saved $300 on my car insurance!

Well, not really. I haven’t had that euphoric feeling recently, but I know there are some families who have been shouting for joy in recent weeks, due to the fact that they understood the financial aid process at the higher education institutions in the United States, BEFORE their student was applying.

Their excitement doesn’t come from a savings of ”$300″ but rather from a number that could be closer to $100,000!

Yes, you read that right.

Families that have students heading off to college this coming fall, which prepared a GAMEPlan for their college search, are finding success and happiness in knowing that over the next four years, they will have a financially sound ability to continue to live within their financial parameters. A financial plan that they chose for themselves. Not what the schools have imposed upon them.

High School Juniors (soon to be seniors) – Know this… your “base year” for financial aid began five months ago. You are smack in the middle of what the colleges will see when you apply for financial aid in January 2011. Take advantage of this knowledge and prepare yourselves and your families for the inevitable “sticker shock” that will occur when the acceptance letters and financial aid awards start pouring in next spring.

NOW is the time to start planning for YOUR college success plan. It is important to consider the Money Factor, competitiveness of the Admission process, and the Family Priorities when putting together your college search GAME Plan.

Other material to read: Financial Aid 101: How to Get More.

While this article contains some good information on both short and long-term strategies for saving and paying for college, the underlying point that needs to be repeated over and over is that waiting to figure out how to pay for college AFTER your student has been accepted is WAY TOO LATE! Get yourself prepared and educated on the process when your high school student is finishing up sophomore year! By the time your student is a junior, you’re already “IN” the financial aid “base year.” You’ll thank yourself later!

Fear Of FAFSA?

It is ironic that people who write (and sell) books related to college search and student financial aid, often advise their readers to “go it alone” and that they do not have to pay for counseling in this area.

“Don’t listen to their words; fix your attention on their deeds.” ~ Albert Einstein

Well, in fact, they are correct. Nobody has to engage a professional college counselor, just as they can prepare their own taxes or manage their own investment portfolio. Obviously, as professional counselors, we believe that families gain enormously from working with a qualified independent college counselor.

In a recent blog exchange, we agreed with a poster who argued the merits that “not everyone has the interest, time, or knowledge to prepare the some 130 asset, income, and dependency questions on the FAFSA”.

In the same exchange, we pointed out that “Even doing one’s homework cannot always prevent mistakes”* and that parents should at least do some homework on how the aid formulas work before attempting to complete the FAFSA, to say nothing of the CSS Profile.

Financial Aid – It’s Not An Easy Process

Let’s be clear, the FAFSA is, in many ways, a daunting document, and completing it and other financial aid documents can fill the most hardy soul with dread.

Confusion and nervousness can become even more acute when the CSS Profile and Institutional Methodology come into play, or when the situation involves divorced and separated parents, or a small business owner.

It must be stated that much of the stress relating to the FAFSA stems from the fact that most families don’t plan the financial aspects of college in a timely manner, and have little or no idea of their Expected Family Contribution (EFC) and financial aid entitlement before they actually fill out the forms.

However, these forms represent only one element in the overall process of college search, admissions and financial aid, and should not be viewed with such trepidation, as long as solid planning has been put in place.

FAFSA Stress – How Do You Find Relief?

“Good plans shape good decisions. That’s why good planning helps to make elusive dreams come true.” ~ Lester Robert Bittel

It may well suit many families to have their FAFSA prepared by a qualified and reputable preparer (just as they do with tax returns). But this does not alleviate the tension of submitting these forms and then waiting to see how much the system is going to impose upon them for their Expected Family Contribution.

A well known financial planning group published a calendar of things to do in 2010. On January 1st. parents of college bound high school seniors were told to complete the FAFSA as soon as possible (and we echo that recommendation).

Yet nowhere was there a recommendation for parents of Juniors and Sophomores to begin to get their financial plan together to optimize their students’ college search process. As financial planners, surely they should be making a clarion call to these parents to get their financial house in order with regard to college funding (see the graphic below).

Quite simply, parents can avoid much unnecessary stress and the uncertainty of financial aid forms by simply understanding the concept of the “base year”, and using a free EFC calculator tool to estimate their Expected Family Contribution (for both Federal and Institutional formulas).

This allows at least one element of a solid college funding plan to be put in place well ahead of any forms having to be completed.

This does not resolve all the issues facing the family, but it will certainly relieve some of the tension.

A Simple Image To Show The FAFSA Base Year (Class of 2011)

Base Year For FAFSA Information

There are several ways for a family to maximize the amount of financial aid, or to avoid being “over taxed”. Since the information to be submitted in the FAFSA and institutional forms is based largely on tax data, the ideal time to put these measures in place is before December 31st. of the Sophomore going into Junior year. Note also that by getting your “ducks in a row by October 31st. you have two months to correct any errors and omissions.

Adjustments during the Junior year may be limited, and by the time it gets to January 1st. of the high school Senior year, there is no time left to plan, and this is when parents acquire that “deer in the headlights” look.

*Note:

On page 27 of The College Solution (which is an excellent piece of work in general terms) there is erroneous information about the impact of 529 savings plans on college financial aid.

While it is true that these accounts are treated as parent assets on the FAFSA for dependent students, the same cannot be said for the CSS Profile. The instructions clearly state, in fact, that 529 savings plans originating with UGMA/UTMA funds are to be reported as student assets.

A parent following this lead would be confused at best having read this part of the book in addition to the instructions for the CSS Profile.

“If it weren’t for the last minute, I wouldn’t get anything done.”
~Author Unknown

The admissions applications are submitted! Now what? Wait until April 1st. to see if you were accepted?

Not quite. The second round of applications (for Student Financial Aid) begins now. And now is the time to submit your Free Application for Federal Student Aid (FAFSA).

The (In)Famous FAFSA

Typically, families are scrambling to gather their financial data for the 2009 tax year so that they can prepare the FAFSA for submission. While many of us would like to forget about the financial ups and downs of the last few years, colleges and universities are ready to use that information to the fullest extent of the law!

The FAFSA form for the 2010-2011 school year is now available online. It is with this form that students apply for need-based financial aid each and every year they plan to attend. Yes, EACH AND EVERY YEAR!

Procrastination Can Hurt You

“Procrastination is, hands down, our favorite form of self-sabotage.”
~Alyce P. Cornyn-Selby

I used to work in the financial aid office of a private university several years ago, and I cannot tell you how many shell shocked students I saw in the month of March, each and every year.

Why? They had simply forgotten to get their financial aid renewal forms in on time and then had to face some daunting money issues for the upcoming school year.

Many families end up waiting to file their financial aid applications forms until after their taxes are done.

Do Not Wait – Be An Early Bird!

In my experience, it is more important to get the forms (new or renewal) in on time, than to have them be filled out with completed tax information.

It is better to estimate the financial information based on the previous tax year (2008 in this case) and get the forms in on time, than it is to get all of the (2009) numbers verified before putting them on the forms.

Be Aware Of Your College’s Requirements

Also check with the schools you have applied to (or are enrolled at since the Financial Aid deadlines for new and returning students are usually different) to validate the deadlines and number and types of forms you need to file for consideration for financial aid.

Every school asks for the FAFSA (federal form required by all colleges) and several will ask that you file the CSS Profile (institutional form required by some colleges). Certain schools may even ask that their own institutional financial aid forms be completed.

The simple message is: Get your forms in ON TIME! Don’t be guilty of procrastination, or …

“A year from now you may wish you had started today.”
~Karen Lamb

Are you facing a mammoth tuition bill?

Massachusetts now has nine schools with a
“college cost/sticker price” above $50,000 per year (Chronicle of Higher Education).

As of last year, no school in Massachusetts surpassed that mark.

Last year only 5 schools in the nation had total fees exceeding $50,000. This year, nearly 60 schools charge that much per year! That’s a 1,060% increase! What will the increase look like next year?

This all makes for great headlines, and there is real cause for concern about the steady inflation of college costs.  But …

What better questions can be asked by families intimidated by the published college cost?

How important is a college’s sticker price?

The key to this question is the role of financial aid.

Sixty-six percent of all undergraduates received some financial aid in 2007-2008, according to the Department of Education. Full-time students approached a rate of nearly 80%.

While the average published private college cost last year was $37,390 (public, in-state was $18,326), that is not reflective of the actual fees each individual student may have paid based on the type and amount of grant, scholarship, loan, and work-study aid they may have received. (Note: college cost includes tuition, room and board, and allowances for items such as books, travel and fees).

Because of financial aid, there may often be a significant difference between the published “sticker” price versus the actual “net” price paid.

We hear so many stories of families insisting that their students could only apply to state schools last year because a private college education was going to be cost prohibitive.

If only they knew what the Wizard behind the curtain was really trying to hide!

By peeling back the layers of the onion and calculating their exposure (EFC) based on the Federal and Institutional Methodology, many families would discover that many private schools will end up with a net cost that may be very close, if not lower than the net cost of a public school.

Armed with this knowledge (what is the “true” college cost) before they begin the college search, rather than following the “guidance” received from the media, they’re much more likely to have a broader selection of schools that are a great fit, academically and financially.

Does the sticker price reflect superior quality?

There are some great cars out there with hefty price tags, and they certainly have quality. But let’s face it: the “snob” factor plays a pretty big role too.

There is a similar attitude towards colleges (college cost equals college quality). Yet many studies (including one by Princeton economist Alan Krueger) explain that where a bright student goes to college really doesn’t mean much in terms of finding the right career or more importantly, earning power.  The research indicates that what really matters is how well the student performs at whatever institution of higher learning they attend – not the number on the price tag.

What we can be sure of is that an informed college search is fertile ground for a savvy shopper.

* Tufts’ mascot is Jumbo, and has an interesting “tail”.

Parents entering the college admissions process are prone to “Four Fatal Errors.”

They are:

1. Choosing a college before understanding their financial options

The myth of “Choose first, pay later” is just that, a myth.

Too many families get themselves in situations where financial offers from some highly visible colleges, make attending their student’s “Dream School” a financial nightmare. It’s imperative for families to learn what their financial options are.

Make sure you have a sound financial strategy in place before beginning the college search.

If you fail to plan, you plan to fail.

2. The delusion that billions of scholarships go unclaimed each year

This fiercely held belief is simply not true.

Many students spend hours needlessly searching for and applying for random scholarships.

However, once colleges find out that a student has an outside scholarship, it’s possible that the value of the scholarship could actually be deducted from the financial aid package, resulting in a zero net gain.

It’s best to check the policy on private scholarships and research specific campus-based scholarships at schools to which your student is applying. Those scholarships will actually reduce your total college costs.

The Arthur Holly Compton Scholarship at the College of Wooster is an example of this.

Also, academic merit scholarships, which many schools offer to strong, academically qualified students, can make a high tuition college affordable.

3. Suffering from “brand name paralysis”

Many students and their families suffer from the delusion that only highly visible (top U.S. News Ranked Colleges) offer the best educational opportunities.

Truth is, there is a staggering number of excellent colleges offering top-quality educations at a cost a family can manage.

The landscape has changed!

Colleges that were second and third tier schools when parents applied several years ago, are now first tier institutions.

What’s more important? A college’s name recognition or a school that is a great “fit “ for your child?

4. Grossly underestimating the work load/level of detail required

Many parents and students new to the college admissions process don’t believe their friends who tell them that it can be “overwhelming.”

In fact, college selection and admissions has become so complex that many families don’t start soon enough and end up having it be more stressful than necessary.

A thoughtful and deliberate undertaking starting at the beginning of a student’s junior year will make the process manageable and, hopefully, fun!

** This article was written by Howard Verman, Director of Strategies for College, and published in collaboration with Lauren Starkey of Examiner.com

We are responding to a recent article in the Nashua Telegraph, Mounting Tuitions Test Multi-children Families

A sad conclusion to be drawn from this story is that many families only consider the “sticker” price of colleges, a mistake that is often costly both in terms of finance and education.

The article brings up several essential issues. However, we feel that some clarifications would be helpful.

We see two areas where obvious preconceived notions limit a family’s goal of putting their children through college.

The first essential issue is that the parents probably do not even know what they can afford. The Estimated Family Contribution (EFC) – not mentioned in the article – is the figure all colleges use to determine financial aid eligibility. Much like buying a house, where you need to have a pre-approved mortgage in place in order to make an offer, families need to know what they can afford prior to embarking on the college search process. The EFC helps get them started. From there, a family can then figure out the more realistic “Workable Family Contribution.”

The second issue arises from a parent’s comment that they made a decision to not have to worry about paying for college. That is, the kids would have to take care of college funding themselves. It may not be that it is a God given right to go to college and that the parents should fund that dream. However, parents and students should know that colleges think differently.

When a student files for financial aid, the college’s expectation is that the parents will contribute to their student’s education. Whether a family decides to fund all or part of the funding of college, it is paramount that they know, or work with someone who does know, how to strategically approach the transaction. There is no reason a 21 year old college graduate needs to start out “in the hole” with thousands of dollars in debt, and/or leave the parents in a similar position.

An effectively planned college search puts the student and family in control of the process, and allows a range of options when it comes time to make a final college selection.

A competent counselor can explain that a high priced college may, in some cases, require less funding and less debt than a state university, but because of this misconception, students do not apply to schools they believe to be “out of their price range”, or they and their parents resign themselves to incurring significant debt.

The definition of the Expected Family Contribution (EFC) from the Department of Education web site is that it is a measure of your family’s financial strength and is calculated according to a formula established by law. Your family’s taxed and untaxed income, assets, and benefits (such as unemployment or Social Security) are all considered in the formula. Also considered are your family size and the number of family members who will attend college or career school during the year.

The information you report on your Free Application for Federal Student Aid (FAFSA) is used to calculate your EFC. Schools use the EFC to determine your federal student aid eligibility and financial aid award.

Note: Your EFC is not the amount of money your family will have to pay for college nor is it the amount of federal student aid you will receive. It is a number used by your school to calculate the amount of federal student aid you are eligible to receive.

The amount of money your family WILL have to pay for college is calculated differently by each and every college, based on a variety of factors. Generally speaking, colleges expect a family to “contribute” their EFC amount each of the four years a student is taking classes… as if this is a “voluntary” contribution! Think of the number as your family “deductible.” A college will use the EFC to calculate Unmet Need to determine what financial aid package will be offered. By taking the total Cost of Attendance (COA) and subtracting the EFC from it, a college determines Unmet Need. Some colleges fund Unmet Need 100% while others may come nowhere close to that type of assistance for a family.

Having a burdensome EFC and underfunded “Unmet Need” is a recipe for disaster for a family’s financial security. Families need to plan ahead for what the total cost of attending college is going to be. Starting the process while their student is a sophomore, or even a rising junior is very important in these times of ever-rising college costs.

Many (maybe even most) parents and students immediately jump to the idea of scholarships to bridge the gap between their contribution and the cost of college. But the bulk of federal financial student aid is made up of grants (such as the Pell Grant), work study, and, mostly, low cost student loans.

But remember this: If your student competes for scholarships, coming second, third or fourth nationwide, statewide, or even citywide, is a great performance. But will it bring in any money?

Will You Have a Budget Deficit?

If your Expected Family Contribution exceeds what you can actually afford to pay for school, how could you and your family easily find a substantial amount of extra cash every month?

The rising cost of college and university tuition has meant that parents, more and more, are incurring debt, depleting retirement funds or running down savings and emergency funds to cover the cost of college education. For those who are less fortunate, and do not have significant retirement savings, the prospect of crippling long term debt looms…

Or the student takes a cheaper, second or third choice option.

Not planning for college is not an option — If you want to get the best results …

The time is now for you to start your college funding strategy. And remember, although the cost of college is but one aspect of the college search process, it is the rock upon which many hopes founder.

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