Avoiding the Pitfalls of the College Aid Process
- Bruce Himebaugh, CFP, M.A. Sound Mind Investing
- 2004 29 Nov
As a former director of student financial aid for more than fifteen years, I know the concerns and confusion that many families feel as they face the challenge of financing higher education costs for their children. It's important that school choices not be limited prematurely based solely on the price tag. Financial aid programs sponsored by federal, state, college and community sources can make college costs affordable for most families. Think "net price" not "sticker price."
Advanced planning and following a disciplined saving plan are certainly important factors in financing educational costs. All need-based aid programs require that families contribute their fair share. Merit aid is normally administered outside of the college financial aid office and is awarded independently of the need formula. This article will primarily focus on the need-based application process.
Aid Application Process
The aid application process normally starts by the junior year in high school when students begin to narrow the field of desired colleges. SMI's Planning for College web page has several excellent planning tools, and I also strongly suggest that families use the free web scholarship search site -- www.fastweb.com. This is an excellent site for locating aid sources, and participants receive updates based upon their selection criteria. Many non-government aid sources require application early in the senior year.
The primary form required by most colleges for an aid application is called the Free Application for Federal Student Aid (FAFSA). This form can be completed in hard copy form or you may submit data via the internet. Filing must not take place prior to January 1 of the senior year and it is generally recommended that the federal income tax return be completed (at least in draft form) prior to attempting the FAFSA.
The FAFSA is accepted by all schools, but many private schools also require supplemental information using their own form or the College Scholarship Service Profile form. Check with your prospective college(s) to make sure you have filed all required forms. Most colleges and state aid programs require the FAFSA to be filed by mid-February. Missed deadlines normally result in less aid due to depleted funds.
The form is normally processed within two to three weeks and applicants receive a Student Aid Report (SAR). The SAR includes the information provided (for your review and editing) and calculates your Expected Family Contribution (EFC). This is the amount the schools will expect the parent and student to contribute toward college expenses.
The parent's expected contribution is divided by the number of dependents in college. The greater the expected parent contribution, the greater the impact of multiple family members in college at the same time. This calculation is the key to determining your federal and/or state aid eligibility and is automatically sent to those schools you listed on the FAFSA. Note that colleges may adjust this figure up or down based upon supplemental information they receive from you to explain special circumstances.
The financial need formula simply stated is: College Cost - Expected Family Contribution = Financial Aid Eligibility (that is, your financial need). Colleges determine the cost at their institution (including tuition, room, board, fees and about $2000 for other personal expenses) and they subtract the EFC to establish your maximum aid eligibility. Higher cost should equate to higher eligibility, since the expected family contribution remains the same.
Colleges also determine their "aid packaging" policy. This policy drives the composition of your total aid ? gift, loan, and work. Growing competition for students means that many colleges provide students more desirable aid packages (more gift aid) if they have characteristics desired by the college (high grades, leadership, talent, etc). Since aid packages may vary significantly, it pays to compare offers from several colleges.
Loans are counted as financial aid but must be repaid after graduation. An offer of part-time employment on campus should not be rejected outright. Many students have found that their jobs have actually helped their adjustment to college and can lead to experiences that enhance post-graduation work or study opportunities.
Financial aid programs normally require a renewal application annually. Eligibility may change due to family changes (income, divorce, number in college, etc). The deadlines for renewal aid are usually later than for freshmen or transfer students - be sure to check with your college for specifics.
Fact or Fiction
Some "myths" regarding the aid application process persist:
Myth: Families with assets will probably not be eligible for aid. Major assets like retirement funds and the home are not considered in the calculation. Family income and size are still the biggest factors. 35% of student assets are considered to be available for each school year, but only 5.6% of parent's assets, so it is normally not wise to shift family assets into the student's account.
Myth: A student can claim independence from the family and receive more aid. The rules make it very difficult for undergraduate students to not have the parents' "ability to pay" taken into consideration.
Myth: Dishonest applicants are rewarded for falsely reporting income and assets. Financial information is subjected to verification by most colleges (tax return) and violations are subject to loss of aid and other penalties.
Myth: Lots of aid goes unused. Most colleges are challenged to make gift aid sources stretch to meet the demand. Private scholarship search companies promote their service by encouraging the idea of uncovering pockets of unused gift aid. The fee paid is normally not worth the service received. Using free services like fastweb.com is the best way to conduct a search.
The Bottom Line
In sum, here are your marching orders if you want to maximize your financial aid opportunities:
• Navigate the aid application process by filing the required forms within the deadlines;
• Attend school sponsored aid application seminars for needed help;
• Narrow your college choices early but don't be quick to rule out schools due to their price tag;
• Talk with college financial aid officers if you feel you have special circumstances;
• Don't rule out loans or part-time jobs;
• Don't be afraid to compare aid offers and follow-up on major differences;
• Report family changes that occur during the school year;
• File your renewal aid applications within deadlines.
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