Financial Aid: What You Need to Know
Some state schools have a cost of attendance (tuition, fees, room, and board) of about $35,000, while some private schools coat $80,000 a year. Many times, the list price of a college is not what your student may be paying. Some colleges offer very generous amounts of free money. We always warn families not to exclude a college because of a high list price automatically. For instance, if your family income is below $60,000, a school like Harvard will not cost you anything. Other places like The Webb Institute gives everyone a FREE tuition ($54,000), but it only accepts 35% of students. Plus, all its graduates are employed after graduation at starting salaries of $70 to 80,000.
This brings us to the question, “What is financial aid”? The colleges define it as need-based grants (free money based on parent’s need), merit aid (free money based on what the student brings to the college), and loans to parents and/or students. Colleges require the FAFSA or CSS Profile forms to determine need based on income and assets. Even merit aid may require these forms.
For parents, financial aid is defined as FREE MONEY! Yes, colleges understand there is a disconnect. Sometimes it seems, they have no interest in doing a better job at explaining financial aid. When reporting their aid, they often include loans so they can say everyone at the school was eligible for financial aid. Every student is eligible for the Stafford loan (even Bill Gates’ kids). The Stafford loan is for $5,500 freshman year, $6,500 sophomore year, and $7,500 in junior and senior year. Thus, if a student takes these, then they will leave college with at least $27,000 in debt.
Need-based aid is for families the school deems to have need. It is based on the prior, prior year’s income. Thus, it starts January 1st of a student’s sophomore year. Some colleges are good with need-based aid, like Harvard, others are not, such as the University of Phoenix.
Each college has its own method for calculating financial aid and need. So, you should consider this when you apply to colleges. For instance, some count the equity if your home and others do not. How colleges determine your financial status can vary significantly, especially if you own a business or are divorced.
Merit-based aid is for those students who have a noteworthy talent (such as academic, artistic and athletics) that is given regardless of the need determined on the FAFSA or CSS Profile. Some colleges offer merit aid to attract a type of student and this could be based on anything the school values (for example geographic or gender diversity) and can (and often does) vary year by year. When looking for schools that offer merit-based aid, research how many awards are available and the value of each. Because each school is different, find out if they have separate deadlines or applications for merit aid? Does the FAFSA or CSS Profile need to be filed to receive merit money? Many state universities require one or both forms to qualify for merit scholarships, even if a student won’t qualify for need-based aid. Many of the more selective colleges do not offer merit-based financial aid at all. It helps to have an expert who knows how a college will look at your student if you don’t want to overpay. Some schools discount the tuition 20-40% through the use of financial aid, so it is best to start thinking about this in the freshman year of high school. This way, you can talk with your accountant, financial planner, and key family members before you begin discussing college choices and set the direction with your student.