Hopefully, around April of the senior year of high school, your student will have been accepted to three or four colleges and received financial aid award letters from each stipulating what assistance is being offered. It is important to compare these offers as each will surely be different, and those that provide the most dollar assistance may, in fact, cost the family more in the long run.
It is important to remember that this letter only constitutes an “offering.” The student does not have to accept it. He or she can accept only certain parts of the aid being offered or even request a review and negotiate for a better package (more on that later).
Let’s work with an example. Our EFC is $9,000, for a private college and determined through Institutional Methodology. Assuming that the total cost of attendance at this private college is $25,000 a year, our student has established $16,000 in need. Since most private colleges cover 100% of the established need, the resulting aid package should be $16,000. About 60-70% of this amount should be in grants and scholarships (money the student doesn’t have to pay back), 21% will be in the form of a subsidized Stafford Loan (the student doesn’t make payments until after graduation), and the remainder will be covered by work/study (the student holds down a part time job and uses the pay to cover books and miscellaneous expense). Be aware that some schools may back off on the amount of grant and scholarship money and pad the award offering with a federal parent loan (PLUS Loan) .
At a public institution, because there is less private endowment and scholarship money to assist the student, less than 100% of the established need is normally met. In our example the Federal Methodology said the student’s EFC was $7,500. Let’s assume now that the student applies to a less expensive public university, which uses the federally determined EFC. The cost of this university is assumed to be $13,500 a year. The established need is now only $6,000. But the college can only cover 75% of the need, or $4,500. This now creates an out-of-pocket expense for the family of $2,500 ($6,000-$4,500), making the total cost $10,000 ($7,500+$2,500).
There’s another difference. For the same reason that less of the established need is covered, the percentage of loans and work/study received in the aid package is noticeably higher than the amount of grants and scholarships. So in our example, the $4,500 would be covered by a loan first ($3,500 is the maximum for a Stafford loan for Freshman). The majority of the remainder would be provided in the form of a work/study program.
In this situation then, the student could go to a more prestigious private college for less than what it would cost the Family at a less expensive public institution. Keep in mind each circumstance is different, and each college and university has different policies on financial aid distribution and eligibility. But it is critical that this type of information is evaluated along with the scholastic benefits of the institutions the student is interested in attending. In that way the family can be assured of the best dollar value.
If the college is making full disclosure of out-of-pocket expenses, their letter will reflect the total cost of attendance. Then they will deduct the student’s EFC from the cost and show the difference as “financial aid eligibility,” or “demonstrated financial need.” A breakdown will then be given of the aid offered—grants, scholarships, loans, and college work/study.
On the other hand, colleges that want to keep financial aid a bit more mysterious will simply send a very upbeat letter with a listing of aid awards. The student has no clue as to the true cost to their family. A call to the college to get a copy of the “on-campus budget for 2007-2008” will provide the missing information with which to determine the real out-of-pocket expense.
A fair comparison of award letters can then be made. Check the EFC used by the school against the EFC reflected on the Student Aid Report. If the school is using Institutional Methodology to determine the EFC, then add about 5.6% of the family’s home equity to the federally calculated EFC. The two figures should be fairly close. Next look at how close the schools come to meeting your established need (the difference between what it costs and the student’s EFC). Also, compare the amount of loans necessary to complete the package. Remember, additional loans such as the PLUS for parents may be necessary to handle all or a portion of the family’s out-of-pocket expense.
Do a thorough analysis of the debt circumstance. How much debt can the family tolerate on the other end of four or five years of college? Is there a second student in the picture in the near future?
Another easy trap to fall into is college work/study. This money is not a gift. The student must earn it. If the student does not work, the family pays that amount as well.
Here is a list of tips to use in comparing packages:
1 Compare the debt first by adding up all the loans being offered.
2 Compare unmet need and the family contribution–the more need met may mean more family debt, the more gift aid may mean a larger family contribution.
3 Make sure books and miscellaneous are expenses are included in the cost the college used to figure the family’s need.
4 Consider travel costs if institutions are some distance away.
5 Determine if any outside scholarships are renewable and if the college will allow self-help portions of the package to be reduced by them.
6 Compare the terms of any loans included–what the payments will be and the real cost to the family once they’re paid off.
7 Check what aid is provided to upperclassmen—Freshmen award packages are often better.
8 Write it all down and look at the numbers–don’t just guess which package will be less expensive.
9 Last, compare the economic benefit of your future career with the need to incur substantial debt. It may well be worth it. After all, that’s what it’s really all about—what are you willing to pay and what level of debt are you willing to endure to achieve a college education?