Assessing Financial Aid Offers

OK. You filed your FAFSA. On it, you listed the colleges and universities to which your student has been admitted. If they haven’t already, freshman year financial aid offers should soon begin arriving. Now it’s time to assess those offers with any eye toward choosing a school with the best possible understanding of its affordability. How do you do that?

Determining Net Cost

First, you want to figure out your student’s “net cost” of attending each school. This is the school’s “cost of attendance” minus any grant and scholarship aid being offered to your student.

Cost of attendance includes expenses incurred by a typical student in attending the school. Usually, institutions disclose these costs for a period including both fall and spring semester. Costs the school must disclose include:

Tuition and Required Fees

Books and class supplies

Room and Board

Transportation

Other Personal Expenses

In Texas, state law requires each institution of higher education to prominently display the cost of attendance for a first-time entering full-time student on its Internet website. Many institutions also list them in their “award letters.”

Award letters also disclose the grants and scholarships a school is offering your student. Some schools send their award letters by U.S. Mail. Other may email your student a secure link to his or her award letter.

The institution may not yet know about scholarships your student’s been awarded by community groups, private foundations, and other sources not affiliated with the school. The law obliges your student to tell the financial aid office about such scholarships in order to avoid an overaward that could delay the delivery of his or her financial aid or, worse yet, require him or her to repay that aid.

The cost of attendance that remains after subtracting grant and scholarship aid is the net cost your family can expect to incur for your student to attend a college or university during his or her first year of study.

What about the Future?

The lower the net cost, the more affordable the college or university will be for the upcoming academic year. But that’s just one of four years your student will be in college. How do you estimate net cost for the entire four year period?

Barring a substantial improvement in your family’s finances or significant cuts in funding from Austin or Washington, the school will likely be in a position to to keep offering this year’s federal and state grants in future years — provided your student meets renewal requirements applying to those awards. You need to carefully check out these requirements, which many schools outline in their award letters or on their financial aid websites.

Take special care to examine any institutional grants and scholarships your child is offered. Are they for one year only? If they are multi-year awards, how much will be awarded each year? More important, what requirements must your student must meet to renew them? Beware if, for example, if it’s necessary to maintain an extraordinarily high GPA or complete more than the credit hours required to be enrolled as a full-time student. Your child may be perfectly capable of meeting these requirements, but some schools impose unrealistically rigorous renewal standards in order to deny sophomore, junior, and senior year scholarships to large numbers of their freshman who received those scholarships.

If a school’s award letter isn’t clear and straightforward about these issues, call the school’s financial aid office and get answers. Don’t become a victim of the bait and switch tactics employed by some schools.

Paying Your Remaining Net Costs

What if net cost remains after grants and scholarships are subtracted from cost of attendance? Depending on the funds allocated to it for federal and state work-study programs, the school may be able to offer your student a part-time job. This will not only reduce your student’s reliance on debt, but research shows that students who work 10-15 hours per week generally do better academically than students who don’t work at all.

Then, if there’s still net cost left, the school will most likely offer your student Federal Direct Loans. Federal and other educational loans help decrease, even eliminate, net cost in the short run. In the long run, however, they actually increase net cost by more than 30%. See What Student Loan Debt Costs.

Lessening Dependence on Loans

Americans who earn bachelor’s degrees enjoy lifetime earnings averaging $964,000 more than those with high school diplomas, so your student shouldn’t necessarily be afraid to borrow. Still, he or she shouldn’t borrow a penny more than necessary to graduate.

The best option for keeping your student’s debt under control is to figure out how much you and the student can pay toward next year’s net cost. Factor in anything you’ve got in college savings and investment accounts. You also need to determine how much you can pay from your own pocket. Don’t forget, unless the student continues to live with you while in college, you should be able to reduce spending on basics such as what you paid out for groceries, automobile maintenance, and weekly allowances during his or her high school years.

You’re Not Done Yet

Regardless of the financial aid offers your student receives, study up on some other data about the schools he or she may attend. What are their graduation rates? How much do their undergraduates borrow before graduating? For an indication of whether the education they provide helps students land good jobs, what percentage of their alumni default on federal loans soon after leaving school?

More than 3,000 of the nation’s colleges and universities have voluntarily agreed to include a “financial aid shopping sheet” in award letters they send prospective freshmen. The shopping sheet provides information on the student’s first-year cost of attendance, grants and scholarships, and net cost. It also discloses the school’s graduation rate, median amount borrowed before graduation, and student loan default rate. Best of all, it does this in a common format so, if you print out all the shopping sheets your student receives, it should be easy to do a school-by-school comparison.

Be suspicious of schools that do not include shopping sheets with their award letters. They may be trying to hide something – higher net costs than their competitors, lower graduation rates, higher borrowing or student loan default rates. If you encounter such a school, you can use data from the government’s “College Navigator” website on its average net cost, graduation rate, and default rate.

Decision Time!

When you’ve got all the relevant facts and figures, it’s time for you and your student to have a frank conversation about the college or university in which he or she really wants to enroll. Net cost and the other factors described above should be a big part of this conversation, but not the only part. The next post will focus on other key issues related to college affordability.

College Affordability Solutions can help families evaluate financial aid offers. Call (512) 366-5354 or email collegeafford@gmail.com to learn more.

You Filed Your FAFSA. What’s Next?

Hopefully by now you used your FSA ID to complete your 2016-17 Free Application for Federal Student Aid (FAFSA) on or before your FAFSA priority deadline. Now what happens?

Your FAFSA data go to the U.S. Department of Education’s (ED’s) Central Processing System (CPS), which uses those data to determine your Expected Family Contribution (EFC) according to formulae set in law by Congress. CPS then electronically shares your EFC, and the rest of your FAFSA data, with every postsecondary institution listed on your FAFSA. Your son or daughter will also receive an ED email with a secure link to his or her Student Aid Report (SAR) bearing same facts and figures.

If, like more than 90% of all families, you filed the FAFSA electronically via ED’s FAFSA-on-the-Web, and if your student included an email address on the FAFSA, ED’s email should arrive 3 to 5 days after your FAFSA was filed. If your student omitted the email address from the FAFSA, a paper SAR will arrive by U.S. mail in 10 days or so.

Review the SAR as soon as possible to make sure all the FAFSA data you filed is accurate. If so, you need do nothing else. If not, go to FAFSA-on-the-Web and replace incorrect data with accurate numbers. Remember, you should only correct data that were wrong on the date your FAFSA was filed. If, for example, you sold some stocks or bonds since that date, don’t use FAFSA-on-the-Web to “correct” your asset data.

You’ll most likely be shocked at the size of your EFC. Many parents and students complain it is much too large. But you need to remember three things about the EFC:

  • It’s based on the assumption that you and your student will harvest every penny available to you for his or her college expenses before the government uses your friends and neighbors’ tax dollars to subsidize him or her while in college;
  • Once a school to which your student was accepted receives your EFC, it will subtract that amount from what it’s determined to be reasonable and necessary costs related to attending that school. This will determine your student’s “financial need.” More than eight out of every $10 in U.S financial aid is awarded on the basis of financial need, which is why it’s so important for your FAFSA data to be correct;
  • Hopefully each institution will offer your student grants, scholarship, and work-study sufficient to fully cover financial need. If not, you and your student may need to consider borrowing federal student loans.

Most colleges and universities begin sending financial aid offers to prospective freshmen in mid to late March. You’ll want to carefully evaluate these offers before you pay an enrollment deposit to any institution. The deadline for doing this is May 1, so you have some time. More about how to assess financial aid offers in the next post.

College Affordability Solutions brings almost 40 years of financial aid experience to helping families complete the FAFSA and evaluate financial aid offers. Call (512) 366-5354 or email collegeafford@gmail.com to learn more.