Today’s guest post is by TuitionCoach, an online consulting service that offers tips, interactive tools, and deals to ensure students plan better for the cost of college.
Getting in to your dream school is only the first part of the journey—figuring out how to pay for it all is an even bigger challenge! To ease the confusion surrounding college costs, here is some expert advice to help you examine and understand your financial aid packet.
In this article we’ll cover the most essential aspects of a student’s financial aid packet, including:
When it comes to calculating your parent’s EFC, there are dozens of variables at work. The four primary factors are:
1. Your parent’s adjusted gross income. That’s the number at the bottom of the 1040 tax form your folks fill out. The EFC formula will ask for nothing if their reported income is very low and up to 25% or more if the reported income is over $100,000. As your parents report more income your EFC will increase.
2. Your parent’s non-retirement assets. The EFC formula will total all of the parents’ reported assets, including bank accounts, stocks, bonds, and real estate equity (usually not the house you live in). You’ll be asked to contribute about 5.6% of that total for college.
3. Your total income from all sources. Typically, student income will not affect the EFC until it reaches $3,000. After that threshold is met and certain other allowances are considered, the EFC formula will expect that about 50% of every dollar of income will be added to the family’s EFC. For independent students the figure is even higher.
4. The student’s assets. Here, the EFC formula runs amok and goes after reported student assets at a rate of up to 25%. Again, it is even worse for independent students.
Now that we’ve covered how the EFC works, let’s take a look at how the EFC fits into the larger financial aid picture:
First, the actual cost of college needs to be known. If you want to find out what college costs, ask the college, “What is your cost of attendance (COA) or student budget?” This is usually much larger than the tuition, which does not include room and board and a host of other charges. For the sake of illustration, let’s list three generic Costs of Attendance:
Let’s now assume a student has completed a FAFSA and his Expected Family Contribution was $10,000. Let’s also assume the student was accepted to a state university, a private college and an elite college. This is what the next step in the financial aid process would look like:
Note: the EFC remains the same regardless of what the college costs!
Along with an acceptance letter a college will provide a newly-admitted student with an estimated financial aid award. The award offer should contain the total cost of a year’s attendance at college (COA) or Student Budget.
Let’s say, for example, the COA is $42,000.
Next, the college should provide you with a statement of what the expected family contribution amount should be. Often this is broken out into “Contribution from the student” and “Contribution for the Parent(s).” It might look like this:
They will then subtract the EFC from the cost of college to determine eligibility for aid:
If this student has applied for loans, been awarded grants, or even won some scholarships, the award may look something like this:
Now this is an example of an ideal award. In this scenario the student has managed to balance self-help aid (through a work/study program), free money (such as awards, grants, and scholarships), and federal aid (Stafford Loans, Perkins Loan). Most importantly, this financial aid scenario meets the entire need.
But do most colleges always provide such exemplary financial aid awards? No. As a matter of fact, when you are confronted with an inadequate award you don’t have to accept it—you can actually negotiate a better financial aid offer by using some of the compelling points below.
•Explain why you love that particular college - Be specific. Explain what the college offers that makes it such a great fit with the needs of your student. We all want to feel loved. Your case is always much stronger if the administrator hears how much the student wants to attend.
•Explain why you can’t pay the suggested amount - Again, be specific here. And don’t fudge the truth. Administrators can detect sincerity right away, so it pays to be honest here.
•Mention any special conditions that affect your capacity to pay for college – For example, if the student worked before starting college but understandably cannot work while in college, then you can report a “loss of income.” Similarly, if a parent’s earned income will be less in than what was reported for the prior year, you can report a “loss of income” here as well. Under such special conditions, once the student is admitted, contact the financial aid office and explain that the income earned in the prior year is largely irrelevant, since it will no longer represent a realistic standard on which to base for your ability to pay for college.
The financial aid process can be a complicated ordeal, but by educating yourself to understand the true cost of admission you will be better prepared to plan accordingly and avoid excessive student debt. Make sure to keep these tips in mind when reviewing your own financial aid packet—you worked this hard to get admitted, don’t let the dollar signs keep you down!
Have a question about your student’s financial aid packet? Leave it in a comment below for college expert and Getting In! co-author Steve Cohen to shed some insight.