Financial Aid- Where to Start?

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How can you tell if you can get financial aid? - There are a lot of variables - age, income, assets, marital status, how many siblings are in college. The first place to start is to determine your EFC - expected family contribution. It is the amount that the school to which you are applying or the government expects you to pay for college. The EFC is generated in two main areas:

  • FAFSA - The information submitted through the FAFSA - free application for student aid - is used by 20 million applicants across the country. Used by the government, colleges, and universities to come up with the applicant's financial aid package.

  • CSS Profile - The institutional profile is the second type of calculation. In this profile, there is proprietary information used by approximately 200 schools. These schools are typically higher-profile schools that want to add more control and flavor to their financial aid packages. The CSS profile is a little more complicated because there is not as much information as to what is inside it.

People can actually use certain online calculators to understand what the FAFSA/CSS Profile is going to spit out before they apply, so they have better foresight and understand the direction to go. The College Board EFC Calculator is a pretty good one. When you use the EFC calculator and plug information in, let's say the EFC pumps out a $30,000 EFC. People are surprised by this number and it is typically higher than they were expecting. The difference between a school's cost of attendance and their EFC is considered need. True aid is government and school grants and is separate from the loan package offered. Below are some additional answers to the questions many parents have. What are net price calculators? Each school has its own variables now that they have an EFC number. Not every school meets 100% of need. To have a better idea, and by law, each school has to offer a net price calculator. That calculator is designed by and will have the considerations for each school. Some net price calculators will request information on the student's academic profile to also provide an expectation of merit scholarships in addition to need grants. It benefits the school to offer the best net price calculator, so the applicant has the best idea of what they will pay. If a school's net price calculator takes you less than a minute to complete, it is not very accurate. There is merit-based aid, based on the student's academic profile, and there is need-based aid. Every school looks at need grants and merit scholarships differently. Suppose a student wants to be in a popular urban environment or a fun city by the water, typically those schools will offer less in the form of merit scholarships. Schools in the middle or mid-west regions of the country may have to work a little harder to attract students and provide better financial aid packages. Be sure to expand your list to balance. What you want to do is start with your EFC, consider the schools you are looking at, throw a wider net and avoid the trophy school trap. If you have a low EFC, you want to look at schools with a good track record for offering generous need packages. If you have a high EFC, you want to look at schools that have a good track record of offering generous merit packages. Every school is different. You can go to the College Board website and see the paying tab to see the history of merit aid. How do assets impact aid and the EFC? Assets certainly do come into play, but this existence of savings is one of the biggest hang-ups people have. There is a lot of misinformation. Savings do not come into play as much as people might think. The family's income is a much bigger factor than assets. Also, the FAFSA counts asset types differently than the CSS profile. The CSS Profile will include assets such as retirement, home equity, 529 plans held by a grandparent, and dig into the financials of both custodial and non-custodial parents. You should know the type of financial review for your student's application list.

  • Simple FAFSA math - After-tax income (AGI) is roughly 20% - so if your after-tax income is 150k and you have no savings, your EFC would be $30k.

  • Simple FAFSA math - After-tax income (AGI) is roughly 20% and assets are 5.64% - so if your after-tax income is the same as above and your countable savings ( excluding retirement) are $100k, your EFC would be $35,650.

There is no reason to be afraid to save. Saving is a good thing. If you are doing well financially and making a good income, you will most likely improve that situation by the time your student is a senior. Would you rather have $100,000 in the bank or save $5,650 a year in college if your student was accepted to a school that meets 100% of your need? Expand your options - Much of the news is dominated by high-profile colleges that boast how many students they turn away. This is not the reality of the 1,000 quality colleges out there. It is more of a buyer's market than you think. Private, moderately selective universities have to hustle more. Understand your financial position before creating the school list. Throw a wider net because the negative side is a student coming out of college with a loan payment equivalent to a mortgage, or a parent unable to retire.

If you have questions about your student's college planning process, schedule a no-obligation chat with us.

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