FINANCIAL AID BASICS As I said above, the purpose of this website is to help families save on college, not save for college. Indeed, the Great Recession has turned into the Continuous Recession for many American families, and none of us has saved as much as we wanted for our children's education. But we're all in the same boat. So relax, throw your regrets over the side, and realize this. The college financial aid system in America is not based on guilt, it's based on generosity. Also, the colleges in that system aren't competing for us parents, they're competing for our kids. And whether we're depressed by guilt - or even thrilled by self-righteousness - means absolutely nothing to the colleges competing for our kids. Those colleges compete for our kids with their campuses, their faculties, and their programs, but they also compete with their financial aid. And our job as parents is to let them do so, to not let our feelings stand in the way of that competition, but to facilitate that competition for the benefit of our kids. In fact, I think you will realize while reading this site that interesting and effective students are in great demand, and your most efficient college savings plan is helping your own children become more interesting and effective students. Now, before we get too deeply into our topic, let's make sure we cover the basics. When I started helping my son with his college search six years ago, I found that almost everything I thought I knew about college financial aid was the opposite of reality. The truth was usually counter-intuitive, the opposite of what I expected. So, here's a list of what I wish I'd known about college financial aid six years ago when I started helping my son: 1. Although the published cost of privately-funded colleges will usually be much higher than the published cost of publicly-funded schools, especially for those in your home state, the financial aid offered by private schools to middle and lower income American families will frequently more than cover the difference. So, be prepared for good news, and don't be surprised if private colleges are your family's most affordable college alternatives. 2. There are two primary types of financial aid, need-based aid and merit-based aid. Financial aid departments at colleges determine the amount of need-based aid, and they typically base their decisions on a financial aid application filed with them by the students - really their parents - as supported by the federal government's Free Application for Federal Student Aid, or FAFSA. 3. Families input their financial data into the FAFSA, and its final product is the Expected Family Contribution, or EFC. That's the amount that the parents and the student are expected to contribute annually toward that student's education. Although the EFC is supposed to include both the parents' and the student's contributions, the estimated amount of student earnings in the more commonly used Federal Methodology is so low, $100 per year, that parents should think of their EFC's as the estimate of their contribution only. 4. The actual FAFSA is formal, it isn't anonymous, and it allows only a limited number of modifications before it gets strange, so I recommend starting with one of the easy EFC Estimators included in some college NPC programs. Some of these EFC Estimators are inaccurate, but last year I found the EFC Estimators within the NPC's of the Universities of California at Berkeley and Los Angeles to be highly accurate. The stand-alone EFC Estimator on the University of Washington's NPC page is nearly as accurate while also being the easiest to use. 5. To give you an idea of EFC amounts for various income levels, here's a table that I prepared in early 2015 showing EFC estimates for nine hypothetical families with incomes from $40,000 to $200,000 per year. I did the data for this table for a press release covering an error in the FAFSA - it was corrected soon afterwards - and I used the College Board's very accurate EFC Estimator for my research. A link to that program is included in the table.
Obviously, your actual EFC will depend on your personal financial information, but you can see from that table that EFC goes up as the parents' income goes up, both as a dollar amount and as a percentage. Some of you are also probably wondering why families earning $200,000 per year bother with the FAFSA at all. You may be asking, "Don't they just pay the 'sticker price'?" Well, that depends on the school. Some of the most generous schools still cover significant costs like Room & Board at an income of $200,000 while, at the other end of the income spectrum, some schools offer none of their own aid to students from families earning $40,000. It just depends on the school. 6. Unlike need-based aid, the admissions and academic departments of colleges determine the amount of any merit-based aid they offer their students, if that college offers any merit-based aid at all. Merit-based aid is not dependent on need, and it will be the same amount for all students demonstrating the same merit, whether they are from higher or lower income families. Merit-based aid at the colleges offering it can be as significant as need-based aid, and - as with need-based scholarships - full-ride merit-based scholarships are not unusual. 7. Net Price Calculators on college websites provide 97% accurate estimates of both the need- and most of the merit-based aid that will be offered to those students by that school if they are accepted for admission. So, NPC's are the best way to develop a list of where to apply, but NPC results are not final financial aid offers, and students and parents need to file formal financial aid applications at each school after the students have actually applied for admission. This is usually done in January or February. 8. The vast majority of college financial aid comes from the colleges themselves through their admission and financial aid departments, and it does not come from outside scholarships. In fact, colleges typically deduct outside aid from the amount of need-based aid they offer their students, and this makes a lot of sense. Outside aid reduces need, which will typically reduce need-based aid at the colleges by the same amount as the outside aid received. 9. Well-meaning community service organizations and businesses, however, continue to offer lots and lots of small-dollar outside scholarships, not knowing that they will be deducted from the colleges' regular aid packages. Realistically, the only students who should apply for them are students who don't really need them. 10. Published college aid ratings are usually based on the average aid-per-student at the schools, making those ratings automatically suspect, and they will usually be inaccurate for your students. Do your own NPC's to get data that will be accurate for your students at your target schools, and don't rely on published financial aid ratings. 11. You will find that almost all colleges claim to offer generous financial aid, and about a third of them really do. The actual variance in the amount of financial aid offered by American colleges is absolutely huge, even among similar schools, organized in similar ways, doing similar things. Differences of $30,000 per year in Remaining Balances, my Mom-Dad-or-Borrow column, are not unusual at all. 12. Some colleges are "need-blind" and some are "need-aware." This means that some schools have enough resources to not consider whether a student can afford the school, while some schools have to factor in the students' ability to pay in their admissions decisions. But I have found that the amount of individual financial aid offers are unaffected by the schools' policies in this regard, and the policy won't matter to accepted applicants at all, because once you're in, you're in. 13. I have never found an accurate list of "no-loan colleges", but I don't think it matters. In fact, I've found that it's not unusual for loan-inclusive schools to make no-loan financial aid offers to students, meaning offers that are generous enough to not require any student or parent loans. So, what matters isn't whether a college is or claims to be a no-loan school, what matters is whether that school makes your student a no-loan offer. 14. What I consider a no-loan offer, by the way, is one where the Remaining Balance, my Mom-Dad-or-Borrow column, is not greater than the Expected Family Contribution, and you will see plenty of examples in my Expected Loan Compilations in the next section.