<p>(Upon suggestion from poster in financial aid forum, this is cross-posted here.)</p>
<p>Just wondering if some of you could cast some light on the issue of costs and financial aid after the first year of college.</p>
<p>DD has heard from about half of the schools she applied to and we have yet to get financial aid information from some of the ones that have accepted her. The $ information is definitely going to play a role in where she goes. We don't think she has to go to the cheapest, but there is clearly a cap that we have in mind.</p>
<p>However, it's occurred to us that we have to keep in mind potential increases in cost. H has income that varies a lot -- up and down -- and I'm a candidate for a job that would pay more. While obviously more $ is good news and means that we are better able to pay fixed costs, I'm not sure how that will translate for changes in financial aid in coming years and, more important, our ability to pay for them. And if we have a bad year financially, then that would lead to difficulties.</p>
<p>It seems to us that we are taking greater risk with colleges that give aid based on family finances. Lower risk comes from schools with relatively lower costs and which have granted merit aid (assuming that the gpa requirement is not onerous).</p>
<p>Are you taking these issues into account? Have you already? What do you think?</p>
<p>Run your numbers in the FAFSA formula and determine whether you are borderline for any grants, etc. Sometimes qualifying for the Pell grant or not could be a matter of a few $, it would be a small Pell grant, but being a Pell grant recipient means she could also get the ACG/Smart grant and other school offerings which require Pell status.</p>
<p>There is no formula published for CSS profile, as it offers more flexiblity to schools, but use some of the finaid calculators and plug in a variety of numbers to see how the changes may affect your situation.</p>
<p>you might also consider any potential vehicles for smoothing out the ups & downs of the compensation...deferring some of it to the next year (Dec $ to Jan) having your employed put it in 401K, etc. IF this makes a difference and you still are able to afford to get by, it could be smart to defer any of the income increases?</p>
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It seems to us that we are taking greater risk with colleges that give aid based on family finances. Lower risk comes from schools with relatively lower costs and which have granted merit aid (assuming that the gpa requirement is not onerous).
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It seems to me that you have the risk identified. The question is now - what risk is too much for your family? Is it, or isn't it? Only you and your accountant know for sure.;)</p>
<p>Momfromme: It hasn't helped me a whole lot, but I finally made a table that has two columns. One that shows total cost with all financial aid (merit and need) and one that shows cost with just merit aid. </p>
<p>One problem is that it's very hard to know costs in subsequent years. (In fact, there a couple of schools for whom we don't even know costs for 2007-2008 yet.)</p>
<p>Another factor is to make sure you understand the requirements to renew merit awards. (GPA or whatever.) If you feel safe assuming she will get her merit money all four years, I think that makes an interesting figure. (Total cost-Merit aid. Ignoring need-based aid.)</p>
<p>So, yeah, I am skeptical about need based awards. We will have 2 kids in college for 2 more years - but what happens after that. It matters!</p>
<p>Oh, and the reason the whole thing hasn't helped us that much is because 6 out of my son's 9 schools come in REALLY close in total cost.</p>
<p>After having several meetings over the years with financial planners and doing those questionnaires about our attitude toward risk, I think I'm finally figuring out that I am relatively risk-averse. </p>
<p>Of course part of the calculation is the quality of education, but I am confident that dd picked a series of colleges that will all be excellent academically, as long as she does her part as a focused, motivated, and intellectually curious student.</p>
<p>What you're worried about happened to my parents more than thirty years ago.</p>
<p>I got a very nice financial aid package my freshman year in college, but nobody in the family realized at the time that it was partially attributable to the fact that my stepfather was unemployed at the time. By the next year, he had found a new job, and as a result, the size of my scholarship dropped dramatically.</p>
<p>I'm not sure that the risk associated with maintaining a GPA is negligent. Lots of things can happen to kids in college -- illnesses, broken hearts, change of major -- that can impact their academic performance. The FAFSA is pretty straightforward in determining EFC -- if your family's finances don't change much, then your EFC will be pretty consistent.</p>
<p>This is an individual family decision, and that means there is absolutely no universal way to go. </p>
<p>Yes, some caution and thinking about worst-case scenarios is advised, especially if, as you say, your husband's income tends to vary widely from year to year. While it's painful to have to turn down a more expensive college for a less expensive, the pain of having to drop out or transfer because your parents can no longer pay for the college you picked is worse.</p>
<p>However - and this is very important - there's almost always middle ground somewhere between the worst case and best case scenario. Try to focus on finding that middle ground if possible, rather than being sucked in automatically by doomsday fears. Look for ways to make things possible, rather than assuming they are impossible right off the bat. Sometimes, it won't work out as planned, but sometimes fear clouds our judgement and makes us miss workable solutions.</p>
<p>Finally, remember that <em>most</em> parents feel a weakening in the knees and a softening in the belly the first time they realize that, yes, they DO actually have to pay that big college bill, regardless of its size. Yet, somehow, most of us get through it just fine. You will too.</p>
<p>This may sound nuts, but part of the risk is based on the possibility that our income will go up. That's because the extra $ also means additional tax costs (particularly taxes associated with self-employment) and it's not clear to me how extra gross income translates to extra take home translates to change in EFC. And since income the following year may be lower than average, then we will have a lower income stream and a higher EFC. We will have to vigilant to deal with cash flow variations and try to keep doing what we usually do -- sock money away when we can so we have it for when we don't. Still, I'm unclear if this will be possible while paying college bills year to year.</p>
<p>Ultimately, we have to get the balance right for dd and for our financial health.</p>
<p>I've done the math over and over: your EFC goes up when your income goes up, but never as high as the income. As long as you are making more money you will come out ahead -- your taxes & FICA will be considered before the income is used to calculate EFC. </p>
<p>Quick & dirty math:</p>
<p>You subtract out FICA & income tax from the increased figure, then multiply the remainder by 47% -- that will give you rough indication of how your EFC will go up. </p>
<p>As you correctly note, the problem is what happens if you earn $20K more one year, resulting in a bigger EFC the following year... and then your income subsides at the same time you are dealing with paying for college based on the higher income from the previous year. I think this is one area where borrowing via a PLUS loan or home equity line of credit really becomes part of the overall occasion: debt is one way to deal with income fluctuations. Keep in mind that you CAN pre-pay the PLUS loan -- so long term planning may mean projecting out what you think will be your average annual income over the next 4 years, borrowing if the income falls short of expections, and then paying down the loan ahead of schedule if the income rises and you find yourself doing better than expected. </p>
<p>Again, as frustrating as it is for planning purposes, any time you are making more money you WILL come out ahead, at least if your kid is at a 100% need school. It may not seem like it if your EFC jumps several thousand in a given year... but if you plot out all the numbers you will see that it is working out to your advantage.</p>