The 3 Big Surprises of Financial Aid

Paying for College
1

<h2>I wrote this in a moment of sorrowful levity. I hope those who are truly experts will correct any mistakes I may have made. Thanks in advance.</h2>

<p>FINANCIAL AID SURPRISES FOR PARENTS</p>

<p>Before we begin--Official terms you need to understand:</p>

<p>COA – Each college comes up with their official COST OF ATTENDANCE. This is the total of Room & Board, Tuition, books, and certain other expenses. Look on the school’s website for their COA.</p>

<p>FAFSA – FREE APPLICATION FOR FEDERAL STUDENT AID. This is the form the parent must fill out every year in order to apply for federal student financial aid.</p>

<p>CSS/Financial Aid PROFILE – This is a separate form used by SOME colleges, in addition to the FAFSA, to determine eligibility for non-federal financial aid. Many of these colleges apply a need analysis formula called the Institutional Methodology (IM) to the information they get from this form to determine how to equitably award their non-governmental funds to students. Check to see whether your college uses this.</p>

<p>EFC – EXPECTED FAMILY CONTRIBUTION. This is the scary magic number the authorities decide you personally can afford to pay each year, based on the figures you put on the FAFSA and the CSS Profile (if applicable).</p>

<p>NEED – COA minus EFC equals NEED. Period. What you may think you need is a whole other story.</p>

<p>UNMET Need – Need that the college does not offer you some form of financial aid to cover.</p>

<p>Two types of money given by colleges:
Need-Based – Financial aid given on the basis of family income and assets. The lower your income and assets, the more financial aid you qualify for. (See Need definition.)
Merit-Based – Money awarded to students meeting certain high standards of accomplishment, completely without regard to the family’s financial status or income. The financial aid information below does NOT apply to merit-based awards from the college. However (surprise!), merit-based scholarship money is not in abundance at most schools.
Two sources of money given by colleges:
Federal aid – This is need-based government money, awarded based on the FAFSA, in compliance with federal regulations, uniform across all colleges.</p>

<h2>College funds – This is the college’s money, and they can award it to students in any manner they wish. Some colleges use the CSS Profile to determine how to award this money. They can give need-based awards and/or merit-based awards from this money source as they determine best.</h2>

<pre><code> BIG SURPRISE #1: Understanding your EFC
</code></pre>

<p>Financial Aid is not intended to help you pay your EFC. It is assumed you will pay the EFC in full out of your pocket.</p>

<p>The remainder you will owe, after you have paid your EFC, is called “need.” This is the target number the college uses to figure how much need-based financial aid you may qualify for. </p>

<p>An example:</p>

<pre><code> $25,000 Cost of Attendance (Tuition, Room & Board, Books, certain other expenses)
</code></pre>

<ul>
<li>$15,000 EFC (The amount you are expected to pay)
$10,000 Need</li>
</ul>

<p>Read the following sentence twice:
Any need-based financial aid you would be granted (in the above example) would be based on you “needing” $10,000, NOT $25,000. </p>

<h2>Even at that, many colleges do not offer you enough financial aid to meet your full “need.” </h2>

<pre><code> BIG SURPRISE #2: Loans and jobs are considered “financial aid”
</code></pre>

<p>Chances are, your college will include offers of loans as part of their financial aid package to help you pay your $10,000 of need. Some loans have much better terms than other loans, so pay attention.</p>

<p>Work-study, where the student holds down a part-time job, is also considered financial aid, even though your student is working for and earning the money. </p>

<h2>If you are lucky, the college will also offer a “need-based scholarship.” This need-based scholarship is truly the free money you probably think of as financial aid. </h2>

<pre><code> BIG SURPRISE #3: Outside scholarships may reduce your financial aid.
</code></pre>

<p>Say your kid is industrious and gets a number of small scholarships through your high school, home community, and your place of business. Your college may have a formula whereby a portion of those outside scholarship funds will be used to reduce the amount of money the college will give you. Look carefully on the financial aid section of the college website for the statement of how they deal with outside scholarships.</p>

<p>Good Luck!</p>

2

<p>Very good.</p>

<p>Note on #3-- while sometimes true, many colleges use the outside scholarships to reduce the self-help component of the aid package (loans or work study) rather than reducing the grants.</p>

3

<p>Note in general —</p>

<p>What you determine that you need and what the colleges say you need are usually two different amounts. They’ll cover the financial aid that they determine that you need. </p>

<p>So you may have $100,000 in credit card debt (or car loans or other non-housing debt) that they will not take into account. You need to cover this debt, they don’t include that in their calculation. It is not included in their determination of what you need.</p>

4

<p>The ability to borrow the maximum allowable Stafford loan is not necessarily reduced by scholarships. Subsidized loan eligibility may be affected, but unsub would only be reduced if the amount of scholarships, work study (which can be swapped out for more unsub loan, if you wish), and grant aid totals more than the cost of attendance.</p>

<p>The EFC is probably the least understood thing when it comes to financial aid. The amount the government thinks we can pay always seems to be more than we can pay!</p>

5

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<p>I would change this statement slightly to read, “It is assumed you should be able to pay the EFC in full out of your pocket.” FAFSA, Profile, and the schools don’t make judgments about how you spend your money. Even if you have a good reason for spending more money than is typical, such as living in a high cost area, the formulas that determine EFC don’t take that into account.</p>

6

<p>Regarding #2, while colleges regard loans to be a form of financial aid, parents and students need to understand that loans are most definitely not financial aid. Access to loans that would otherwise be unobtainable may be a form of financial aid, but the loan itself is not. Deferred interest and/or lower interest rates are FinAid, but this is typically a small, but welcomed, portion of what you have to pay back. The fact that it’s a student loan doesn’t magically make it FinAid. You never hear people say, “I got financial aid to buy a car.” Likewise, a mortgage is not financial aid. It is a payment plan and nothing more.</p>

7

<p>I’m with you brother. That’s why it is such a surprise when colleges tell us it is.</p>

8

<p>The bigger deception is when a college includes a PLUS loan as part of their “aid” package.</p>

9

<p>I just recently discovered big surprise # 3 a couple weeks ago, and it was ridiculously disappointing for me. </p>

<p>If I get scholarships worth over $4,500 (which would cover work-study/on-campus jobs/student contribution), then the rest of the money from my scholarship is used to reduce my need-based scholarship (the good kind, according to the OP). I would have to cover the value of both my student contribution AND my need-based scholarship with an outside scholarship BEFORE my parent contribution can be reduced =/</p>