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Answers To The Most Common College Funding Questions
Dear Parent,
When I talk to parents of college-bound children, I hear many of the same questions. Whether their child is heading for an Ivy-League college or the nearest public university, parents seem to have many similar concerns and questions about college funding.
With that it mind, I’d like to present the most common questions I hear, and give you the answers that you can’t get from the guidance and financial aid officers. As the parent of a high school Senior, this is a very important time in the process.
QUESTION #1: ISN’T IT LESS EXPENSIVE FOR MY CHILD TO ATTEND A PUBLIC COLLEGE INSTEAD OF A PRIVATE ONE?
ANSWER: At first glance, this would seem to be a logical conclusion. But in reality, it’s not necessarily true. Yes, most private schools have higher costs than public colleges and universities. However, your actual out-of-pocket cost may be lower at a private school if it can give you a more attractive financial aid package.
So, my recommendation is to have your child apply to at least four to six schools, and include a mix of private and public institutions. Then, as the financial aid awards letters come in, carefully compare each one. Do the math and determine where your actual costs will be lower, considering the best overall value such as class sizes.
Remember, too, that the goal is to get as much “free money” as possible—money that you and your child do not have to repay. For example, loans must be repaid, but grants and scholarships do not. Factor this into the equation as you compare the different financial aid packages. Public schools do not necessarily offer the “sweetest” packages; so don’t limit your outlook or your child’s education by applying only to seemingly cheaper public colleges and universities.
QUESTION #2: WHAT DOES “EFC” MEAN?
ANSWER: EFC stands for “Expected Family Contribution.” It is the amount of money your family is expected to pay for one year of college. Your EFC is determined by the information in your Free Application for Federal Student Aid (FAFSA). After we submit the FAFSA electronically, you receive a Student Aid Report (SAR), which prints your EFC.
Many families are shocked at their EFC. The typical reaction is something like “How can we possibly pay that much for college?” Fortunately, there are many things you can do (besides selling all your possessions and moving under a bridge) to come up with the money. And you don’t necessarily have to accumulate a large amount of debt to send your child to college.
QUESTION #3: IN THE WORLD OF COLLEGE FUNDING, WHAT IS MEANT BY THE TERM “NEED”?
ANSWER: “Need” is the total COA (cost of attendance for one year of school) minus your EFC. Many forms of financial aid, such as grants and loans that do not accrue interest while the child is in college, are based on need. In simple terms, the more need your child has (financially speaking), the better the financial aid offers he or she is likely to receive,
One of the best ways to increase your child’s financial need is to decrease your EFC. Also, your child’s need will be greater at more expensive schools. That goes back to our first question, which stresses that pricey private schools are not necessarily more expensive, in terms of your out-of-pocket costs.
QUESTION #4: MY SPOUSE AND I MAKE A VERY COMFORTABLE LIVING. SHOULD WE STILL APPLY FOR FINANCIAL AID?
ANSWER: Absolutely! Even very well to do families may qualify for financial aid at certain schools. The formulas that the schools use to determine aid take many factors into consideration—not just your income and assets. For example, will you have more than one child in college at the same time? Your Expected Family Contribution (EFC) is divided by the number of children in college at any one time, so each student’s need will be greater—regardless of your high income.
Many other variables, such as family size and parents’ ages, go into the formulas that determine your EFC. So, don’t count yourself out if you have a high income or a lot of assets. Even if your child does not qualify for need-based aid (such as subsidized loans that are interest-free while the student is in college), he or she may qualify for non-need-based aid, such as scholarships and non-subsidized loans.
Professional advice can help families at every income level find their way though the maze of financial aid. If you have a high income and assets, talking with a knowledgeable expert may be especially helpful because your situation may be quite complex. We’ve helped families with very little money as well as those at the upper levels of wealth. Even if you have invested wisely, and adequately, using interest only loans at 3-4% is a better financial planning move than using assets that earn a higher rate of return over the same period of time. My question to you is this: “How much money would you borrow at 3-4% interest, if all you had to pay was the interest for 4-5 years? After that period of time, you had another 10 years to pay it off with no “pre-payment penalties”! For most of us, we would borrow all we could get! Unless you go through the financial aid process, you do not have access to these programs! This is a follow up to last month’s newsletter…
QUESTION #5: DO WE HAVE TO RE-APPLY FOR FINANCIAL AID EACH YEAR?
ANSWER: Unless you want to pay full retail…Yes, you do. Sure, it’s a pain...but think what a bigger pain it would be to suddenly find yourself without any help for your child’s second year of college! You or your student should receive a friendly reminder in the form of an annual renewal FAFSA (Free Application for Federal Student Aid). When it comes, we’ll get back into action so you can be sure to keep the funds rolling in!
QUESTION #6: WE’RE HOPING OUR CHILD WILL GET A GOOD AMOUNT OF PRIVATE SCHOLARSHIP MONEY…WHERE DO WE START?
ANSWER: Start with the simple fact that private scholarships make up only 2 percent of all the money available for college funding. The other 98% comes from the federal government, the state government and the colleges and universities themselves. Many private scholarships are very small—just a few hundred dollars. So, you should not plan on these scholarships to pay for your child’s education. I recommend that you put most of your effort into getting other forms of aid.
If you’d still like to get some scholarship money, the Internet can be a good resource. Just keep in mind that it is advertisement driven. The best free website I’ve found is www.fastweb.com. Your student should be registered online early in the year. You want to continually update your information every time something has changed. Changes include: ACT/SAT score updates; class rank changes; anticipated major; and GPA.
Another caveat: If your child gets an outside scholarship (one that is given by an organization other than the college), the college probably will reduce the amount of financial aid it offers you. In other words, outside aid reduces the amount of aid coming from the school. This may be negotiable, however. And don’t think you can “hide” outside scholarship money. You are required to report it, and, in many cases, the check is made out to the school, not to the student. (Of course, the funds are designated for the student.)
QUESTION #7: WHAT DOES THE TERM “BASE FINANCIAL YEAR” MEAN?
ANSWER: Ah, yes… the all-important base financial year. That is the calendar year your student is a 2nd semester a high school junior and 1st semester high school senior. It’s absolutely essential that you understand the importance of this term and its impact on your family’s eligibility for college funding.
Simply put, the base financial year is the year that your income, assets and taxes will determine your child’s eligibility for financial aid and the types of aid that he or she will be able to receive. Your “base financial year” moves with you every year your student is in college until January of their junior year in college (assuming a 4-year undergrad). There are many perfectly legal and ethical actions that you can take in the base financial year to improve your chances of receiving the best financial aid deals next year.
Of course, every family’s situation is different, and many factors are involved— from the value of your home to the amount of money your child has in his or her own name. We can help you sort through the many options and chart a financial course that will put you in a better position for college funding. Together, we’ll look over all the variables that apply to you and your family and come up with sound strategies to help you save as much money as possible on college costs.
In fact, we can help you maximize your financial aid prospects in many different ways, no matter where you are in the planning process—whether your child is in diapers or already packing his or her bags for college. Just give us a call at (602) 889-6500 for more information or an appointment.
Well, that’s a wrap for this month. Best wishes!
Randy Stoltz, President
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