Parents of kids who will be going to college sooner or later are understandably interested in getting as much financial aid as they possibly can. But most families don’t learn the what, why, how, and how much of the financial aid process until it’s too late to do use the information to their advantage. Here are some of the somewhat-painful truths, and what to do get the most possible money.
The good and bad news
Let’s start with the bad news: unless your child is a top-notch student with a 4.0 grade point average, excellent test scores, and a wide range of distinguished extracurricular activities and accomplishments, she is unlikely to get a full academic scholarship from just about any four-year school. But even good-to-very-good students can get some “free” money to help offset the cost of most schools--especially if they come from a family with relatively modest means. It just won’t be enough to pay for all the expenses incurred.
Where does the money come from?
According to the 2016 How America Pays for College report from education lender Sallie Mae, on average families get about a third of the cost of an undergraduate education from grants and scholarships. Generally, this “free” money is more likely to be awarded by schools with higher tuition costs (especially private colleges), and/or to families with lower income and assets. Even when students are fortunate enough to earn grants and scholarships from a school, the money awarded still often only covers a portion of the total expenses. 13% of the average cost of college is paid for by loans, and another 29% comes from parents’ income and savings. The remaining portion is paid for by student income and savings (12%), parent borrowing (7%), and money from relatives and friends (5%). To qualify for most institutional financial aid and federal student loans, students and their families have to apply for financial aid.
Fill out the FAFSA
Almost all school-sponsored financial aid is awarded based on the information you supply via the Free Application for Federal Student Aid (FAFSA), available online at fafsa.ed.gov. You can (and should) begin completing the application as soon as possible after the October 1st that precedes the student attending college in the following fall. So parents of students who are high school seniors and older can start filling out the FAFSA right now. Don’t worry if you don’t have the exact figures needed to complete the application--you can make estimates now, and go back and correct them later. If you’re a few years away from sending a kid to college, you can get an idea of how much need-based aid your family might get by using the “FAFSA4Caster” available at tinyurl.com/4caster.
What’s your share?
Once you complete either the FAFSA or the 4Caster, you’ll learn your family’s “Expected Family Contribution” (EFC)--how much you’ll be expected to kick in before any need-based aid is awarded. There are two formulas that may determine how much aid your family may receive. The first one is the “Federal formula”, which dictates any assistance offered via the U.S. Department of Education. The other is the “Institutional formula”, which is a school-specific calculation used by hundreds of colleges and universities to decide how much aid the institution will provide to students attending that school.
Some money counts for more
If you’re looking to generate as much need-based financial aid as possible, you should be aware of which sources of income (and assets) are weighed most the EFC. The EFC can be different from one family to the next, and from one school to another. But generally speaking, student income and assets can hurt any need-based aid the most. Then comes parent income. Parent-owned assets (such as savings and investment accounts) usually only have a small portion included, and parent-owned retirement accounts (like 401ks, IRAs, and Roth IRAs) generally aren’t included at all.
There are some tricks to making sure you have enough money to pay for college, and still qualify for as much aid as possible. And the process can start before the baby is born, and lasts until after he (hopefully) graduates.