Receiving financial aid can sometimes be a daunting and difficult process. The following gives you a primer on the ins and outs of financial aid. If you have questions, ask Ms. Newsom. If she does not know the answer, she can help you find it.
First, we ought to start with the most basic item, what is financial aid? Financial aid is money given to students based on financial need, not on academic merit. You still have to pass your classes, but you don’t have to maintain a high GPA to remain eligible for aid. (Of course, we expect you to do your work and get the best grades you can.)
There are two types of financial aid. One is free money and the other is self help. The first category includes grants, and the second includes loans and work study. There are also two types of loans: subsidized and unsubsidized. Subsidized loans do not accrue interest while you are attending school. Unsubsidized loans do accrue interest. You do not have to pay on either type of loan as long as you are in school. You will have to start making payments six months after you graduate, leave school without graduating, or drop below half-time enrollment.
Financial aid is given on a first-come, first-served basis. This is very important, so it bears repeating. Financial aid is given on a first-come, first-served basis. If you are late in submitting forms or replying to inquiries, you will receive less money. On the other hand, the earlier you complete the process, the more money you will receive for your education. Therefore, timeliness and promptness are vital in receiving the most financial aid you can.
First and foremost, complete the FAFSA (Free Application for Federal Student Aid) accurately and on time. Submit the FAFSA early in October the school year you will graduate from high school.
Once you’ve completed your FAFSA, it is sent electronically to the Federal Government, which uses its formulas to come up with your EFC, or Expected Family Contribution. The Federal Government then sends an SAR (Student Aid Report), which has your EFC, to you and the schools you indicated on the FAFSA.
The EFC is what your family can reasonably be expected to pay toward your educational expenses. If your education costs $24,000 a year (“Cost of Attendance”), and your EFC is $9000, that means you are eligible for $15,000 worth of aid. This is called your “Financial Need.” You may not actually get $15,000 worth of aid, but you are eligible for it. Keep in mind that your Cost of Attendance will vary with the school you choose.
So, we have the following formula:
|Cost of Attendance (CA)||$24,000|
|– Expected Family Contribution (EFC)||– 9,000|
|= Financial Need||= 15,000|
As you can see from the formula above, the lower your EFC, the higher your possible financial aid. If your EFC is zero, so much the better. You may be wondering, just how does the government come up with your EFC? EFC is calculated based on four factors:
- Student Income
- Parent Income
- Student Assets
- Parent Assets
The four factors are each weighted differently. Just as a teacher will make a final exam worth 30% and a quiz worth only 5% of your course grade, so too the government weights the four EFC factors differently.
Let’s take them one at a time, in order of weighting.
Student Income: This is the item that counts the most against you. Have you ever done your own taxes? If so, you know there is a standard deduction. That means there is a certain amount of money you are allowed to earn and not pay taxes on. You go one dollar above the standard deduction and suddenly you have to pay taxes, even if it’s only on that one dollar.
It’s the same with the EFC. Your “standard deduction,” or as the FAFSA calls it “income protection allowance,” for the EFC calculation is $6400. It goes up a little every year, but that’s what it is now. So, if you are a senior this year and want to attend some sort of post-secondary institution next year, you should avoid earning more than that amount. For every dollar you earn over $6400, your EFC goes up 50 cents. Think of it as a 50% tax! There are exceptions to this, though. If you are supporting yourself without any help from your parents, your EFC is automatically zero. If you get a work study job as a college freshman, any income from it does not count against you at all.
Parent Income: The formula to calculate what parent income goes into the EFC is a bit more complicated than the one for student income. Parent income does not count against you as much as student income does, and the allowances are generally higher. Plus, you really do not want to have your parents earn less! So, there is not much you can do about this category. Parent income counts against you until the year you turn 24 or until you get married, whichever comes first.
Student Assets: There is no allowance in this category. For example, say that your parents were responsible and careful and diligent and they saved money every year since you were born. This money they put in a special savings account with your name on it. When it comes time for you to go to college, there is $20,000 in that account. Great! But, no, actually, not so great. That you have the money to use for your education is wonderful, but the government is going to view that money as a way to increase your EFC. Any student assets count against you 20 to 30%, and there is no allowance. Your best bet is to make sure there are no assets in your name. Sign your bank accounts over to your parents. If it’s not in your name, it does not count against you as much.
Parent Assets: This last category is a tricky one. There are allowances for it and it only counts against you at 5 to 6%. One major thing here: your parents’ principle residence does not count. Do not put it on the FAFSA! The FAFSA will ask about various investments and properties aside from your home, and then it will ask for any other properties not listed elsewhere. Do not put your home down! A cabin in the White Mountains, yes. Your parents’ investment accounts, yes. But not your home. The FAFSA will even have a note saying “Do not include the family’s home.” Also, if your parents have money in a retirement savings account such as a 401(k) or IRA, those funds should not be included at all either.
Once you submit your FAFSA and get your Student Aid Report (SAR) back with your EFC, then the schools you are considering attending will crunch the numbers and see how much they can offer you in aid.
The Cost of Attendance depends on the school. Stanford, for instance, may cost $50,000 a year to attend. That includes tuition, fees, books, supplies, room, and board. On the other hand, ASU costs around $24,000 a year. ASU is looking much more attractive, isn’t it?
But there’s a catch. Schools have different commitments as to how much of a student’s Financial Need they will meet. Some schools pledge they will meet up to 80% of a student’s Financial Need. Notice the caveat: “up to.” That is why you always want to put more than one school down on the FAFSA, even if you have definitely decided which school you want to go to. Make the school think you are not a sure thing. Schools compete for students and they only have so much money to disburse. The school has to make judgments about how best to allocate its financial aid money. Don’t let them low-ball you just because they know you have nowhere else you want to go.
ASU, for instance, says it provides up to 60% of Financial Need, but if they know you are a sure thing, they may only give you 50% or even 40%. Some other student who may not be such a sure thing will get the full 60%. Likewise, do not send a priority application to the school you most want to go to. This type of application basically means that you apply early and if they accept you, you have to attend that school. It could well lower your aid amount if you do it.
A few schools promise they will fulfill 100% of a student’s Financial Need. There are a number of these schools, but sometimes it’s hard to tell which ones they are. Go to the school’s Financial Aid website, and it should tell you what the school’s commitment is. If it does not, contact the Financial Aid office.
Schools provide aid in different ratios too. ASU, for example, is 50/50. That is, 50% of your aid should come in the self-help category (loans and work study) and 50% in grants. Different students receive different packages, of course. One student may receive nothing but grants, while another may receive nothing but unsubsidized loans. The earlier you apply for aid (i.e. submit your FAFSA), the more likely that more of your aid will come in the form of grants rather than loans.
Some schools provide more grants than loans. Back to Stanford again. Stanford not only commits to providing 100% of Financial Need, they provide that aid in the 90/10 ratio: 90% grants and scholarships and 10% loans. Stanford is looking more and more appealing, isn’t it?
Let’s recap, using ASU and Stanford as comparisons.
You submit your FAFSA and wait a couple of weeks. You receive your SAR with your EFC. Meanwhile, your two schools of choice, Stanford and ASU, also receive your SAR. Your EFC is $5000.
Both schools prepare possible aid packages. ASU costs $24,000 a year, and Stanford costs $50,000 a year.
|Cost of Attendance||$24,000|
|– EFC||– $5000|
|= Financial Need||= $19,000|
|Grants and University Scholarships:||$5700|
|Total Aid: $11,400 (60% of total Financial Need)|
|Cost of Attendance||$24,000|
|– Total Aid||– $11,400|
|= Actual Family Contribution||= $12,600|
|Cost of Attendance||$50,000|
|– EFC||– $5000|
|= Financial Need||= $45,000|
|Grants and University Scholarships:||$40,500|
|Total Aid: $45,000 (100% of total Financial Need)|
|Cost of Attendance||$50,000|
|– Total Aid||– $45,000|
|= Actual Family Contribution||= $5000|
So, it looks like Stanford is actually cheaper than ASU after all!
Of course, that may not always be the case, and maybe you do not want to go to Stanford or ASU. Maybe BYU is more your style, or Duke, or Northwestern, or USC, et cetera. Whatever school is your choice, whether it be Ivy League or the local community college, it pays to be informed. Find out what their aid commitment percentage is and their aid ratio of grants to loans. Those two numbers will tell you a lot about the affordability of the school.
Now, to be sure, ASU has various financial aid incentives and programs for students whose parents’ annual income is less than $42,400 or for first-generation college students (i.e. neither of your parents has a college degree). I do not mean to be down on ASU in financial aid, as they do a great job with the federal money they receive, But just because it might be the closest school does not mean it’s the cheapest. Look at your specific school and spend time on its financial aid website. Do your homework and you will save money.
To sum up, here are the four things you need to do to increase your financial aid amount:
- Complete all forms accurately and early.
- Find ways to lower your EFC.
- Research the financial aid offerings of your potential schools.
- Choose a school with a better aid package.
A final note about loans: Please, please be careful about debt. If you take out more loans than you can repay, it can literally ruin your life. I know of an individual who does not work because he has not paid his student loans. Any job he gets would garnish his wages to repay his debt, and since he has chosen not pay, he does not work. He has to mooch off others to live. That is not the kind of life you want. Do not take out tens of thousands in loans unless you know you are going into a field that will enable you to repay your debt quickly and easily.
Also, every election season, various candidates for elected office make political promises about forgiving college debt. Keep in mind that no elected official can make good on such a promise without the cooperation of a lot of other elected officials with their own agendas and constituencies. Do not bank on your college loan debt being wiped away by some lawmaker or president. Plan to repay every last penny.
Financial aid can be a confusing process, but if you are informed, not only will the process go more smoothly, but you will also receive more aid. The whole point of financial aid is to get a good education. The more money you have to do that with, the less you will worry about money and the more you will concentrate on your schooling. And that will be the best thing of all.