Understanding Your College Financial Aid Package
First there was the waiting… then the acceptance letters! Now? It’s all about the financial aid packages. With the May 1 commitment deadline just around the corner, you and your child may be wondering “How do I figure out which financial aid package is best?” Or perhaps, “What other options do I have besides what they are providing?” And these questions are just the beginning. What is a parent to do?
Financial Aid Comparison
1Decide what you and your child can afford for college. Not what the government says you can afford… what you can reasonably afford. How much debt or sacrifice are you willing to shoulder? What amount of monthly payment is reasonable for your child upon his or her graduation? From there you can back up into how much total loans you are willing to take on if necessary.
2Now check out how much the college is willing to help or how much assistance your child has qualified for. Make sure you are clear on whether any of the assistance is for their first year only or if it will continue through all 4+ years. This is critical as you don’t want to deal with the same “teaser rate” syndrome as you did on that credit card – you remember the one!
3Look at College Board’s Net Price Calculator for each of your college options. While this is not perfect, it gives you a good idea since schools don’t always include the same costs – such as food, travel, etc. You may have to do some quick estimates on your own as well to consider what your child may spend. Subtract the grants and scholarships only from these dollar figures and see what is left over. Your financial aid package will also include loans and work-study, but let’s see what doesn’t have to be earned or paid back first. Now determine:
- Is the remaining balance covered by a combination of loans and any money you can contribute?
- Is the remaining balance below the maximum you are willing or able to contribute?
If you answered yes to both of these questions then congratulations! You have a college that you and your child can afford. Now you just have to compare these packages with the other schools and see which are the most affordable using this method – and contrast that to how highly your child ranked the schools as their top choice. This is where it becomes a personal decision.
If you answered no to either of these questions, then this school is no longer an option. Just as you may want a BMW, but have to drive a Hyundai – your child may want a Harvard but has to attend a community college for two years and then transfer – or go to a smaller state school.
4You do have one more hope. If you are not applying to one of the super selective colleges (the state flagships or the elite privates) then try to negotiate a little more. Leverage one school’s higher financial aid package offer against the other school… just as you would leverage an offer from one employer to another when receiving multiple job offers. You want to speak with the financial aid team, not the admissions team. Come up with a few key points for why your child is the perfect fit for their college and a few key points for why you need just a little extra assistance.
What About the Middle Class?
Sadly, if you are middle class, the government assumes you can handle a higher burden than your actual budget will allow – which means your child may not qualify for need-based scholarships. Most of the top schools don’t offer merit scholarships since every one of their students are top students. That only leaves private scholarships, savings, and good old-fashioned part-time work (and yes, your child should work while in college – assuming their goal is to get a job when they graduate – nobody wants to hire someone with no experience!).
Go in with a plan! Every college student – and even their parents – should have a plan when they go off to college. Start with the end goal. What job/career do they want? What is the expected starting salary? What skills and experience does that job/career require? Where are those jobs located? What is the cost of living? Does your school of choice offer the right courses and clubs and experiences? Just as we would not buy a car without knowing why we want the car, what the monthly payments are, what the features and options are and so forth, we don’t want to send our kids off to college with no clue what it will cost, and what the benefits will be in four years.
Choosing a college is an emotional decision. While you obviously want the best for your child, don’t forget about all those stories of undergraduates with $100,000 in student loans that have to move back home, and can’t afford a place of their own for another 10 years. We know that when we make emotional decision we rarely make good financial ones, so try to be as objective as possible in this process. Money is not the only factor when it comes to deciding on a college, but it is a large one.
For more information, check out our book: How to Keep Your Kid from Moving Back Home after College.