Figuring College Cost: The Package Deal
When you want to know what something costs you check the price tag, right?
But sometimes it’s not so simple. Compare going to a big-ticket school with attending a college with less expensive tuition. You might think it’s easy to figure out which will cost you more. But in fact, every school figures out your financial aid package differently. And that can make a big difference in the out-of-pocket cost of going to college.
Filling Out the FAFSA
Tuition is only the first step in determining college cost. Unless you and your parents are going to write out a check for full tuition, you’ll be applying for financial aid. That means filling out the Free Application for Federal Student Aid (FAFSA).
The federal government uses the data you supply on the FAFSA to determine your Estimated Family Contribution (EFC) – an amount your family can afford to pay for you to go to college. The EFC serves as a baseline to help your school figure out how much you can pay, how much more you’ll need and how much financial aid you’re eligible to receive.
Your EFC and Your School
Once your FAFSA information goes to the school, things get more complicated. In many cases, schools do their own analysis above and beyond the FAFSA based on their own set of criteria – something that’s referred to as the “Institutional Methodology.”
This is important because an Institutional Methodology almost always increases your EFC. The Institutional Methodology tends to include additional assets like home equity that aren’t included on the FAFSA. If these “extra” assets are added in, your EFC – the amount of money you have to pay for college – will increase.
The school then takes this new EFC, subtracts it from the “Cost of Attendance” (COA) to figure out how much assistance you need. So if your Institutional EFC is higher, the amount of assistance is lower – and you end up owing more.
More Pieces of the Financial Aid Puzzle
Once your EFC is calculated, the institution begins assembling your aid package. Your aid package is made up of a number of elements: federal aid (grants, loans, work-study), state aid (varies from state to state) and school-based aid (grants and scholarships, school-based work-study). The goal is to allot these different elements to make college affordable for the student.
But how these pieces fit together can vary widely. For example, let’s say a school adds loans to the mix before they consider whether you’re eligible for a need-based grant. The result? The amount of “need” that determines if you’re eligible for a grant is lower because the amount of the loan has already been deducted from your costs.
Schools also differ in terms of the kind of funding they can offer. Some schools have a lot of money available for merit- and need-based awards while others have limited funds. These “extra” awards can supplement federal aid or even take the place of loans, thus bringing down your out-of-pocket costs.
Another factor that can affect your out-of-pocket cost is the school’s policy regarding external scholarships. Some schools add the amount of the scholarship to your financial aid package, increasing the total amount of your gift aid. This means fewer loans, and less out-of-pocket cost for you. Others reduce how much you get from any school scholarships by some or all of the amount of the outside scholarship. That means that your scholarship might not increase the amount of gift aid in your financial aid package.
Adding It Up
So what’s the final answer? Although a school’s tuition can give you a good idea of how much a school will cost, the full price of education can vary widely. Don’t discount a school immediately because tuition seems out of range. Apply to a number of different schools with different “sticker prices” and don’t make your choice until you unwrap your financial aid package.
Obama Takes Fireside Chats to Youtube
From Chicago, the president-elect is modeling his “team of rivals”, and from Franklin Roosevelt, he seems to be taking something else– the fireside chat.
But this isn’t your grandfather’s fireside chat! Obama has taken his message to Youtube, and in addition to a planned weekly You Tube video address to the nation, he has also released education ads and speaks at length about his vision for the American education system.
In appearing on camera, Obama is improving on the age old goal of speaking directly to the American people. But what’s more, this time, he’s speaking directly to young American people– the most prevalent users of the Website.
Obama released several ads through out his campaign, toting his education goals. In one, he said, “My family didn’t have much money, but for me, education made everything possible.”
In another seven-minute clip, he talks at length about the importance of making college education more affordable.
He says, “Young people have to be able to afford to go to college and afford post graduate work if they’re so inclined. We need to make sure…that those who want to go into the helping professions that aren’t paying as much, aren’t carrying $50,000 or $60,000 worth of debt, when they leave school. That basically prohibits them from pursuing the types of careers that they want.
“I want to do is strip out the subsidies that have been going to banks and financial institutions and putting more money into grants that don’t have to be repaid as opposed to loans that do. I want to make sure that young people are benefiting from the best possible interest rates when they do have to take out loans. And we have to set up a loan forgiveness program so that if someone wants to be a teacher, or a police officer or a nurse, that each year they perform those services, they are knocking off some of that college debt.
“We also need to make sure that we are emphasizing math and science education, not only in the early years, but in post graduate work. We re not producing enough math majors, scientists, and computer designers to maintain our economic edge.”
The Procrastinator’s Guide to Financial Aid
When it comes to financial aid, late is often too late. Funds for next year are already allotted, and your school simply has nothing more to give. But don’t give up until you consider these options:
Step 1: Check out your school’s Web site.
Many sites provide information about the school’s late applicant policies, additional suggestions for late applicants and links to alternate funding sources, such as loan companies and scholarship organizations.
Step 2: Make an appointment to talk to your school’s financial aid office.
- Try to demonstrate special need, special circumstances or special abilities. Build a case for yourself—provide any information that will indicate that you deserve special consideration.
- If you’re a new student, you might want to emphasize how enthusiastic you are about attending and what you can bring to the school. “Even if funding is limited, we will try to make room for one more good student,” says David Pardieck, director of financial assistance at Bradley University.
- Remember that you are asking for a special favor. Let them know that you appreciate their efforts and be gracious, no matter what the outcome.
- Always be sure to get the names of the staff members with whom you speak. “It’s important to document the conversation,” recommends Douglas Bucher, vice president of Enrollment Services & Planning at NYU, “especially if you are asking for special consideration.”
Step 3: Consider taking a loan (but be careful!).
If you have to rely on loans, your best bet is to obtain a federally sponsored student loan, such as the Stafford, the Perkins or the PLUS loan. But depending on your school, it may be too late to secure one of these loans for next school year. Check with the financial aid office to find out about the policies at your school.
Your school may also put you in contact with agencies that can provide last minute pre-approved loans. These agencies are private companies who offer loans separately from the federal government—in other words, the same kind of loan you would take out to buy a car or house.
Loans from these private companies can help if you’re facing immediate tuition bills and don’t have other funding sources. Be cautious, though. Pre-approved loans carry a high price—interest rates that can run as high as 17 or 18 percent.
Step 4: Your Last-Ditch Alternative
If you’ve exhausted all other possibilities, consider changing your educational path. One alternative: start at junior college, and then transfer to a four-year institution. You’ll save money on tuition and get a chance to start college with a clean financial slate.
But before you follow this course, check a few things out:
- Make sure your credits will transfer to your preferred school. A year’s worth of course work that won’t transfer is a waste of money. Find out before you enroll.
- Learn as much as you can about the financial aid policy at your four-year school—especially as it pertains to transfer students. Some schools offer a different (and perhaps less attractive) financial aid package to transfer students than to students who spend a full four years at the institution.
Whatever you do, be sure to explore all your options, and don’t give up until you’ve spoken to a representative at your school. Policies vary—and you may find it’s not too late after all.
Ten Questions To Ask Your Financial Aid Office
1. What application materials are needed to apply for financial aid, and does the college require its own form in addition to the Free Application for Federal Student Aid (FAFSA)?
2. What are the deadlines for submitting financial aid forms?
3. When will I be notified of my financial eligibility?
4. Will my request for financial aid have any impact on my ability to be admitted to college?
5. Describe your financial aid program, including requirements for need-based aid, merit-based aid and scholarships.
6. Once my financial aid package is awarded, will additional scholarships reduce the amount of financial aid I can receive?
7. Will your institution meet my full financial need, and will it meet my full financial need for all four years of my attendance?
8. Are there state financial aid programs that I should know about?
9. Does this college participate in a tuition payment plan that allows installment payments for each semester’s bill?
10. Where can I find additional sources of financial aid?
This information is provided by the National Association for College Admission Counseling.
Types of Aid: Dollars for College
With college costs rising, most students need help paying for higher education. And most will rely on more than one source to cover costs. Learn how to put together the pieces of your financial aid package.
Grants and scholarships: This is free money that doesn’t have to be repaid.
- Grants are awards based on financial need or funds distributed to support a specific project (e.g. research grants).
- Federally-sponsored grants include the Pell Grant and the Federal Supplemental Educational Opportunity Grant (FSEOG). Both are based solely on financial need.
- To apply for federally sponsored grants, fill out a FAFSA (Free Application for Federal Student Aid) as soon after January 1 as possible. To learn more about federal aid, consult the U.S. Department of Education’s FAFSA Web site: http://www.fafsa.ed.gov/.
- Scholarships are short-term or lump-sum awards that are distributed according to criteria set by the scholarship provider (financial need, academic or civic distinction, hobbies, etc.).
- Since criteria vary, be sure to check application requirements before you apply.
- Scholarships are often provided by private sources, such as schools, companies and organizations.
- Find scholarship opportunities that are right for you by using FastWeb’s free scholarship search.
Work-Study Programs
- In work-study, you earn your financial aid by working either on or off campus. It’s a great way to earn money for college while gaining valuable work experience.
- Work-study assistance may be provided by private sources, through the school or as part of the Federal Work-Study program.
Loans: These are funds that must be repaid either by students or their families.
- Federal government loan programs include:
- Student Loans:
- Stafford Loan: administered either by the Federal Direct Student Loan Program (FDSLP) (in which funds are provided directly by the federal government) or by the Federal Family Education Loan Program (FFELP) (in which funds are provided by private lenders, such as banks, credit unions and savings & loan associations).
- Perkins Loan: for undergraduate and graduate students with exceptional financial need. This is a campus-based loan program, with the school acting as the lender using a limited pool of funds provided by the federal government.
- Parent Loans: the federal Parent Loan for Undergraduate Students (PLUS) lets parents borrow money to cover any costs not already covered by the student’s financial aid package.
- To learn more about federal loans, read the federal government’s Student Guide for federal aid at http://studentaid.ed.gov.
- Student Loans:
- Private Loans:
- Private loans supplement aid provided by the federal government.
- Since they are offered by private lenders, there are no federal forms to complete.
Alternate Financial Aid Programs
- National Service: Volunteering not only helps the disadvantaged, it can provide money for your college education. The Corporation for National Service offers a number of opportunities for funding in exchange for community service.
- Tuition Payment Plans: Many schools offer short-term installment plans that split your tuition into equal monthly payments. Many such plans are essentially interest free, but some have fees or finance charges.
- Employer Support: Many companies recognize the value of investing in an employee’s educational development. Ask your employer about tuition reimbursement programs.
- Benefits for Military Service: The military offers a number of tuition assistance programs, including ROTC, Army/Navy/Marine Corps College Funds and U.S. Service Academies.
- Tax Credit: The HOPE Scholarship Credit and The Lifetime Learning Credit establish a tax credit for higher education.
Are You Worth the Investment?
Your parents are broke but not broke enough for you to qualify for full need. You have no chance of getting a student loan. During your summer vacation, you burned through your savings. Tuition prices just shot up another 7%. And despite receiving several scholarships, you will still owe thousands of dollars for your college education. So what do you do?
Borrow from a source besides the banks: your peers…family, friends, community leaders, etc., who can help subsidize your college education costs. Through peer-to-peer lending, students are getting the funds they need from people who actually value their education. Or from total strangers who have money to burn.
The idea for peer-to-peer lending originated from Muhammad Yunus, who established the Grameen Bank in 1974 to make small loans for poor families in Bangladesh. The loans, typically offered in the amount of $10 or $20, helped families start businesses. Since its founding, the Grameen Bank has been able to help break the cycle of poverty by lending nearly $6 billion to more than 6 million borrowers. Now, different organizations are hoping to apply the same charity and accountability to students hoping to attend college.
GreenNote is a peer-to-peer lending network where students can ask people in their family and community circles for small student loans. Rather than having your grandma hand you an envelope of $500 with x’s, o’s, and a pinky promise to payback, GreenNote handles the formalization of preparing the loan documents. Thereby, making your student loan transfers legit.
Students have access to low-interest loans, paying an interest rate of 6.8% versus the private lending interest rates ranging anywhere from 8 – 20%. They also aren’t “approved” on a basis of a good credit score. Instead, students receive loans on the basis of good character, which is “approved” by their peer lenders.
Some students may ask whether peer-to-peer lending is actually effective. All of that depends on your social network-do you have friends and family who are willing to assist you in financing your education? It is safe to say, though, that peer-to-peer lending sites are setting records in first time users these days. Clearly, they are a viable source to turn to as more and more private lenders drop out of the student loan market.
So if you’re in a pinch or caught in the credit crunch, lending through GreenNote or other peer-to-peer mediums is a creative way to get that cover costs.
The Basics of Borrowing: Loans 101
All loans consist of three components: The interest rate, security component and term.
The Interest Rate
The interest rate is the lender’s charge for the use of their money. The interest rate is usually a small percentage of the amount loaned.
There are two different types of interest rates: fixed or variable (aka adjustable).
Fixed rates are just that: fixed and unchanging. If your fixed interest rate is 7 percent, it will be 7 percent for the life of the loan.
Variable rates can change over time and are usually based on a standard market rate, such as the prime interest rate (which is the lowest rate of interest a bank can provide at a given time and place, offered to preferred borrowers). For instance, you may take out a loan with a variable rate at prime +2. This means that you’ll pay two percent more than the prime rate, regardless of what it is.
Interest rates for popular student loan programs like Stafford and Perkins Loans have low interest rates. Plus, the government pays the interest on subsidized Stafford Loans and Perkins Loans while you’re in school.
The Security Component
All loans are either secured or unsecured. This refers to whether you are putting up assets, often referred to as collateral, to guarantee your loan.
If you have a secured loan, it means you have guaranteed your lender will be repaid one way or another by giving them a claim on something you own. If the loan goes unpaid, the lender can seize the collateral to recoup their investment. This guarantee gives lenders a great deal of security and allows them to charge low interest rates.
Unsecured loans do not require any collateral from the borrower. The bank therefore has no protection if the loan goes unpaid. Unsecured loans almost always have higher interest rates than secured loans. Lending institutions sometimes require that an additional person co-sign for unsecured loans, or vow to repay the loan if the borrower fails to do so.
Student loans have an advantage in that no collateral is required but they still have low interest rates.
The Term
The term of a loan is the length of time that the borrower has to pay back the loan. Most personal loans have terms of one to five years. Many student loans have 10-year repayment periods. Typically, the longer the term, the higher the interest rate. The term is the maximum length of time the borrower has to repay their loan; loans can always be paid off before the term is up.
A Case Study
To see how all the pieces fit together, let’s take a look at a sample loan.
Charlotte takes out a $10,000 loan with an interest rate of 8.25 percent and a 10-year term. Because this is a secured loan, Charlotte uses her 1967 Ford Mustang as collateral.
Charlotte’s loan breaks down as follows:
Loan Balance: $10,000
Loan Interest Rate: 8.25%
Loan Term (in years) : 10
Minimum Monthly Payment: $122.65
Total Payments: $14,718.49
Total Interest Paid: $4,718.49
The minimum monthly payment that Charlotte needs to make to complete her loan within the 10-year term is $122.65. After 120 payments of $122.65, Charlotte will have paid off her entire loan and $4,718.49 in interest.
Keep in mind that Charlotte can always increase her monthly payments. This will shorten her loan’s term and result in less interest paid. For instance, if Charlotte decides to pay $250 each month, her repayment plan breaks down as follows:
Loan Balance: $10,000.00
Loan Interest Rate: 8.25%
Monthly Loan Payment: $250.00
Number of Payments: 47
Total Payments: $11,734.15
Total Interest Paid: $1,734.15
By upping her monthly payment, Charlotte shortens the term of her loan to 47 months, or just under four years. She also reduces the total amount of interest she pays to $1,734.15.
Let’s say that, instead of upping her monthly payments, Charlotte skips a few. In fact, let’s say she stops paying the loan altogether. That’s bad news for Charlotte. Because this is a secured loan, Charlotte may be kissing her Mustang goodbye.
So when you consider taking a loan, pay special attention to the basic terms to anticipate how much you’ll pay and how long you’ll be in debt.
College may become unaffordable to most students
A new report casts a dire prospect for many potential college students as attending school becomes less affordable. The report by the National Center for Public Policy and Higher Educations says college costs have grown a dramatic 439 percent of the past 25 years. That’s more than the growth in family income, medical costs, and house prices. The report says that if this trend continues, college will become unaffordable to most college-aged students, especially low income and minority students.
Today, an average working class family would have to spend a third of their yearly income to send their child to public school. For lower income families, it would cost over half. Private universities can cost a family 76 percent of their yearly income.
As a result, more students are borrowing money from federal and private loans than ever before. The federal loan program funds 2 million more students than 10 years years ago as more students apply and fill-out the FAFSA. Meanwhile, private loan borrowing has increased an astonishing 40 billion dollars over the past decade.
There seems to be no clear solution to rising costs. But we can start by asking a few questions. Why has college increased so much over the past 25 years? Where is this money going? How can we reduced these costs? These can be answered by looking at the the problem: the schools themselves.
Five Reasons to File Your FAFSA
1. Federal Aid
Do you want some of the more than $80 billion the federal government provides in grants, loans and work-study programs every year? Federal Student Aid programs are the largest source of student aid in the United States. The only way to be considered for Pell Grants, Perkins Loans, Stafford Loans and more is by submitting your FAFSA.
2. State Aid
Your FAFSA also puts you in consideration for state financial aid programs. Eligibility and deadline dates for these programs differ by state, but they all have one thing in common – they require the FAFSA. Learn more about the financial aid your state offers its residents at your state’s higher education agency.
3. School Aid
Colleges and private scholarship sponsors offer billions of dollars in financial aid. Even if you don’t have a high level of financial need, you may be eligible for these awards. Most colleges and many private scholarship sponsors require students to submit their FAFSA to be considered for financial aid. Some school and private scholarship programs are specifically designed for students who were rejected for federal financial aid, so even if you don’t think you’ll qualify for federal aid, it’s a smart move to submit your FAFSA.
4. It’s Free
A completed FAFSA will put you in consideration for federal, state, college and private scholarships and it’s completely free. The only thing you’ll spend completing your FAFSA is a few minutes of your time, and you could get thousands of dollars of financial aid in return.
5. Getting Help is Easy and Free
Not only is submitting your FAFSA free, but it may be easier to complete than you realize. Don’t know how to figure out your parents’ net worth? Don’t worry. When you complete your FAFSA online help is built into the system, so you won’t get bogged down by the form’s confusing financial jargon. You can still submit your questions online at the FAFSA Web site if you choose to fill out the paper form, or you can call the Federal Student Aid Information Center at 1-800-4-FED-AID (1-800-433-3243).
Many high schools and colleges offer help with FAFSA Day, an event usually in February. If your school doesn’t host a FAFSA Day, check with other schools in your area to see if you can attend their FAFSA Day.
Federal, state and private financial aid can be within your reach when you submit your FAFSA, so what are you waiting for? FAFSA forms become available on or before January 1st each year. Submit your FAFSA as soon after January 1st to have the best shot at financial aid.
Don’t just send in your FAFSA and expect the money to start rolling in. Many financial aid programs require additional forms besides the FAFSA, so check the requirements for state, school and private awards to make sure your application is complete.
Develop Your Scholarship Game Plan
1. Plan to apply for as many scholarships as possible
Some students make the mistake of thinking that they maximize their chances of winning by pouring all of their energy into one or two scholarships.
But applying for scholarships is partially a numbers game. A variety of factors outside of your control affect the outcome of any given award. Only by applying for large numbers of scholarships can you minimize such factors, and maximize your chances of winning. In my own scholarship quest, I ended up applying for about three dozen awards.
Even if the scholarship prize is only a couple of hundred dollars, I still recommend entering the contest. This might not sound like much in the context of an entire college tuition bill, but the extra cash can help cover the cost of books for a term, or help pay for that spring break “research” trip to Cancun.
In addition, winning smaller awards provides you with additional credentials that you can include in applications for larger scholarships.
2. Develop a suite of generic reusable materials
When applying for large numbers of scholarships, creating a suite of generic reusable materials saves a great deal of time and energy. By having this suite to draw from, you will be able to focus less on just completing application requirements, and more on customizing and fine-tuning the material you’ve already prepared.
More than just a reduction in your workload, reusing and rethinking old materials can mean vast improvements as you repeatedly refine and edit the same work. By employing this strategy, you gain the opportunity to fine-tune your materials with every submission. And take it from me—your tenth draft will be far better than your first.
To create this suite of generic materials, first seek to develop standard essay responses to perennial scholarship application themes—such old favorites as college plans, career goals, and future contributions to society.
Next, survey the scholarship landscape and isolate common themes and requirements (whether it is a similar essay question or a comparable extracurricular activity worksheet). Attempt to bridge multiple applications with every sentence you write or form you prepare.
Also, go back into your archive of old scholarship applications (you’ll develop one quickly) and try to recycle essays and other past materials. Don’t just recopy such passages verbatim; instead, try to rethink, improve, and hone everything to fit the criteria of each new contest.
3. Leverage schoolwork and class time
If you have to do the schoolwork anyway, why not make it count toward your scholarship quest? For example, if you’re asked to write an essay on a book of your choosing, you may want to select The Fountainhead by Ayn Rand. This way, you’ll have a submission ready to go for the annual essay contest on this famous novel. If you’re assigned a self-reflective essay, pick a personal topic that fits in well with scholarship applications you’re pursuing. Moreover, teachers can serve as a helpful source of early feedback for these potential scholarship submissions.
This technique isn’t restricted merely to classroom assignments. Most schools offer some type of independent study credit, in which you can pursue your own project under the guidance of an adviser. At many schools, you’re even allowed to use a class period during the day to pursue this work. Use the time to complete self-initiated projects that add to your record and improve your chances of scholarship (and college admission) success.
4. Learn from past scholarship winners
In playing the scholarship game, it’s extremely useful to have a roadmap of what it takes to win. To obtain this roadmap, make a point of reviewing past winning applications, essays and other materials. Many times, you can request sample winning entries from the organization administering the scholarship program.
In addition, it’s useful to interview past winners of scholarships you plan to enter. Ask them about their unique qualifications, the approach they took in filling out applications, and any insights they have about particular scholarship contests you’re planning to enter. Many scholarship contests will provide a list of past winners upon request. The best way to master the scholarship game is to learn from those who have played it well.