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Financial Aid
Coping with the Financial Aid Process
By Roger Wohlner
CERTIFIED FINANCIAL PLANNER™ Practioner, Asset Strategy Consultants
Almost $122 billion of financial aid was distributed during the 2003-04 school year, with an average award of $10,472 per full-time student. Of that total, approximately 56% was loans and 38% was grants (Source: Trends in Student Aid, 2004). With so much money at stake, you should understand the financial aid process.
The first step is filling out the appropriate forms so colleges can determine your financial need. After January 1 of the year your child enters college, you must complete the "Free Application for Federal Student Aid" form as well as any forms required by colleges your child applied to. These forms are used to determine your expected family contribution (EFC), which is the amount you're expected to pay annually toward college costs. If college costs exceed your EFC, financial aid officers try to fund that difference, using grants, scholarships, work study programs, and student loans.
Be prepared - most families are surprised by how much they're expected to contribute toward college. The calculation is based on a formula, not your actual expenses. After some adjustments, your EFC equals 5.6% of your eligible assets and up to 47% of income plus 35% of your child's assets and up to 50% of his/her income. Your EFC is the same no matter how many children are attending college, so you can expect more aid if you have more than one child in college.
Consider these tips to help maximize your financial aid award:
Understand how the financial aid system classifies income and assets. Your net worth, as defined by the financial aid system, includes bank accounts, stocks, bonds, and mutual funds, but not retirement funds, insurance, or annuities. However, individual colleges may have different criteria for certain assets. Loans against assets, such as mortgages, home-equity lines of credit, and margin loans, are deducted from your net worth, but consumer loans are not. Capital gains are included in income.
Consider using your child's assets to pay school expenses before college. You might want to purchase a computer or car for commuting to college with your child's money.
Apply to several colleges, evaluating each financial aid package. Your awards can vary significantly among colleges. Don't just look at the total amount of the award - evaluate the composition of that aid. Grants, which are not repaid, are more desirable than loans. Even the types of loans offered can make a big difference.
Don't automatically rule out more expensive colleges. Your EFC will remain the same, no matter where you child goes to college. Many private and Ivy League colleges have more merit aid and discretion when making offers.
Make sure to adhere to application deadlines. Typically, colleges first evaluate applications submitted on time. Anyone filing late is evaluated later, after a significant portion of aid has been awarded.
Talk to the financial aid officer if you aren't satisfied with the financial aid package. Financial aid officers are often willing to reevaluate a financial aid package. If there have been significant changes in your financial situation since the forms were filled out, call and explain.
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