This coming Sunday marks the switch to Daylight Savings Time here in America. "Spring forward!" we're told. Then it will be darker in the early morning and brighter in the early evening. Yes, spring is near. As we approach spring, high school seniors ramp up their anxiety in anticipation of the arrival of their college admission decisions. That's one form of anxiety. A second version comes with their financial aid packages. Will it be enough? If not, how much will they have to borrow to enroll?
Those choices are for current seniors to make, but what about next year's seniors -- this year's juniors? There are certain considerations current juniors can observe that can make March 2021 less anxious for them. That's what I would like to discuss today.
Paying for college is at the top of most families' college-concern lists. High school students should be especially aware of this because of the long-term impact of student loan debt, which has become one of the biggest debt issues in the United States. Moms and Dads, obviously, also need to be aware of what's happening in the paying-for-college world, what resources are available, and how to make the best decisions.
If you are currently in college, or you are the parent of a college student, you no doubt know about student loan debt. You probably have some. The College Confidential discussion forum has numerous posts from college students and their parents who are in an amazing amount of loan debt. Some owe more than $100,000!
The media have tried to get us to understand the extent of this issue. I asked Google, "How long to pay off $50,000 in student loans?" One link led to this: "If you pay $150.00 a month, it will take you 334 months (28 years) to pay it off … that's if you pay the principal and the interest every month. If you don't pay that much or don't pay the interest, of course it will take longer … They usually let you extend it 30 years." Pity those poor souls who owe $100,000.
High school juniors, you should show this article to your parents, since you will probably need their help answering the questions that follow below. This may give them an introduction to how the financial aid process works, if they're not yet familiar with it.
Get to Know the Financial Aid Basics
Sometimes students are admitted to a "dream" college but are then forced to turn down the offer due to finances. Those of you who come from low-income homes, however, could be in better shape than many of your friends from middle- or higher-income brackets.
Why? Because many of the most expensive colleges tend to have sufficient money to offer as grants (no repayment necessary), but often these funds are earmarked for students from low-income families. While many colleges do have good merit-aid awards that go to all top candidates regardless of household income, sometimes the best financial aid (at least at the more prestigious colleges) is the need-based aid that goes to less-advantaged applicants.
If you live in a large metropolitan area such as New York City, your location may work against you. Household incomes that might be considered middle class or below in NYC and other large cities would be higher than incomes in other parts of the country. While colleges do take cost of living into account to some extent, big-city residents many times don't get the aid they deserve.
Have a Student-Parent Conversation
As you continue with your college process, I suggest that you don't use finances as a key criterion in selecting your target schools, at least not yet. I do realize that eventually, money may play a starring role in your final choices, but what you should do now is sit down with one or both of your parents and ask them to be frank about college costs.
Many parents balk at talking about money with their children, so don't force the issue. However, it would be very useful for you to know how much your parents would be able (and willing) to pay each year toward your college costs.
Thus, here is the first question that needs to be answered:
What is the total amount -- per year -- your parents think they can (or will) pay toward your college education without taking out any loans? ________?
A second question:
What is your family's estimated Expected Family Contribution using:
Federal Methodology _________?
Institutional Methodology _________?
Whenever your EFC is higher than the total cost of attendance, you won't qualify for need-based aid. But if it's lower than the cost of attendance, then you should qualify for need-based aid, although you may not always get it.
Why not? In reality, many colleges practice what is known as "Need Gapping." They say, "We see that you require $32,000, but we're going to give you only $12,000. You'll have to make up the difference on your own." This, of course, leads to the inevitability of significant loan debt.
Most highly competitive colleges promise to meet your full need. That is, they will give you enough aid to cover the difference between your EFC and their total costs. But commonly, some of the money they give you is made up of loans, which must be repaid. So even if a college claims to meet full need, it doesn't necessarily mean that you're going to be free from debt.
In order to answer Question 2, you and your family should do the College Board's online EFC calculator.
Shortly after you start, you will be asked to choose a "formula" — "Federal Methodology" or "Institutional Methodology" or "Both." Select "Both." Once it's time to actually apply to college, you'll find that all colleges on your list will require the Free Application for Federal Student Aid (FAFSA) form for those seeking aid, and some will also require the CSS Profile form.
Colleges that ask for only the FAFSA will compute your aid award based on Federal Methodology. Colleges that also require the CSS Profile will use Institutional Methodology (more or less). Their final figures may not be exactly the same as the results you get from the calculator.
For now, it will be helpful to get an approximation of both figures. This may give you a better idea of where you will ultimately get the best financial aid. It will also help steer you toward colleges that you can ultimately afford to attend and to warn you when your top-choice colleges could be too costly.
Check the Net Price Calculators
All colleges in the US are now required to put a Net Price Calculator (NPC) on their websites. The NPC is usually similar to the College Board's EFC calculator. However, most of them are more specific and may consider factors that are especially important to that particular college. Some even estimate if you will be in the running for merit aid.
It can be very time consuming to play with the NPCs for every college on your list. But once you've done College Board's version, you might want to try one or two, just to see if the figures you get are different.
You will need parental help to play with the College Board's EFC Calculator because your mom or dad will have to provide figures from income tax returns. Once you have those numbers, though, you will probably be able to do the college-specific NPCs on your own. Some will ask almost the exact same questions as College Board asked. Others will also want data such as your SAT scores, GPA, and sometimes even extracurricular interests or a prospective major.
Keep in mind that you're just playing here. You can try plugging in different numbers (higher SATs that you hope to achieve, varying majors, etc.) to see different outcomes. None of this is official, but it should help you figure out how to create a college list that will maximize your financial options.
This information should get you and your parents thinking about financial aid for college and enable you and your family to see what possible level of loan debt you may encounter. Some levels of debt are such that you may never be able to pay it off. That may sound overly dramatic, but it is true. Think about that!
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