Written by Jimmy Becker

One-Way Mirrors and the College Trap

If your family is navigating the complex, maddening, and acronym-rich college financial aid journey, I offer some tips to remain sane through the process.

1. It’s a one-way mirror. The financial aid system is designed for the colleges to know everything about your finances while disclosing nothing about how they determine their financial aid awards. Because the FAFSA requires you to disclose assets as well as income, they know more about you than the IRS. If you want financial aid, you succumb to their rules.

2. Merit- and need-based financial aid policies vary widely. Financial aid comes in two flavors — need- and merit-based. Need-based aid is based on your expected family contribution that is derived from your FAFSA submission. Merit-based aid is for whatever reason the college chooses to encourage your enrollment. Some colleges offer no merit aid at all (e.g., the Ivy League schools), while others lean heavily on it.

Colleges are under no obligation to meet your full financial need, and few of them have the financial resources to do so. Don’t assume that because they have accepted you, they will make it affordable.

3. The financial aid office is not your guardian angel. Their mission is to get you to attend their college — not to dispense objective guidance, nor protect your financial interests. When you walk into a Chevy dealer, you are under no illusion that they will send you to Ford if that is a better fit for you. Keep the same wariness when dealing with the financial aid office — they want to enroll you and to do so, they may offer you loans you cannot afford.

4. Don’t over-borrow as you will be on the hook for these loans. Student loans are almost never eligible for discharge in a bankruptcy filing so make sure you can repay all the debt you incur. If not, a default will follow you through your lifetime as fees and penalties will accumulate and your future wages, tax refunds, and Social Security benefits could be garnished to collect.

5. Focus on the net price and not the list price. In college-speak, the list price is known as the “cost of attendance” (COA). You only care about the net price, which is defined as the COA less any grants you receive. (Do not deduct loans to determine your net price as you will be paying those back.) This net price is the number to use when comparing the financial aid offers of different colleges.

6. Less selective colleges may be more generous with financial aid. Colleges engage in a cut-throat competition for students. Less selective colleges may provide more financial enticements to get students to attend their school. For any particular student, a “safety” school may have a lower net price than a “reach” one.

Colleges are running a business with their goal of maximizing revenue by enrolling a full class of students at the highest net price they can achieve. For all but the most selective colleges, discounting is routine.

7. Private colleges may be less costly than public ones. While private colleges almost always have a higher COA than public ones, their net price may be lower. Grants from private colleges are often larger so their net price remains competitive with state colleges.

8. Out-of-state state universities are often the most expensive. State universities have a higher COA for out-of-state students and, usually they do not offer generous financial aid to out-of-state students. So, if you live outside of California but have your heart set on attending UCLA, be prepared to pay up.

9. Independent scholarships may not help. Colleges vary in how they factor independent scholarships into their financial aid determinations. Some reduce the grant award that the student would otherwise receive, but others don’t. You would have wasted your time if your college simply reduced your grant aid by an amount equal to the value of the outside scholarships you earned, rather than allowing you to borrow less.

10. Submit the FAFSA early. Financial aid budgets are finite. You don’t want to be last in line as there may be no money left. The best way to avoid this is to submit your application and FAFSA as early as you can.

11. Federal student loans are usually the best borrowing option. In most cases, maximize your federal student loan borrowing before taking out any other loans. Why?

However, for undergraduates, the maximum borrowing limit is relatively low, so it may not be enough to fund college. Keep in mind that federal student loans are different from federal PLUS loans (parent loans to undergraduate students). PLUS loans have higher rates and fees, are not eligible for income-dependent repayment plans, and are the legal responsibility of the parents.

12. College is not for everyone. Lastly, don’t fall for the trap that everyone must go to college. You can lead a fulfilling and productive life without a college education. The worst outcome is to attend college for some number of years, conclude it is not for you, and then drop out, after having incurred much debt. If you’re not sure, start with a class at a local community college. Go to college when you’re ready and it’s right for you.


Questions about the college financial aid process? Get in touch.

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