If you’re navigating the complex and maddening college financial aid journey, here are my updated tips to remain financially solvent and reasonably 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 their process to award financial aid. 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 follow their rules.
2. Don’t over-borrow as you will be on the hook for these loans. Student loans are almost never discharged in a bankruptcy so make sure you can repay all the debt you incur. If not, a default will follow you through your lifetime as fees, penalties, and interest will accumulate and your future wages, tax refunds, and Social Security benefits could be garnished.
3. Submit the FAFSA early. Financial aid budgets are finite and you don’t want to be last in line. The best way to avoid this is to submit your application and FAFSA as early as you can.
4. Need-based and merit financial aid policies vary widely. Financial aid comes in two flavors — need-based and merit. Need-based aid is determined by your expected family contribution, derived from your FAFSA submission. Merit aid is for any reason the college chooses to encourage your enrollment. Some colleges offer no merit aid at all, while others lean heavily on it.
5. 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. It’s more likely they won’t.
6. The college financial aid office is not your guardian angel. Their mission is to get you to attend their college, not to protect your financial interests. Be wary when working with them — they want to enroll you and to do so, they may offer you loans you may not be able to repay.
7. Your financial aid award may not be guaranteed for all four years. Read your financial aid award letter carefully and be sure that the grants will continue for all four years of college. If you’re not clear, reach out to the college for written clarification before you make a commitment. If not, you may find your grants reduced after the first year.
8. 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 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 best number to use when comparing the financial aid offers of different colleges.
9. Less selective colleges may be more generous with financial aid. Colleges compete for students and for all but the most selective colleges, discounting is routine. For any particular student, a “safety” school may have a lower net price than a “reach” one. Colleges run a business with the goal of maximizing revenue by enrolling a full class of students at the highest net price they can achieve.
10. Many private colleges are on shaky financial footing. Before you enroll at a private college, be sure it is financially sound. That’s not easy to determine but two measures to assess are the size of its endowment and its student enrollment trends. If the endowment is small or enrollment is declining, proceed carefully as the college may not survive long into the future.
11. 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.
12. Out-of-state state universities are often the most expensive. State universities have a higher COA and less generous financial aid for out-of-state students. If you live in NJ but your heart is set on UCLA, be prepared to pay up.
13. Independent scholarships may not help. Colleges vary in how they factor independent scholarships into their financial aid awards. Some reduce the grants 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 outside scholarships you earned, rather than allowing you to borrow less.
14. 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?
- They are eligible for income-driven repayment plans.
- They are not a legal responsibility of the parents.
- Their rates and fees are competitive.
However, for undergraduates, the maximum borrowing limit is relatively low, so it may not be enough. Keep in mind that federal student loans are better than federal PLUS loans (parent loans to undergraduate students). PLUS loans have higher rates and are not eligible for income-driven repayment plans.
15. College is not for everyone. Don’t fall for the trap that everyone must go to college. You can lead a fulfilling and productive life without a college education and its associated debt. 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 low-cost community college class or a free online class. Go to college when you’re ready.
Need help navigating the college financial aid process and understanding what is affordable for your financial situation? Get in touch.
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