Financial aid myths
The financial aid process seems so complex and intimidating, and the cost of college so high to uneducated observers, that myths and false information are often generated about the process. There are plenty of myths out there that could keep you from attending the college of your dreams, but those shouldn’t stop you. The truth is, you can make college more affordable than you think. Here are the realities of affording a college education.
Because of the way our financial aid system works, you can afford to attend just about any school you’ve gotten into. Many people think that the ’sticker price’ of a college is how much the family has to pay. But that’s incorrect.
Colleges use a formula that factors in your family’s size, income, and assets to calculate your ‘expected family contribution,’ or EFC. Your EFC is the amount they believe your family can contribute to your college education. That EFC is the same for whatever college you apply for – it will not increase or decrease depending on the schools you apply to. Your EFC at a public college will be the same as at an elite, top-tier private college.
The gap between your EFC and the cost of tuition should be covered by financial aid, consisting of grants that don’t have to be paid back, low-interest loans, and work-study jobs. The gap is not always covered, however; when that happens, you’ll need to consider private student loans. Check out SimpleTuition’s loan comparison tool for more information. Here’s the good news: the majority of people qualify for financial aid. Whether your aid package will fully cover the financial gap is another story.
In case you missed it, we want to repeat this loud and clear: In most cases, you’ll pay roughly the same for a college whether it is a public, private, or an elite institution. Here’s why: colleges use the same formula-based system to determine how much your family can pay for college. So, if the formula determines that your family can afford $10,000 per year, whether the actual ‘sticker’ price of the college is $20,000, $30,000, or $40,000 per year, you still only have to pay $10,000. The college should make up the difference through financial aid.
Our advice: study hard and go for it! Apply for the college of your dreams and don’t worry about the ‘sticker price.’
Myth 2: I don’t really have to worry about paying for college until my student is admitted.
If you start figuring out how you’ll pay for college only when your student is admitted, you’ll have a tough time making the first tuition bill. Paying for college is a complex process, and it involves a lot of costs you won’t think of without extensive preparation. It is critical that you understand how to fund college before actually applying to college.
Let’s put it into perspective. If you had to replace your car and you knew that the most you would ever have to pay was, say, $10,000 no matter what the sticker price of the car, would you plan on buying a used Chevy or a new Porsche? Early understanding of college funding can provide similar college options for your family. Instead of thinking Chevy, you can start thinking Porsche. Plan early and you will upgrade the schools you’ll consider. Now you have the chance to pursue the right educational opportunities for the right reasons.
The problem is that college looms as the greatest threat to a parent’s long-term financial security. It’s probably one of the most expensive things you will ever pay for. While conventional wisdom once said you should save for your kids’ college, today’s savvy financial planners now recommend parents save for retirement.
There are a couple of good reasons for this. First, colleges usually don’t take retirement assets into account when calculating your financial aid eligibility, which means you can save for retirement and reduce the amount you’ll have to pay for college. Secondly, students have more time to recover from debt than their parents have to save towards their retirement. You can always borrow for college, but you can never borrow for retirement.
Myth 4: Paying for College Is An Investment
That depends on how you define ‘investment.’ An investment means you have a shot at getting your money back. If you’re a parent, in all likelihood, you will never see this money again. Once you send your check to a college, it is gone. That’s not an investment. It is a bill. And for most of us, it is the largest voluntary bill we will ever pay in our lives.
As a student, however, college is an investment. A college graduate will earn up to $1.5 million dollars more over the course of their career than a person without a college degree, so there is money to be made back, and then some. This myth depends on who is viewing the situation, and who is paying for school.
The majority of people qualify for financial aid. You might be surprised to learn that a large percentage of families making six-figure-incomes still qualify for financial aid, especially at private colleges.
Unless your last name ends in Trump or Gates, there are three strong reasons why you should complete the federal financial aid form, called the FAFSA (Free Application for Federal Student Aid):
1. To qualify for need-based financial aid, which consists of grants you don’t have to pay back, low-interest student loans, and campus work-study jobs.
2. To automatically establish a line of credit with the federal government. This lets you borrow as much low-interest, unsecured money as you need to help with college costs not covered by financial aid. If your family does not get enough financial aid from the college, you can turn to this reliable source of money.
3. To hedge against the unforeseen, such as job loss, a failed marriage, even death. If disaster strikes, college personnel are willing to help families pay for and continue with college. But first, they need to have your FAFSA on file.
Myth 6: Financial aid is never negotiable
While the college financial aid system is largely formula-driven, financial aid administrators are permitted ‘Professional Judgment.’ That means that if they like you and believe you have a compelling case, they may be able to help you find more funding for college.
Work with your financial aid office. Be frank, open, and honest. Also, be prepared to state your case clearly, persuasively and politely, and be sure to come with documentation that evidences your need for more aid.