Let’s be honest. The price of a college education is outrageous. According to the College Board the average cost of a private 4-year college is over $42,000 when you add in tuition, fees, and room and board. That doesn’t even count other expenses like books, transportation, personal expenses, etc. The average public college is about $19,000, if you qualify for in-state tuition.
These are just averages. There is quite a range. Here in Minnesota a state college like Mankato State might cost about $15,600 per year for the total cost of attendance. An elite private college like Carleton College could exceed $60,000 – a year!
True. Financial aid is available and it can help lower these expenses significantly, but how do you qualify for financial aid in the first place? Below is a simple, 5-step process you can follow to increase your likelihood of getting the most out of the financial aid system.
Determine which schools are likely to be the best financial fit. Financial aid will vary literally from school to school, family to family, and even student to student within the same family. So how do you find those schools which are the best financial fit for you and your student?
U.S. News and World Report published an article listing 62 schools that claim to meet 100% of a family’s financial need. The lower your income or greater your financial need, the larger your financial aid award will be.
For some families, an elite private college education that offers to meet 100% of your financial need, might be your least expensive option. Despite the high sticker price Carleton College and other similar schools may be your best financial fit.
Other families, especially those with higher incomes or significant assets may want to focus their search on schools that reward academic merit – grades, ACT/SAT scores, class rank, etc. Many of these schools will offer large academic scholarships without regard to a family’s financial status. In some cases, they may even offer a limited amount of need-based financial aid as well.
In-state public colleges and universities still offer an excellent value. I believe that for most families, most of the time, your local public college or university may often be the best financial fit for you and your student.
If you want to do your own search, DIYCollegerankings.com offers a spreadsheet families can use to easily sift and sort through mountains of data to create a list of schools that fit your particular needs.
To find out what colleges in Minnesota cost, click here. You will find, not only the average costs, but the specific costs of the particular school you are looking for.
Get an estimate of your EFC. The College Board has a calculator on their website that parents can use to get an idea of their Expected Family Contribution or EFC. You can find it here
Schools will use your EFC to determine your financial need which is the difference between your family’s EFC and the total “cost of attendance” at the schools you are considering.
For example, lets say your EFC is $24,000 and the total cost of attendance at your school is $42,000. Your financial need would be the difference – or $18,000.
That doesn’t necessarily mean you will get $18,000 in grants and scholarships, but it’s the number that schools and the government will use to determine whether you qualify for additional financial aid including subsidized student loans and work-study opportunities.
If you have a high EFC your chances for significant need-based financial aid are small. You may be better off to focus on schools that reward academic merit or lower priced public colleges.
If your EFC is small, you may be a good candidate for need-based financial aid and should consider including schools that will meet most or all of your need in your search. Start be reviewing the list of schools mentioned above in the U.S. News & World Report article. For a short list of Minnesota schools that offer generous amounts of need-based financial aid consider Carleton College, Macalester University, and St. Olaf.
As a parent, your goal at this stage of the game is to determine your EFC and take steps to lower your EFC as much as reasonably possible BEFORE filling out the Free Application for Federal Student Aid or FAFSA form. More on that below.
Reposition assets – if necessary. By now you have identified the schools which are most likely to be the best financial fit for you and your student. You have calculated an estimate of your family’s EFC. And you have finally regained your composure after seeing the eye-popping number (aka EFC) that the financial aid system thinks you can afford to pay for college. What’s next?
The EFC is based on the previous year’s income and the current value of your assets. At this point, there is not much you can do about last year’s income. However, you might be able to reposition assets in a way that has less impact on the EFC calculation.
A word of warning: before you make any changes to your assets, please consult a qualified professional. There are trade offs to just about everything. Sometimes the trade offs are not worth the extra financial aid you might get for college. In fact, in many cases, you may be able to reposition all of your assets with no measurable impact on financial aid because your income alone may be too high to qualify for any need-based financial aid. Think before you act.
However, if you believe you are a good candidate for need-based financial aid, or you want to qualify for a subsidized student loan it may be in your interest to reposition certain assets prior to filling out the FAFSA form.
Your EFC is based primarily on the custodial parent’s income, the student’s income, the custodial parent’s assets and the student’s assets. Parental assets are assessed at a lower rate than student assets. Sorry kids, but you are expected to chip in more of your net worth for your college education than your parents are.
The following assets are exempt:
• Asset Protection Allowance
• Home equity in your primary residence
• Cash value of life insurance
• Small business assets – subject to certain requirements
• Retirement plans – IRAs, 401(k)s, and the like
Although not an asset, debt is generally not taken into consideration when calculating the EFC.
That may be only a few things, but there are any number of ways they can be combined to reduce your EFC before you submit your FAFSA form. For example, if you have a mortgage or other debt, maybe now is the time to pay it off.
If you qualify to do an IRA or Roth IRA, it might be wise to fund your account before you submit the FAFSA since retirement accounts like IRAs are exempt assets. A 50-year old can contribute up to $6,500 into an IRA. IRAs can be funded for the previous tax year up until April 15th. Using this strategy a married couple over the age of 50 might be able to contribute up to $26,000 to IRAs before completing the FAFSA form. ($6,500 x2 people, for the tax years 2014 and 2015).
That’s just a couple of examples. Whether they will work for you may be a different story – hence the warning above. However, if you pay off your house, fund your IRA or reposition other assets, you will likely use money that would have increased your EFC and have now put it into an asset(s) that have no impact on the EFC.
Remember, take action before completing the FAFSA.
Complete the FAFSA. They would like you to believe that completing the FAFSA is easy. Easy enough, in fact, that your high school student should be able to complete this form in less than an hour. I disagree.
Most parents can fill out the FAFSA form without any help. The first time will be the most difficult. It will get easier the more you do it. (The FAFSA gets submitted each year). If you have traditional W-2 wage income and have little in the way of assets, the FAFSA can be pretty straightforward.
However, some families may want or need additional help. I am not opposed to hiring professional help if you have a really complicated situation, but there are some free resources available as well.
The first is College Goal Minnesota. According to their website, College Goal Minnesota is “ a statewide volunteer program that provides free information and assistance to students and families who are applying for financial aid” for college. For a list of workshop locations, click the link above.
Another great resource is Filing the FAFSA a free, downloadable PDF with all you need to know to complete the FAFSA form. You will find it at Edvisors.com. Written by financial aid experts, Filing the FAFSA is one of the go-to resources I use when I have questions about the FAFSA.
Appeal your award. Here is a little known fact that most schools don’t like to advertise. Listen carefully, and lean in closely while I whisper it into your ear, “ask for more money”.
Yes, at least in some cases, getting more financial for college could be as simple as asking for more money especially at private colleges that offer academic or merit-based financial aid awards – which is to say, most private colleges.
Schools will tell you that they don’t negotiate, but many will work with families on a case-by-case basis. They’ve also done the research to know approximately how much money they need to offer a student like yours to attract them to their school. Naturally, they want to offer you as little as possible to get your student. However, that doesn’t mean they don’t have any flexibility to increase their offer.
In the spring you will receive your Student Aid Report detailing your financial aid offer including loans, grants and other scholarships. Most families accept these offers at face value, but you may be able to get a little more just by asking.
Be humble, polite and respectful. These schools don’t have to offer you anything. But it’s not unreasonable for a parent to go back to a school and ask the two following questions: 1) “Is there anything that we can do to make this more affordable for our family?” and 2) “Is there anything that you would be willing to do to make this more affordable for us and our student?”
You can tailor the questions to suit your needs, but the gist of it is that by explaining your situation and asking for a little more help, they just might say yes. If nothing else, they may be able to explain why they have offered what they have. Perhaps they don’t offer merit-based aid or their school is already very competitive in price.
Public colleges and universities, as well as schools that focus on need-based financial aid, may not be as flexible as you would like. However, the majority of private colleges and universities have some discretion in their merit-based financial aid awards.
For more information on how to appeal your award, check out this article from financial aid expert and journalist Lynn O’Shaughnessy.
If you really want to know more about how to get more financial aid sign up for Lynn’s online course. The next one starts February 10th. I don’t get any financial fees for referring people to Lynn, but if you tell her Mike Branch sent you, you will receive a $50 discount off the normal price. See? You are paying less for college already.
For more information:
This has already been an epic post with much more content than I would normally publish. However, it’s just the tip of the iceberg. Paying for college can be complicated. Educate yourself and make yourself a smart consumer of a college education as early in the process as possible.
Start by downloading My Top College Planning Tools and Resources guide (upper right hand page of my website), and sign up for my blog. I write primarily about retirement planning, but paying for college is a HUGE retirement planning obstacle for many families.
My Top College Planning Tools and Resources guide will direct you to a number of websites and other resources that will shave countless hours off your college planning research.
Next order my ebook, Pay Less for College. Normally, $2.99 on Amazon.com, during my Fun and Fab Financial Aid February event it will be free on Fridays. If you have Kindle Unlimited it is always free. Get your copy now.
During my Fun and Fab Financial Aid February event I will continue to provide more information to help you pay less for college. To keep up, follow me on Twitter, LinkedIn and, of course, my blog.
Next month I will return to my usual weekly retirement planning content. In the meantime, if you have any questions – financial aid or otherwise — just ASK MIKE.
Please note: IRA strategies implementing various tax strategies or tax codes may not be appropriate for all investors. Please consult your investment and tax professional prior to implementing a strategy