With the high cost of a college education, no one wants to pay more than they must. Yet thousands of families pay too much for college every year because they don’t understand the basics of financial aid and don’t know the right questions to ask. So let’s learn the basics and then what questions to ask.
Basics Part I
There are three types of financial aid for college: grants or scholarships, loans and work-study.
Grants and scholarships are free money that you do not need to pay back.
Most grants and scholarships come from the federal and state government or from the individual college.
Loans need to be paid back after college.
There are many loan programs available from the federal and state government. Most of these loans have fairly low interest rates. There are also private loans available although these generally have a higher interest rate.
Work-study is a job offered on the campus of the college.
Basics Part II
Need based aid vs Merit based aid
Need based aid is given by all colleges to students who have need. Anyone who can’t pay the full cost of the college has need.
A form called the Free Application for Federal Student Assistance (FAFSA) determines the amount of need for federal grants and scholarships. Many highly selective colleges also require a form known as the Profile form The FAFSA form is filled out after January 1 of the year the student will first attend college.
The FAFSA and Profile forms ask questions about the income of the parents and student using information that you gave on your tax returns. These forms also ask questions about the amount of money you have in savings or investments. The Profile form is more detailed than the FAFSA form. Once these forms are completed the government uses the FAFSA form to determine how much your family can pay for college. This is your expected family contribution or your EFC. Your EFC is the same regardless of the cost of the college. Similarly the individual colleges who use the Profile use that form to determine what your family can pay for college.
Your need is the cost of the college you are looking at minus your EFC. For example, if you are looking at a college that costs $20,000 a year and your EFC is $5,000, your need at that college is $15,000. If you are looking at a college that costs $40,000 a year your EFC is still $5,000. Your need at this college is $35,000.
Merit-based aid includes scholarships typically for students who have good grades or have some other special talent such as athletic or musical talent. Most highly selective colleges offer little or no merit-based aid.
Finally, in looking at colleges you should ignore the cost of the college. Yes, you read that right. Ignore the stated cost of the college when you are first deciding which colleges to investigate further. You will see why later in this article.
So now you know the basics. Now comes the fun part: How to save money by asking the right questions.
Question What percent of my need do you meet?
Remember that EFC, or expected family contribution that the FAFSA determined? Some colleges will meet 100% of your need. Need again is defined as the cost of the college minus your EFC. So what does it mean if a college says they will meet 100% of your need? It means that once the FAFSA or Profile form has determined how much you can pay for college, the college will pay 100% of the rest of the bill.