An Old Friend Contemplates His Children's College Educations

A week after my old college roomate's second child was born, he heard an economist on the radio talking about saving for college. His heart sank and my pockets lightened as the guest broke down the numbers. Considering the rising costs of higher education, he explained that to save for a private college, starting at their children’s birth, parents would need to set aside $500 per child each month in an account with an interest rate that matched inflation. As two educators in their early 30’s with a household income of around $60,000 a year, $1,000 a month represented about a third of our post-tax earnings. His mind raced. Should they eschew saving for retirement? How would they feed and house their children comfortably and also save for their future? Should they start them playing year-round soccer at age three with the (unlikely) hope that in 15 years a full athletic scholarship would be waiting? Maybe they ought to not save at all and maximize our potential to qualify for aid. Perhaps he should research offshore accounts to hide the little money we could save. Better yet, they could consider a strategic move to Germany or another foreign country that provides free undergraduate education.

That was over a decade ago and much has changed in their lives. What has not changed is the exorbitant cost of higher education and a growing anxiety about how to afford four years of college for two children. They still live in the United States with no offshore account, and neither of their children are soccer stars. While they still have a few years until they sign that first tuition check, if you are the parent of a college-bound high school senior, your concerns are more immediate. November 1 early college application deadlines are approaching fast and with them financial aid deadlines. At times it may feel like you need a degree in actuarial science or accounting to navigate the high seas of paying for college, but don’t jump ship because of the hype. A recent report by the National Center for Education Statistics highlighted how uninformed parents and students are about college costs and financial aid, explaining that often families overestimate prices. The report states:

Published college “sticker prices,” which few students pay, and media attention to high-cost private colleges and universities may contribute to students’ and families’ common misapprehensions about the price of attendance.

While any attempt to unpack all the details of financing college in one short article would be irresponsible, what follows is a primer on the facts, forms, and foibles of financial aid and some advice from the professionals to better inform families.

Unpacking College Costs

It is important to understand what the bottom line will be to send a student to college after factoring all costs, what your family is able to contribute, and any state, federal or institutional financial assistance. Simply looking at tuition, room, and board does not tell the whole picture. Thanks to a congressional mandate, colleges and universities that receive federal funding must publish their school’s Total Cost of Attendance (COA) that includes not only tuition, room, and board, but also averages for fees, books, supplies, transportation, and personal expenses. This could run as low as $23,734 a year as it is for in-state students at The University of North Carolina, or as much as $72,710, 15 miles down the road at Duke University. Before you go running screaming highway robbery, consider those who pay full boat are often in the minority (48% at Duke, a school that pledges to meet 100% of a family’s demonstrated need).

What you should be more concerned with is the Net Price of attending a college. This number is the amount you will pay out of pocket after financial aid. For a quick estimate of what this might look like for each college, families can use the Net Price Calculator, a federally mandated tool that each school has on their financial aid website. This resource allows you to see a ballpark financial aid package for which you might be eligible. Keep in mind that not all calculators are created equally--some colleges include merit (non-need-based) aid in the calculations, and the usefulness of this tool can depend on the complexities of a family’s financial situation.

When it comes time to actually apply to college, families will also need to submit an application for need-based financial aid (a combination of grants and loans offered to students/families based on a demonstrated need for support). All schools will require the Free Application for Federal Student Aid (FAFSA) and many colleges (especially private institutions) also ask for the College Scholarship Service Financial Aid Form (CSS Profile). Depending on specific family circumstances, other forms may be required, which is why it is imperative that you visit each college’s financial aid website to be certain you have submitted the necessary materials before the deadline. Using these forms, colleges calculate the Estimated Family Contribution (EFC), which is just as it sounds, the amount of money that the aid formula determines a family can afford for college.

If it seems that this is an oversimplified explanation of financial aid, that is because it is. Fortunately, there are ample sources of information for families who feel overwhelmed or lost in this experience. The National Association of College Admission Counselors (NACAC) is just one organization that provides a guide with many great resources to facilitate the process of applying for aid. The most important take-home messages are: don’t be intimidated by the hype, ask questions, start early and be attentive to deadlines.

Here is some more advice from those in the trenches:

Common Mistakes

Not entering a social security number on the student’s admissions application (which allows an institution to match that applicant to their financial aid documents) or entering in the parent’s SSN as the student’s.”--Liz Cheron, dean of undergraduate admissions at Northeastern University

Blended families often leave out a step-parent's information. Regardless of financial responsibility, the FAFSA is based on household income--whichever parent the student lives with and their spouse. Another common mistake is that parents fill out the FAFSA for the student and report parental income as the student's income. If you use the IRS data retrieval tool, this mistake is avoided.”--Kenneth Ferreira, associate vice president for student financial services at Franklin Pierce University

Not following through with financial aid offices if they have special circumstances not reflected in the questions on the forms. This may be related to expenses incurred caring for an extended family member, medical expenses, etc.”--Moira McKinnon, director of college counseling at Berwick Academy

The most common mistake has to do with reporting assets. People either over report or under-report. They sometimes include their retirement plans but they often forget that the net value of a second home, even if they live in a duplex is an asset.”--Elizabeth Keuffel, director of financial aid at Saint Anselm College

Families miss the deadlines and/or don’t understand that their student must digitally sign the financial aid form separate from the parent signature. Families also forget to add all their colleges when sending the forms.”--Emily Moore, director of college counseling at Dexter Southfield School

Financial Aid Myths

That all colleges will guarantee meeting full need. It takes research and counseling to find a college that will guarantee meeting the full need of all admitted students.”--Art McCann, dean of college counseling at Crossroads School for Arts and Sciences

That if your family doesn't qualify for state or federal need-based financial aid that you won't qualify for any need-based financial aid. Along the same lines, many families believe they will only qualify for need-based aid if they are low income. Many institutions have institutional need-based aid that has different (more generous) financial ceilings than state or federal aid.”--Falone Serna, director of admission at Pepperdine University

That 529 programs are awesome. In reality, it depends on the family, how much they're contributing, etc. Because 529 plans are in some cases assessed at a high rate, it would be more advantageous for a family to put the money elsewhere, and instead pay the taxes on it.”--Ari Worthman, director of college counseling at Lakeside School

That demonstrated ‘need,’ as determined by filing the required form(s) BY THE PUBLISHED DEADLINES, will equal their financial ‘want.’”--Mike Sexton, vice president for enrollment management at Santa Clara University

People forget that cost of attendance dictates demonstrated need so they opt out based on income. A student may not receive need-based aid at a lower priced institution but a lot at a higher priced institution. They often forget about the number of children in college as a big factor in the calculation of the Family Contribution. Families shouldn't opt out of an option based on sticker price.”--Elizabeth Keuffel, director of financial aid at Saint Anselm College

More Tips from the Pros

• The financial aid process should be a collaborative effort, co-led by parents and students. Have open conversations as a family about affordability and finances early in the process to avoid conflict and disappointment later.
• Start early and keep copies of everything.
• Do your homework and understand the financial aid process long before the student’s senior year of high school.
• Take the time to read the directions carefully.
• Don’t miss out by missing deadlines or by making “assumptions”.
• Be organized and read your email.
• Attend local information sessions or high school financial aid workshops.
• Make sure you have your taxes and W-2s for the correct years with you when you file the application.
• Use the tools available to you, like the IRS Data Retrieval Tool.
• Try to organize any and all investments so that you know how to discriminate which are for retirement and which are non-retirement instruments, and keep track of their values on a systematic and ongoing basis.
• Become educated on the reality of taking out loans, and how to borrow responsibly.
• Explore outside scholarship opportunities.
• Communicate with the financial aid office just like you communicate with the admission office.
• It’s never too late to start saving for college.
• Saving for college doesn't hurt your student. Saving gives families options.

A college education is a significant investment and though it might seem unattainable, there are affordable approaches to earning a degree. Some families find it useful to consult a financial advisor long before their children will be applying to college to discuss best saving strategies. Consider all your options, but most importantly, ask for help. Grants, loans, merit, discounting, gapping, need-blind, need-aware, 529 plans, work-study...the terminology alone can easily overwhelm the most resilient and informed applicant. Connect with a trusted high school counselor, admission officer or state/local access organization to guide you through this process. Better yet, befriend a financial aid counselor with one of the colleges to which you are applying. These educators don’t just hold the purse strings to financial support. They are valuable resources who can debunk myths and help you avoid mistakes. They don’t know what we don’t know, and even as an educator and high school counselor, when it comes time to apply for their children, he will be leaning on these professionals. Especially because they failed to follow the advice of that radio economist 15 years ago.