What you need to know about financial aid BEFORE choosing a college
College and Finance is all about giving students and families the best information. With this in mind, Todd Johnson, who is the principal college admission consultant for College Admissions Partners, has written a two-part guest post on saving money via financial aid and other methods (Be sure to check out Part II: 7 Money Saving Questions to Ask Your College, after reading Part I). Todd provides professional and personalized service to help students and families through the complete college admissions and financial aid process. Needless to say, he is well versed on the subject; so without further introduction, here is part one.
With the high cost of a college education, you do not want to pay more than necessary. 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 how to save money.
There are three types of financial aid for college:
1. Grants or Scholarships
3. Work-study programs.
– 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.
The difference between need based financial aid and merit based aid:
– Need-based aid is given by all colleges to students who have demonstrated 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.
When considering which colleges you want to apply to, 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 because in part two where we discuss the questions to ask colleges that will save you thousands of dollars.