On the one hand, we want to offer the world of possibility to our kids: as an acknowledgment of their hard work, accomplishments, and their general awesomeness, and because we want the best possible future for them. On the other hand, the reality of college is that it’s just too expensive for most families to make every option available.
College is more competitive, costly, complicated, and confusing than it was when we walked those hallowed halls of academia. Students face unprecedented competition to get into college because too many students apply to too few schools that have recognizable names and effective marketing campaigns.
But there’s a large and growing body of research showing that good outcomes do not depend on which college you attend. The research concludes that spending more on college does not guarantee a better outcome; and spending less doesn’t risk a worse outcome.
So what creates bad college outcomes? Not graduating. Graduating with too much debt. Picking the wrong school, transferring and ending up on the six-year plan with only enough money for four years, thus graduating with too much debt.
We need to reboot our beliefs and assumptions about shopping for college. College only costs what you’re willing to pay. Your job as a parent is to help your student figure out what’s important for them to succeed in college and to identify schools that provide that at a cost that works for your family. Let’s review the three costliest college mistakes families make AND how to AVOID them!
The phrase above that’s muttered by parents around the country every year are the most dangerous words in college planning – it reveals a parent’s honest and overwhelming emotional desire to help their kids, but it also signals that price is not an obstacle when shopping for college.
Money is an uncomfortable thing to talk about, and most people shy away from discussing their personal finances with their kids. But as consumers, we need to be informed and know what we’re getting ourselves into. Many families overpay for college, take on too much debt, and hurt their savings and retirement plans because they tumbled unprepared into the late-stage college funding pressure cooker. It doesn’t have to be this way.
College is a major investment, and parents need to have an honest conversation with their kids about the costs associated with different colleges before they even start the college search.
Just as you shop for cars or a house based on what you can afford, so should you shop for college. The “cost of college” that you’re going to plan for is the cost of colleges within a range that your family can afford. And as is the case with cars, you’ll find a wide variety of choices in your price range.
Find out how much college will REALLY cost your family – a free MyCAP account gives you answers in under five minutes to three critical things every family needs to know before entering the college funding maze including your Student Aid Index (SAI / EFC), your financial aid eligibility, and your estimated one-year and four-year costs at three schools of your choosing.
There are almost one million kids applying to fewer than one hundred elite schools, and some wonder why things don’t work out the way they thought they would. A handful of colleges sit at the top of the pyramid and accept between 4 and 13 percent of students who apply for admission. Everyone who applies to these highly selective schools is brilliant and remarkable. I’m not saying our kids shouldn’t apply – I’m saying you’re better off going into this knowing the probability of admission is low, and you will most likely pay retail or list price if an acceptance letter does arrive. These schools don’t need to discount the cost of attendance. The demand far exceeds their supply, and they can afford to be choosy.
Move down one tier of selectivity and the schools in this category are still only offering a seat to one out of every four applicants. This however, is ripe territory for understanding how to play the game and adapt a more strategic approach. These schools are trying to break into the upper tier. Our brilliant and remarkable students will find themselves showered with offers of admission, as well as meaningful incentives, for applying to lesser-known brand names.
That leaves the third level of selectivity offering admission to one out of every two students who apply – still not a sure thing. This is where understanding the difference between in-state public schools and smaller, lesser-known private universities pays off. For many families, it’s cheaper to attend a private college than default to a state university. It wasn’t like this when we went to school, so we have no point of reference. But we need to understand the discounting that happens to put students in the classrooms and use it to our advantage. If you look at private colleges out there, the most recent study shows they average a 54% tuition discount. So these families are either getting scholarships or grants and they’re cutting that tuition in half at most private schools today. An important takeaway is never rule schools out based on the sticker price because the sticker price is irrelevant.
Finally, we arrive at the least selective four-year institutions that admit 75 percent of those who apply. The student still must show they’re interested in attending by doing a great job on the admissions application and meeting all the deadlines.
How we shop for college is determined by understanding three key areas – the academics of your student, your family’s financial position, and the “business model” of the college in consideration. The business model refers to the school’s admitting, financial aid, and scholarship policies.
The math is simple – take the total cost of college each year (COA, or cost of attendance) minus your family’s Student Aid Index (previously the Expected Family Contribution, or EFC) – the gap between the two is your “need” for the purposes of calculating a financial aid award. That need can be met – or not met – using three types of aid: grants, loans, and work-study.
Knowing these three numbers – which are completely unique for your family – enable you to intelligently shop for schools ensuring a good financial fit within your family’s budget.
If we go to school X based on our budget, what’s our funding gap? What are the resulting student loans? But more importantly, what’s our student’s projected out of college INCOME based on the school he or she attended AND their major or degree? After the monthly loan payment, what’s their estimated take home pay? We can get this info and it’s critical in order to understand the ROI of your college investment.
An example:
The national average first year starting salary for a student that graduated with a:
BA in computer science is $86,000 a year
BA in education is $42,000 a year.
The reality is the computer science grad’s ability to repay loans and the return on his family’s investment in education is much greater. There’s nothing wrong with being an educator, but I’d argue that you don’t need to go to an $95,000 per year school to be a teacher.
The Department of Education administers the Free Application for Student Aid (FAFSA). It’s a tool that schools use to evaluate students’ financial strength on a consistent set of metrics by calculating a Student Aid Index (SAI) based on the parents’ and student’s income and assets. Any institution of higher education that wants to receive federally funded financial aid money requires students to complete the FAFSA.
According to Sallie Mae, only 70 percent of families submitted the FAFSA for 2021-22, and they received a total of $234.6 billion in student aid.
Filing the FAFSA is an annual event for families of college students, starting in the fall of senior year of high school. The FAFSA becomes available October 1 of every year (except 2025 – it went live December 1st); the due date is set by each school individually. You need to look at the due date for every school you’re applying to.
The SAI is a numerical representation of a family’s ability to pay for college asd calculated by the FAFSA. Truthfully, most people are horrified when they see their SAI because it’s almost always far more than you think you can afford. Nonetheless, the difference between SAI and cost of attendance at a given college is our financial need.
Given how complicated the process is and the need to reveal your financial life to strangers, no one would blame you for not wanting to participate. I appreciate the sentiment but must insist you have nothing to lose and everything to gain. A few thoughts to consider:
Financial aid is a tool that can and should be leveraged. You’ve paid into the system every year you’ve paid taxes, and you’ve earned the right to use it to your advantage.
Filing for financial aid increases the probability of merit-based aid at schools where your student falls into the top quartile based on GPA, test scores, and transcript of students admitted to the freshman class.
Financial aid can improve your cash flow during college years, allowing you to stay on track for retirement and maintain your current lifestyle.
You are in no way obligated to take an offer of financial aid. You can accept all, some, or none of what is awarded to your student. Why not give yourself as many options as possible and make an informed decision.
In the same way that straight A’s don’t guarantee admission to Harvard, getting a low SAI doesn’t guarantee scholarships from your school of choice. Awards are based on each school’s financial aid policies and will vary tremendously from school to school.
Fill out and submit the FAFSA every year, for every college student.
Most students are better off completing the FAFSA soon after it becomes available because some financial aid is first come, first served.
Some private and elite schools also require the CSS Profile, a financial aid form with a slightly different methodology and data set. If you’re applying to a school that requires the Profile, you still need to fill out the FAFSA.
Even if you think you will not be eligible for financial aid, we STILL recommend you fill out and submit the FAFSA every school year for every student because:
With some colleges costing upwards of $100,000 annually, many families are in fact eligible for financial aid, even if they don’t think they will be.
Families in a strong financial position will in some cases benefit in the admissions process by demonstrating (via the FAFSA) that they are able to pay full price.
Your financial position might change. It’s nearly a year from when your income – the biggest piece of the FAFSA formula – is counted to when the FAFSA becomes available to file (October of senior year of high school), and nearly another year from FAFSA availability to college enrollment. Much could happen in that time frame, and having filed a FAFSA will be beneficial if any such happening decreases your ability to pay for college. Consider the economic impact of COVID-19, and the more recent high tech industry layoffs.
This email introduced A LOT of topics for consideration. We don’t mean to confuse or overwhelm – but there a many considerations to weigh before spending tens or even hundreds of thousands of dollars on higher education. Never fear – we’ll be breaking these important concepts down in coming newsletters.
If you ARE confused and overwhelmed, take a breath and remember … You don’t have to navigate this decision alone!
Let’s chat, so you get your questions answered in real-time.
See you soon.
Michael
CollegeFundingCounselor.com | +1 (206) 590-0398
Call or Text +1 (206) 590-0398