Making Sense of Financial Aid

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Making Sense of Financial Aid

The cost of college is out of control, and prices keep climbing higher. The cost of college tuition increased 12% annually from 2010 to 2022, and we’ve endured a steady stream of articles about colleges first crossing the $70,000, then $80,000, and now $90,000 per year price threshold. Even students attending public universities can expect to spend close to $20,000 per year – and savings can only cover so much. 

The fact that most students do not pay the sticker price for college adds additional confusion to a process that is already wrought with stress and uncertainty. Colleges and universities across the nation offer a mixture of merit-based financial aid, grants, scholarships, loans, and more to help students cover their tuition costs. For families in need, this financial aid can open doors to opportunities that otherwise would be out of reach.

In our recent conversation with Mike Perron, Founder & Principal Consultant of College Destinations, we explored the topic of financial aid to help families understand their options, make smart decisions, and take advantage of opportunities for negotiation. 

What Is Student Financial Aid?

Financial aid describes any funding that is available specifically to students pursuing post-secondary education. 

The first step towards accessing Student Financial Aid is to complete the Free Application for Federal Student Aid (FAFSA). The FAFSA, which assesses a student’s eligibility for financial assistance, is universally accepted by educational institutions across the nation. However, some colleges may also require families to submit additional financial information, such as the CSS Profile.

Traditionally, the financial aid timeline is very predictable: FAFSA applications are submitted in October and aid award letters are sent to families between December and February. 

However, a recent overhaul to the FAFSA that intends to make the process easier has led to delays and uncertainty in aid allocation. As a result, many families find themselves contending with unforeseen challenges. This additional complexity is likely to be most damaging to young people from underrepresented backgrounds as well as students who have a parent who is undocumented.

To successfully navigate the path to financial aid, students and their families must be aware of the different types of aid available to them, adhere to critical deadlines, and understand their own agency in making an informed decision. 

types of financial aid

The Financial Aid Timeline

It’s never too early to start saving for college, and savings vehicles such as 529 plans can help families set aside money while reducing their tax liabilities. Regardless of whether a student has money set aside for college or is planning to self-fund their entire tuition, there are three primary phases to the financial aid process. Mike Perron of College Destinations helped us to understand what to expect:

  1. Submitting Your FAFSA Forms: The first step is to fill out and submit your FAFSA form. Importantly, the FAFSA must be completed each year that a student is enrolled in college. Why? Because financial circumstances can change, and your student’s financial aid package may vary from year to year.
  2. Receiving Your Aid Package: Students do not receive their financial aid package until after they have been formally accepted to a college or university. This package often includes a combination of scholarships, grants, work-study opportunities, and, in some cases, student loans.
  3. Understanding Your Aid Package: As you review your student’s financial aid package, pay close attention to the breakdown of awards. Scholarships and grants are funds that do not need to be repaid, while work-study programs offer opportunities for part-time employment to help cover expenses while enrolled in school. Loans represent borrowed funds that must be repaid, usually after graduation. Read on for more detail on each category. 

Understanding the Types of Financial Aid

Understanding the distinctions between work-study, scholarships, and grants is essential for maximizing your student’s financial aid potential. While work-study provides valuable real-world experience and immediate financial support, scholarships and grants offer direct discounts off the sticker price of a college or university.

Scholarships and Grants

Scholarships and grants are the best type of financial aid. Unlike loans, which require repayment, scholarships and grants are direct discounts awarded to students based on various criteria.

Grants

Grants, in most cases, are awarded based on financial need, as determined by the information provided on a student’s FAFSA. The government calculates an estimated contribution that a family can afford to pay for one year of college, and schools use this information to determine the amount of grant aid a student may receive. Essentially, grants intend to bridge the gap between what a family can afford and the total cost of attendance.

Scholarships 

On the other hand, scholarships are typically awarded based on merit. Students receive scholarships for academic achievement, standardized test scores, extracurricular involvement, and other criteria specified by the awarding institution. Merit-based scholarships recognize and reward students for their accomplishments and potential. Scholarship awards may also be used to entice a student to attend a particular college or university.

Requirements for Keeping Scholarships and Grants

Most colleges have specific requirements students must meet in order to keep their scholarships and grants. In addition to remaining a student in good standing with the college or university, students may be obligated to meet certain standards of academic performance and enrollment status.

GPA

Many scholarships come with academic requirements, one of which is often a minimum GPA that a student must maintain to remain eligible for the award. For example, if your student’s scholarship mandates a 3.0 GPA, falling below this threshold could jeopardize their funding. However, some programs may offer a grace period or probationary period to allow students the opportunity to improve their grades before their Financial Aid is withdrawn.

Credit Requirements

Most awards are contingent upon students being enrolled full-time, which is typically defined as carrying a minimum load of 12 to 15 credits per semester. Deviating from this requirement and dropping below full-time status can have implications for your student’s financial aid package.

Federal Work-Study

Federal Work-Study (FWS) offers students the opportunity to earn money by working while pursuing their education. Typically, FWS entails working on campus for around 10 to 12 hours per week – and students are paid for their work. Work-study jobs span various departments and functions, including serving as tour guides for the admissions office, working in the library, assisting with an afterschool program, or helping in an administrative office on campus. Students can use the money earned through work-study to pay tuition costs or to cover their other expenses.

Federal College Loans

Many students will have the option to take out a federal student loan to help them pay for college. These loans are different from private loans in that they are provided by the U.S. Department of Education, they have lower interest rates and borrowing limits, and they are based on a family’s financial need as determined by the FAFSA. Federal loans come in several varieties, including subsidized and unsubsidized. Subsidized loans are preferable because no interest is accrued while the student is in college and often for a short grace period after they graduate, while unsubsidized loans accrue interest as soon as the student receives the loan. Because of their more favorable terms, flexible payment options, and the possibility of forgiveness or discharge, federal loans are preferable to private loans, which should be treated with caution.

Private Loans

Private college loans are a necessity for many students, but it’s important to treat this funding option as a last resort and to be wary of the many predatory lenders that take advantage of students and families. Online databases can help to vet private loan providers, and families in Massachusetts may be eligible for private loans from the Massachusetts Educational Financing Authority (MEFA), a nonprofit organization established by the Commonwealth to help families cover college expenses. 

Any student pursuing private loans must take the time to understand the terms and conditions, including rates, fees, terms, and payback periods.

The Search for External Scholarships

What happens if your student’s financial aid package isn’t enough? One option is to apply for external scholarships. Local scholarships, in particular, can be a valuable source of assistance. The best time to search for local scholarships is the end of junior year and the start of senior year.

Tips for Scholarship Applications and External Financial Aid

When it comes to scholarship hunting, don’t shy away from applications that demand more effort. Scholarships that require essays, letters of recommendation, or even interviews tend to have fewer applicants. By taking on these more complex applications, your student is much more likely to secure the award. Remember, the extra effort can pay off – in the form of financial aid.

Guidance offices often maintain lists of local scholarships, and online databases such as FastWeb and College Board’s Big Future program make it easy to find and apply for scholarships. There are also many independent scholarships that provide awards to students with a particular interest, characteristic, or accomplishment. The Boston Beanstalks Scholarship award is given to students who are especially tall, while the Red Sox Service Scholarship is awarded to graduating Seniors who have impacted their community through their service work.

Students who cast a wide net and explore diverse funding sources increase their chances of finding scholarships.

Scholarship Displacement

Before your student invests hours applying for scholarships, it’s important to understand how their college or university will treat scholarship awards. A significant number of colleges and universities now engage in Scholarship Award Displacement, in which any external scholarship awards simply reduce the school’s financial aid award to the student, meaning the cost of attendance remains the same for the student. For example, if your student received a $1,000 scholarship from an organization in their community, the money would be used by the college to offset their institutional scholarships or grants. As a result, the scholarship award benefits the college rather than the student.

While there are many efforts underway to limit scholarship displacement, this controversial practice remains widespread. It’s therefore crucial that you and your student investigate the scholarship policies at the specific colleges to which they are applying to avoid the frustration and disappointment of receiving a significant scholarship only to find that it does not actually affect your student’s cost of attendance.

Scholarship Duration

Most scholarships provide funding for just one year, and some scholarships are only available to first-year students. When applying for scholarships, be sure to check whether a student can reapply each year and, if so, put a reminder in your to ensure that your student applies every year they are eligible! Many students are proactive about scholarships when they are preparing for their first year, but then they forget to reapply and are surprised to see their out-of-pocket costs rise dramatically in their Sophomore or Junior year.

How Much Do YOU Think Your Family Can Afford?

When it comes to affording tuition, it’s one thing to pay for one year and another to pay for four years – or more! Many students take longer than the traditional four years to complete their degrees, and focusing solely on funding the first year without considering the total potential cost of a degree can lead students and families to feel trapped between mounting debt and the sunk cost of the first year or two of college.

When assessing your family’s financial capacity to pay for college, be sure to consider the entire duration of your student’s academic journey. Will they likely pursue a graduate degree? Will you have multiple students attending college at the same time? Do you expect dramatic changes in your household income or expenses? All of these factors play into making a strategic decision about where to attend and how to fund it.

There are also creative solutions to reduce the cost of attendance. Some students defer their admission and take a gap year to work and save money. Other savvy students spend a year or two taking classes at a local community college, which allows them to continue to live at home and work part-time while earning credits at a fraction of the cost of a four-year university; these students can then transfer to a four-year college or university, bringing most of their credits with them, and earn their Bachelor’s while only paying for two years on campus. 

With the astronomical cost of college, a family can make smart decisions about saving for college, applying for scholarships, and applying to good-fit colleges and If your student’s financial aid award is not enough to make it possible for them to attend the college of their choice, there is another step that many families are unaware of that can, in some circumstances, make all the difference in making it possible to afford college.

How Much Do THEY Think Your Family Can Afford?

Most colleges use a simple process to determine a student’s financial need: they subtract the Student Aid Index (SAI) or Expected Family Contribution (EFC) from the total Cost of Attendance (COA). The result is the amount of need-based financial aid your student is eligible to receive. Some colleges will also require the CSS profile, which requires more in-depth information and thus paints a fuller picture of a family’s financial circumstances. A student’s financial need does not necessarily determine their financial aid award, but it is a central factor.

Need-Blind Colleges

Most colleges consider a student’s ability to pay when deciding whether to admit them. However, there is a growing number of colleges and universities that are need-blind, meaning they do not consider a student’s financial circumstances when deciding whether to admit, reject, or waitlist them. A few of these colleges are need-blind for all students, while others are need-blind for first-year students from the U.S. but may be need-aware for transfer students or international students.

Colleges That Meet Full Need

Some colleges promise students that they will meet their full demonstrated financial need to ensure that cost is not a barrier to attendance. These colleges bridge the gap between a student’s SAI/EFC and their COA through grants, scholarships, and, in many cases, loans. When applying to colleges that meet full need, pay attention to how the colleges meet that need. Attending a full-need college does not mean that a student won’t have to take out loans or pay out of pocket.

What If Your Student’s Financial Aid Award Isn’t Enough?

The FAFSA and CSS Profile provide colleges with important information about your financial situation, but they do not tell the whole story. Consequently, many students receive financial aid awards that are insufficient to make a particular college affordable for them. This often means that a student simply does not attend that college. However, there is one option that many families are not aware of: appealing your student’s financial aid award.

The Financial Aid Appeals Process

Your student can request that a college provide additional financial aid by appealing their financial aid award. Most colleges will specify the process of appealing a financial aid award in their initial financial aid package, and you can contact the admissions office if the process is not otherwise clear. Appealing a financial aid award usually involves writing a letter to your school outlining why you need additional funds and how much you require.

What to Include in Your Letter

It’s important that your financial aid appeal letter is clear, simple, and direct. This template letter provides a helpful starting point.

Your student’s appeal letter should express sincere gratitude for any financial aid they’ve already received and convey their enthusiasm for attending. If the college is their top choice, they should say so.

The actual ‘ask’ should include a specific (and realistic) dollar amount, and your student should provide clear justification for the request. This may include personal or financial circumstances that have changed since they applied or are not fully or accurately reflected in their SAI, and it may also include specific examples of financial aid offers provided by other colleges.

Be prepared to provide evidence to support your appeal, including award letters from other colleges and documentation relating to any changes in circumstances.

Private Schools Vs. State Schools 

Private colleges often have more flexibility in allocating financial aid funds. They typically maintain reserves specifically designated for appeals, allowing them greater leeway to accommodate students’ individual financial needs. 

State schools operate within the constraints of a state budget, which limits their ability to deviate significantly from established financial aid packages. While state schools may have some funds set aside for appeals, the amount available for adjustments is typically more limited and its uses more constrained. Students generally have a much greater chance of a successful appeal for more aid at private schools than at state schools. 

Why Are Appeals Denied?

When appeals get denied, many families wonder why. 

Several factors can influence appeal decisions. Schools may prioritize allocating funds to specific academic programs or geographic regions to meet enrollment goals. Additionally, budgetary considerations and supply and demand dynamics can impact appeal outcomes. While a student may present a compelling case for additional aid in their appeal letter, the final decision may be more influenced by institutional priorities and constraints.

Without justification and evidence, it is unlikely that an appeal will be successful.Students increase the chances of a successful appeal by crafting a well-written appeal letter that clearly articulates the need for additional funds and provides supporting documentation.

A Buyers’ Market

For many college-bound students, it’s critical to remember it’s a buyers’ market. Many colleges are concerned about achieving their enrollment goal, and so families may have more leverage in securing financial aid as institutions are increasingly incentivized to negotiate financial aid packages to entice prospective students to enroll.

As with any negotiation, it is important to be courteous and understand the constraints of your negotiation partner – in this case, college financial aid offices. Most colleges want to be financially accessible to their students, but they are also bound by finite resources and strict guidelines. When you provide a clear, well-organized explanation of your need for additional aid, you make it easier for colleges to approve your appeal.

Key Takeaways 

Financial aid comes in many forms, and it pays to be proactive about completing the FAFSA and (if necessary) the CSS Profile, seeking and applying for scholarships, and, if necessary, appealing financial aid awards.

The first step towards successfully navigating the financial aid process is to have open and honest conversations about what your family can reasonably afford to pay for college. While these conversations can be difficult, they are essential for managing expectations and establishing objective measures that help you and your student determine which college will best help them achieve their academic, personal, professional, and financial goals.

If your family has questions about financial aid or is seeking guidance in appealing a financial aid award, connect with Mike Perron through his website.

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