The Real Cost of College
By Don Rauf
Most students don’t pay the “sticker price” for a college education—especially if they actively seek financial aid.
Jonathan Johnson of Riverside, California had his heart set on going to a top private college, but he knew there was no way his family could afford the price tag. So starting sophomore year of high school, he set his mind on one goal: getting college funding.
“I pursued financial aid with a tenacity where I wasn’t going to stop until I got just what I needed,” says Johnson, who is now a college junior.
He studied up on financial aid in library books, and he spent a lot of time in his high school guidance office getting advice. “Our school had a guidance counselor who specifically sought out scholarships for all the graduating seniors,” explains Johnson.
Johnson went after all the awards he could think of, including Target’s $25,000 scholarship, an NAACP award, and a Ronald McDonald House Charities scholarship for $2,000, which he wound up winning.
He also focused on applying to private colleges that would give him their own generous package. His top-choice school was Chapman University in Orange, California, one of the oldest and most prestigious universities in the state.
Again, his high school guidance counselor helped him, showing him the steps to take to get the best financial aid package. Chapman recognized Johnson’s academic talent and his financial need and gave him a package close to $40,000. As the first member of his family to attend college full-time, he also qualified for specific financial support. Johnson won Chapman’s Thurgood Marshall scholarship for $5,350, a Chapman grant for $9,450, and a dean’s scholarship for $12,000. He also qualified for a Chapman interest-free loan of $3,000, as well as a subsidized federal Stafford loan of $2,625. Putting in hours at the admission office through the work-study program gave him an additional $1,300. To meet most of the remaining costs, Johnson relied on an unsubsidized Stafford of $4,000.
“Jonathan came to Chapman with a package that met all his tuition, fees, and most of his residence expenses,” says Greg Ball, Director of Financial Aid at Chapman. “You should always apply for financial aid and take advantage of all the programs your school has to offer—especially if you have need.”
Early on in high school, Johnson learned an important lesson about applying to college: a higher education almost always costs less than advertised, so don’t discount any school you really want to attend.
“Many prospective students do not even apply to more expensive schools simply because of the sticker price,” says Dan Lupin, Director of Financial Aid at Embry-Riddle Aeronautical University in Prescott, Arizona. “Students should apply to the school of their choice and then let the school help them determine if attendance is financially feasible.”
If you want to minimize your college expenses, you’ll need to be aggressive and organized, both in your hunt for financial aid and in your efforts to cut costs.
Start with the fundamentals.
There are two types of financial aid: merit-based and need-based.
Merit-based awards are typically scholarships given by a private institution or your college. These awards recognize your talents, whether they are in academics, athletics, music, writing, or something else.
Need-based aid is awarded according to your ability to pay for college. To figure out how much you should be able to pay, colleges look at your family’s income, assets, and other financial data that you provide on the Free Application for Federal Student Aid (FAFSA) and on the College Board’s PROFILE form, which is required by some private schools. (For more information, check out www.fafsa.ed.gov and http://profileonline.collegeboard.com.) Based on the financial data you provide, processors calculate your Expected Family Contribution (EFC).
Colleges calculate your need using this formula:
Cost of attendance
– Your EFC
– Outside financial resources
(e.g., private scholarships)
= Need
Colleges will put together an aid package of loans, grants, and work-study that should meet that need.
Don’t rule yourself out.
You have nothing to lose by filing the FAFSA—it’s free! And filing the PROFILE costs a registration fee of $9 and then $16 per school. You just have to spend some time working closely with your parents to gather all the necessary financial data. “An open dialog between parents and students is really crucial,” says Mark Hatch, Vice President for Enrollment Management at Colorado College in Colorado Springs.
A lot of students think they don’t have enough need to qualify. “About a third of our students don’t even apply for financial aid because they think they’re not eligible,” says Jay Leiendecker, Vice President for Enrollment Services at Dean College in Franklin, Massachusetts.
The fact is even a family with an annual income of $100,000 may still qualify for aid. Factors other than income are weighed when calculating need. For instance, an applicant may have other siblings in college, older parents, or the family may have had a recent financial setback.
File on time.
The big date in financial aid is January 1 of the year you plan to start school. Try to have your form ready to submit on New Year’s Day or soon thereafter. A lot of financial aid is awarded on a first-come, first-served basis, and the best awards are generally given to the earliest applicants. And remember, you’ll have to re-file every year that you are in college to get aid.
What the aid package will look like.
In general, your financial aid will consist of three possible types of awards: scholarships and grants (money you don’t pay back), loans (money you must pay back), and work-study (money you earn). With the reauthorization of the Higher Education Act this past summer, the federal government approved new, higher amounts of aid for most undergraduates. The government still has to approve the actual funding for these programs, but here’s where the aid situation stands at this writing. To keep up to date, visit http://studentaid.ed.gov or contact your school’s financial aid office.
1. Federal Aid. Federal programs supply the majority of all financial aid to undergraduates in the form of:
• Pell Grants. For students who show significant need. The maximum award is $4,731; the average award has been about $2,945, according to the U.S. Department of Education.
• Supplemental Educational Opportunity Grants (SEOGs). For students who show exceptional need. These awards range from $100-$4,000.
• Work-Study. For undergraduates demonstrating financial need. These jobs pay at least minimum wage.
• Perkins Loans. For students demonstrating need. These loans have a guaranteed low interest rate of 5% and provide undergraduates with up to $5,500 per year to a total of $27,500 over their undergraduate careers.
• Stafford Loans. Depending on their need, students can get subsidized Stafford loans (the government pays the interest while the student is in school), unsubsidized Staffords (interest accrues while in school), or a combination of both. Currently, dependent undergraduates can borrow up to the cost of attendance but no more than $3,500 their first year, $4,500 the second year, and $5,500 for each year thereafter. Independent undergrads and students whose parents are ineligible for the PLUS loans can borrow more.
• PLUS Loans. Available regardless of need but dependent on a borrower’s credit worthiness, PLUS loans can provide a loan amount not to exceed the total cost of college minus any aid you've already received. The interest rate is capped at 8.5%. PLUS loans are available to parents of undergraduate dependent students and graduate students.
• Tax Credits. Depending on a family’s income, the Hope tax credit and the Lifetime Learning tax credit allow tax deductions of a maximum of $1,650 and $2,000 per year, respectively, for amounts spent on a student’s higher education.
2. State Aid. States offer their own loans and grants. Most states use the FAFSA to determine aid awards. Contact your state’s Department of Education to see exactly what you need to file and when, as many states have early deadlines.
3. College Aid. Universities and colleges award their own scholarships, grants, and loans. Most colleges will tell you the percentage of students who receive aid and what the average aid amount is.
4. Private Scholarships. A small percentage of aid comes from private scholarships, including employer-based programs. To find out what private scholarships match your unique abilities, you may want to use one of the many free or inexpensive scholarship search engines available on the Web, such as www.careersandcolleges.com (click on “Search Scholarships”).
“Many students overlook scholarship sources that are right under their noses,” says Lupin of Embry-Riddle. “Relationships that family members have with community service organizations, churches, employers, previous military service, etc., can provide access to free-money programs.”
A word on loans.
A portion of financial aid is in the form of loans—money that pays for college now but has to be paid back with interest. As of July 1, 2008, the rate on the subsidized Stafford was set at 6% for undergraduate borrowers (unsubsidized Staffords are fixed at 6.8%). Keep in mind that these rates are variable and adjusted annually, but because of recent federal legislation, interest rates on new subsidized Stafford loans for undergraduate students are due to be reduced each year until 2011-2012. Also, you don’t have to begin repayment on federal student loans until six months after you graduate.
“Don’t be scared to take out loans,” says Hatch of Colorado College. “People have no problem with the idea of paying off a car loan in five years or a house mortgage in 30 years. So you really shouldn’t be afraid to pay off a college loan over a number of years. Besides, a college education will last you longer than a car or even a house.”
Of course, you don’t want to borrow more money than you can afford to pay back. To give you an idea of what your loan payments might be, the National Center for Education Statistics reports that the average federal student loan debt for those who completed a degree program at a private college in 2003-04 was $17,904. If the loan term is 10 years at 6.8% interest, you will be making 120 payments of about $206 per month for a total cumulative payment of $24,720.
Lower your Costs.
Keep in mind that you can save a lot by being a smart spender. Buy used textbooks, use your student ID for discounts, e-mail or IM instead of maxing out your calling plan, and eat on a prepaid meal plan instead of ordering out.
Financial aid administrators stress that you should always try to get into the college that you think suits you best. Focus your energy on finding financial aid, and you too will be able to afford the school of your dreams!
“My advice to all students is to approach seeking financial aid as if you had no other options,” says Johnson. “When you take that approach, seeking out scholarships and financial aid is not burdensome but necessary to keep your dream alive.
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