How do families find colleges that are affordable and deliver value? For many families, college affordability and avoiding excessive student debt are becoming more important factors in the college decision process. A Princeton Review Survey confirmed this earlier this year.
What are the steps needed to make informed decisions during this college search and selection? To find these answers, families will need to do work and research on their financial aid positioning and develop a strategy for paying.
Today, student debt is over 1.4 trillion dollars and the student loan debt is up six percent from last year. The average student who graduated in 2016 has $37,172 in student loan debt. Families see these headlines but at times have difficulty finding the resources to help them make better decisions.
Our goal is to help you narrow your college applications. In our past blogs, we have told families to weigh the academics, the environment and the financial cost of college when beginning this process. We agree that these 3 factors are most important. Due to higher cost and debt factors of paying for college, we feel students need to include college outcome in the decision process. By this I mean, the cost of the college in relation to the career choice and debt amount to reach that career objective. In essence, what is the student’s future quality of life?
The list below contains specific areas that need to be considered when building your list of colleges. We suggest that after your college visits you to do a small exercise for each of the colleges that you visit so that you can develop better cost and value comparisons.
In the beginning of your college search, you may hear the terminology of cost of attendance or COA. Each college has a COA that includes tuition, room, board fees, books, transportation and personal expenses. These expenses are called direct and indirect costs. The direct cost of tuition, fees and room and board are billed directly by the college while the indirect cost can vary depending on the student and location of the institution.
You may receive the COA number in a college packet during your college visit or get your COA number by researching your school on the college website. If you are looking on a website make sure you calculate your cost on the current 17-18 value. The government has a tool called College Navigator which lists this information but at present it only has 16-17 tuition data. Make sure your tuition and fee number is also based on 15 credits. If the college website listed the tuition as a 12 credits amount find out if additional money is charged for the 15 credit total. Typically, students will need to take 15 credits a semester to graduate in four years.
Expected Family Contribution or EFC
Understanding your financial aid position at a college begins with the Expected Family Contribution. This is the amount that a college will use to estimate a student’s financial need. The COA is subtracted from the Expected Family Contribution to determine your financial need at a college. Many people mistakenly believe that the EFC is one number while the actual calculation is really four separate numbers that are summed together: parents’ income, parents’ assets, student s income and student’s assets. Each of these components has separate rules and allowances.
The EFC is generated when a family completes the FAFSA. This is often called the Federal Methodology. Some colleges use a second EFC methodology called the Institution Methodology. It is important to know if a college uses just the FAFSA or both methods. Having this information can have a significant impact on financial award and expectations.
The estimated EFC number may not remain the same each year as factors such as changes in income, marital status, or number of children in college may change your financial aid position. Getting an idea of when these changes may occur can help the family better utilize their financial resources.
College Affordability LLC does have a free EFC calculator on the EFC PLUS website that calculates both methods. Our EFC PLUS software identifies the schools that use the institutional method which will give you a better estimation of your financial award and net cost.
Net Price Calculators
After understanding the COA and EFC, the next step is determining the net price of the college. The federal government requires any college that participates in the federal financial programs to have a net price calculator (NPC) on their college website. A family will use the NPC to estimate their net price of attendance at a college. This amount is calculated by taking the cost of attendance and subtracting eligible grants and scholarships aid that are based on the family’s financial situation.
The federal government provides a template for any college to use on their website, but colleges can also develop their own customized calculators as long as they adhere to the guidelines listed by the Department of Education. Families should realize that not every NPC has the same accuracy or detail. It depends on the college. A NPC that requires parents to answer questions related to dividends, interest, and home equity will provide a better estimate. Families should also look at the year of the college data in the cost of attendance. Not every college has updated COA information and families should be aware estimated calculations may not include current figures. Also, these are estimates and are no guarantee of you final award.
Historic Gifting Policy
Once a family has an idea of their financial aid position, it is time to review some college data. Families can go to the government website, the National Center for Education Statistics and find out the historic gifting policy for any college on their list. This search will show the data trends for financial aid for any college. A college financial award will include scholarships, grants, loans and work-study. Most families are interested in the gifting portion of the award or the free money.
It is important to review this information since it is another source of what you can expect from each college. This would include types of awards per student and the average cost based on income. It is unfortunate but just because a student may be accepted to a school he or she may not receive enough aid to make it affordable. Reviewing additional data is a good way of managing the expectations.
Click here to view the link to this government website.
Merit Aid Possibility
When you begin your college search, it always a good idea to encourage your child to apply to several schools where he or she will be in the upper 25% of the applicants as far as GPA and test scores. Create a list that has a mix of schools. Discussing this list with the high school counselor or college planner may give a student a better insight into the requirements of the institution. A student can also call the admissions office and ask for specifics on the merit aid and scholarships available.
Not all scholarships are based on scholastics and some student’s may receive an award based on community service or a humanity activity. This may take time for the student to investigate but doing your homework in this area could pay off.
Graduation Rate and Retention Rate
When reviewing the historical statistics of college, a student should consider graduation and retention rate. The graduation rate will be listed as four year and six year graduation percentages. This is an important statistic as it predicts the probability of a student graduating within four years at the institution.
Currently, the national average of student’s graduating in 4 years in less than 40%. The National Statistics of Education site will have the graduation rate. Finding the college on your college list with the higher graduation rate should be part of the research your child does and part of the dialogue you can have about graduating college in 4 years. An extra year of college is not only an increased expenses as far as tuition but the student needs to be made aware of the added cost of lost salary and delays in loan repayment. Delays in loan repayment could mean additional interest cost.
The retention rate of a college is the percentage of the college’s first time, first year undergraduate students who return to the institution the next year. This is an important number. Finding schools with higher retention rates will improve the student’s possibility of graduating on time and reduces the risk of additional expenses due to transferring. A good retention number indicates that the school has created an environment where the student can be successful and less likely to transfer.
After figuring out your estimated cost of attendance and understanding your EFC number, the next step for families is to determine how they will pay for college. Based on a recent study over 75% of families will be supplementing the cost of attendance with loans. With more families needing to fund college shortfalls, it is important for families to educate themselves on this topic.
Understanding the college student loan options and the repayment methods is now a critical part of the college affordability decision. An important part of the loan review should be a discussion on when the loan needs to be paid back, interest rates, and legal responsibility of the loan. Families should also be aware that federal student loans have annual loan limits based on their academic progress. Creating a four-year cash flow analysis with a family time line allows the family to better identify college funding shortfalls. This will help with the proper debt structure for your family.
The correlation of the type of debt drives the loan repayment options. This is rarely reviewed during the decisions process. As college costs continue to rise, this is needs to be part of the process. These decisions can affect both the students and parents’ financial future.
Outcome of the Decision
When the student is trying to pick schools and possible majors, I think it is a great time to begin the discussion of typical work day, salary and work environment. By having some career direction, it will improve your college decision process.
This is a good reason to include a visit to the career center. The strength of the career can help a student find the best career, intern opportunities and future job placement.
I understand that this may change, but I think it is still important to get the student to start thinking about their future. It is also good to have a vision of the debt at graduation and the income they will have to support their life style.
The college selection and application period is an exciting and stressful time in a high school student’s life. By taking a systematic approach, family can better estimate the cost, manage expectations, and make a better decision. As a parent, this may be one of the most expensive and important decisions you will make with your child.
Many of the items listed above are used in our EFC PLUS software. We believe having the information from building your cost list to evaluating your college financial awards in one place improves your possibility for success. This is done by creating a customized four-year analysis and seeing the debt at graduation.
One of my favorite quotes is by Henry David Thoreau in which he writes, “What you get by achieving your goals is not as important as what you become by achieving your goals”. Learn, grow and become a better person during your college years!