Impact of the College Transfer
EFC PLUS has compiled 10 items to consider when reviewing your award letter and before the final college financial decision. This article is the second part of our series focusing on how to make a better college decision. Our goal is to help families make better college funding and student loan decisions. This article will tackle the different parts of the award letter. As the award letter arrives, families may notice that many of the financial aid award letters are not in a standard format. It can be confusing and is a reason why families should understand the financial aid terminology before making their decision.
Currently, student debt is over 1.3 trillion and it is now affecting over 43 million people. Families spend an enormous amount of time on the admission process and minimize the time on the four-year net cost of paying for college.
The lack of financial awareness and additional analysis is the shortfall of the college process. It is reflected in our declining college graduation rates within four years and the increasing number of transfer students. One of the biggest reasons for transferring is due to financial reasons.
EFC PLUS believes understanding the outcome of the college should be a key decision point in your discussion with your child. This is why a family needs to understand the “bottom line” or “net cost” of each college and not just the cost of the first year.
Here is our list of 10 items to consider when reviewing your award letter. It will help students and parents standardize a very confusing and complex problem. Below the article, EFC PLUS has also included two videos for additional information regarding the financial aid award letter analysis.
Customize Your Cost of Attendance
In our February 2017 blog article, “Cost of Attendance: Making a Better Decision”, we described in detail what the cost of attendance means for the college bound student and family. The COA includes tuition, room, board fees, books, transportation and personal expenses. We recommend that families build their own cost of attendance now when they are in this analysis stage.
Families will need to develop both the direct and indirect costs of a college. Direct costs will include tuition, fees, room and board. The indirect costs include books, travel expenses and personal living expenses. The college will customize the direct costs depending on the major and room and board plan selected by the student. The final customized number may not be identified until the college issues the final bill sometime this summer.
Understand the Merit Scholarship
An important part of the analysis requires the family to separate the gift aid and the merit scholarships. This will better enable the family to identify the net cost over multiple years and help them project future net cost. The scholarships are the free money given to the student and are a direct reduction of the cost billed by the college.
A merit scholarship is a financial award given to a student based on their specific academic achievement or talent. Most Merit Scholarships have additional requirements that need to be maintained to have it re-occur each year. This could include a certain GPA or activity, such a community service. Discussing the scholarship with your child can help reinforce the importance of maintaining the merit scholarship requirements.
Understand the Need Based Scholarships and Grants
A need-based scholarship is an amount that is determined by the student’s Expected Family Contribution calculation and financial need. If the COA is higher than the student’s EFC then the student may qualify for a need-based scholarship or grant. Most colleges do not meet 100 percent of need.
It is also very important for the family to review their own family timeline and see how this impacts your EFC calculations over the next four years. More or less children in college at the same time will change the EFC calculation. We recommend that if you are unsure of the type of scholarship on the award letter you contact the college for clarity.
Self Help Money: Loans and Work Study
Loans and work study are considered self-help money on the award letter and is dependent on a student’s financial need each year. The FAFSA will need to be completed and the federal loan type will depend on a student’s financial need. For middle income families, you could receive a subsidized loan at one college and then at another college only receive an unsubsidized loan. The loan type will depend on your need at each college.
Work- study programs offer the undergraduate a part time job each semester while they are in college. Unlike the scholarships and loans, this money will not offset the direct college expense. The award is dependent on the student filing the FAFSA form and is dependent on need.
Warning: If a Parent Plus loan is listed in the section, it needs to be eliminated for your comparisons.
Projection of the four year cost of college
The colleges do not provide this information and it is a shortfall of the process. To make the best college financial decision, a family will need to understand and project the four-year cost of each college. Creating this analysis will show a family how their financial position can change depending on the family timeline of other siblings in college. These changes will have a direct impact on future financial aid depending on the current award structure.
By creating a four analysis, a family can better identify the true value a college is going to provide to their child.
Understanding the cash flow and funding shortfalls
As you review your award letters, you may notice that the college has only provided a one-year view of the student’s financial picture. The award letter only provides a one year projection of what you will pay. It does not explain how you are going to pay this tuition or how to maximize your financial resources. This is another shortfall of the process and is linked to the increasing student debt issue facing more families.
Developing a four net cost and then reviewing cash flow can help to identify the funding shortfalls. The amount of the funding shortfall will help in identifying best borrowing options.
Evaluating the debt structure
This part of the decision process is often under estimated. Access to student debt is fairly easy in comparison to other personal financing. Student loans can accumulate quickly and often the career choice may make repaying the loans difficult.
Most parents do not understand the legal consequences of the various student loan options. The student is very limited to certain yearly amounts and lifetime limits that are the student’s full legal responsibility. If additional resources are needed, a family may need to obtain a Parent PLUS Loan or co-sign for a private student loan. In both of these cases, the loans are directly or indirectly the legal responsibility of the parent.
Review retention and graduation rates
Two items that students may fail to consider during their college decision process is the data calculation on the retention and graduate rates for the college. Reviewing the retention gives insights into the transfer rate for the college. If a student transfers to another college, most students will lose credits hence more student debt or tuition at the very least. Lower graduation rates opens up the discussion of not graduating in four years and the cost associated with not attaining that goal.
The best way to save money is to graduate on time. A college’s retention and graduation rate are good benchmarks to help you in this area.
Consider other family costs
Another indirect cost that is not included in the financial aid process is parents’ travel cost. This expense is often underestimated. This is especially true if your child is traveling far for college. Sit and estimate the number of times you will visit and the cost associated with that visit such as hotel lodging, dining out and travel expenses.
Sorting the award letters by most cost effective
Once all of the award letters are organized and award details are separated, sorting the award letter by the most cost effective will allow a family to compare them more easily. This comparison should be using the four year projected net cost. At this point, a family will be able to identify the best value. With the projected final cost, other factors such as academic strength, campus environment, and student experience can be entered into your decision.
Financial Award Summary
During this period, the emotion and stress of the college decision process is coming to end. Taking the right approach now may minimize the risk of a transfer or a life with excessive student debt. We often recommend that students talk to peers in college and ask about their experience. It may help in their decision process.
There is a great deal to be learned from their experiences. As we discussed in our blog article, “Would Millennials Change their Student Loan Decisions if they could?” the evidence shows that data is important. The question is “Do you have the right information to make the best college decision?” For added clarity, please listen to the videos below where more detailed information is given on the award letter. This is an exciting time for your family and congratulations on the next steps your child will be making.
Parts of the Financial Aid Award Letter
Comparing Your Financial Aid Award Letters