by Ryan Wilson, CPA, CFP, AIF
For many families, college is the second largest expense. As families finish saving for college, it’s important they stretch those college savings as far as possible to prevent tapping assets earmarked for other important goals, such as retirement savings or home equity. While not an exhaustive list, the following steps can arm parents with valuable insight that may help limit their college outlays.
Step 1: determine your family’s Expected Family Contribution (EFC)
Will your child qualify for financial aid? This is a question many parents wonder about. By determining your EFC, you will know the dollar figure that the financial aid formula has concluded that you should be able to pay for one year of education. It is based on such factors as your income, assets, marital status and the number of people in your household.
To generate the numbers, use the College Board’s Expected Family Contribution Calculator. Go to CollegeBoard.org, and type “EFC Calculator” in the search box in the upper right-hand corner. Consider obtaining these numbers as early as your child’s freshman year in high school and update the results as college looms closer.
The results of the calculator can help you determine which path to follow. For instance, if your family has a high EFC, and you don’t want to pay full price, attempt to maximize chances at merit money. If your EFC is low, looking for schools that have generous aid policies, as well as lower-cost in-state public institutions, may be an appropriate path.
Step 2: using net price calculators
One of the most frustrating aspects of the college admission process is that most parents don’t know what college is actually going to cost until their child receives a financial aid/merit award package. Even worse, sometimes these offers don’t reach families until the spring, which gives them little time to select a school by the deposit deadline. By this time, students (and parents) may have become emotionally attached to the idea of attending a particular school that, if the actual price is higher than what was hoped or expected, can put parents in a difficult financial position.
Fortunately, applying to schools doesn’t have to be a financial crapshoot if you use a tool called the net price calculator before your child applies (and “falls in love”) with any school. The aim of the net price calculator is to provide a personalized estimate of what a particular school will really cost your family by providing a net price after any scholarships and grants from the school along with the federal and state government are subtracted. This number can help you determine if a college will cost too much, which may help you to decide to channel your search to other schools. These calculators can also be invaluable when you want to figure out how a school treats assets, such as investments, a small business, rental property and home equity for financial aid purposes.
Federal law requires colleges to post a net price calculator on their websites. An easy way to find a school’s net price calculator is to Google the name of the school and “net price calculator.”
An accurate net price calculator will ask a number of questions and should take more than 15 minutes to complete. Questions will dig into the family’s finances and the student’s academic statistics. Unfortunately, some schools use inferior net price calculators that ask very few questions and, as a result, can provide inaccurate results. So, be wary of the results produced by calculators that ask few questions.
Step 3: Finding generous colleges
Even though the sticker price can be eye-popping, a college education is currently a buyer’s market. According to The College Board, 58% of college students at public colleges or universities receive grants or scholarships while 88% of undergrads at private four-year schools enjoy a price cut.
One way to evaluate the generosity of certain colleges is to search for the school on the College Board’s website. Once you’ve pulled up the school’s profile, click first on the “Paying” tab and then on the “Financial Aid By the Numbers” tab. The information here will include the typical scholarship and grant award along with the percent of an applicant’s demonstrated financial need that is met and whether the demonstrated need is met by scholarships/grants or by loans.
Two additional online resources include
collegedata.com, which lists how many students receive merit scholarships from an institution, and collegenavigator.gov, which provides the percentage of a school’s students receiving a discount.
Step 4: Understanding the realities of athletic scholarships
Athletic scholarships represent another source of money from colleges. Unfortunately, they aren’t nearly as plentiful or as lucrative as many families assume. About 2% of graduating high school athletes earn sports scholarships each year. And an even smaller percentage receive the proverbial full-ride, which covers full tuition, room, board, books and supplies.
The best chance for a full-ride athletic scholarship is to compete in one of the head-count sports within Division I. The head-count sports offer a full-ride or nothing at all. There are only six head-count sports and are as follows: football, men’s basketball, women’s basketball, women’s tennis, women’s gymnastics and women’s volleyball.
The NCAA considers all other athletic programs “equivalency sports.” Unlike head-count sports, coaches in equivalency-sports can divide their scholarships, which can lead to some receiving meager awards. Also, important to know that students can only earn athletic scholarships at Division I and II institutions.
Step 5: Complete the Free Application for Federal Student Aid (FAFSA) Early
If you are seeking need-based aid, completing the FAFSA and, if applicable, the CSS profile is required for qualifying for need-based aid from the institution, federal government and state government. With the FAFSA, which became available beginning Oct. 1, it’s possible for those who file early to know much sooner what their aid packages will be, which can be a huge help during your family’s decision timeline.
While not exhaustive, the above steps may help provide you with the information to make informed decisions during the college process and may just help your family reduce the price-tag for your child’s college education.
Ryan Wilson, CPA, CFP, AIF is a financial advisor and executive vice president - wealth management for the Wilson Wealth Advisory Group at Janney Montgomery Scott LLC in Moosic. His team’s website is WilsonWealthAdvisory.com. Member: NYSE, FINRA, SIPC