People in the market for a new car usually don’t spend a lot of time in a Bentley showroom if they’re on a Subaru budget. But all too often, parents start touring colleges with their college-bound children without knowing whether they can actually afford them. To avoid disappointment, not to mention wasted trips, it’s a good idea to first research the cost of different institutions. Calculating a few key metrics can help you get a good idea of the cost long before you see a financial aid offer.
New metric for determining aid eligibility
Most families don’t pay a college’s “sticker price” — the total cost of attendance (tuition, fees, room and board) before subtracting any financial aid provided by the college or federal government. To understand what you might actually be responsible for, determine your Student Aid Index (SAI). This is the number generated when you complete and submit the Free Application for Federal Student Aid (FAFSA) form. The FAFSA estimates your family’s need for financial aid based on the student’s and parents’ income, assets, tax returns and other information submitted with the form.
Note: You don’t necessarily have to complete the FAFSA form to determine your family’s SAI. The Federal Student Aid Estimator (https://studentaid.gov/aid-estimator/) allows you to obtain a preliminary calculation.
The number generated by the FAFSA used to be called the Expected Family Contribution (EFC), but the terminology was changed as part of a recent FAFSA overhaul. One reason for the change was that the term EFC caused confusion. Many applicants mistakenly believed their out-of-pocket costs wouldn’t exceed the EFC. In fact, the EFC was only an estimate. Not all colleges can meet every student’s demonstrated financial need. Plus, the EFC doesn’t reflect the reality that many financial aid packages include student loans that must be repaid with interest.
The switch in terminology from EFC to SAI doesn’t necessarily change a student’s eligibility for financial aid. Rather, it’s designed to better determine a student’s relative financial need compared with that of other students. The lower a student’s SAI, the higher the financial need and the greater the likelihood the student will need financial aid.
Benefits of using net price
For a better understanding of college affordability, also determine the net prices of the colleges that interest your student. Nearly every college in the United States offers a net price calculator on its website. Like the FAFSA, net price calculators require you to answer questions about your family’s income and assets. But these calculators offer a more accurate picture of a college’s cost than the SAI because they reflect each college’s specific financial aid policies.
Most net price calculators focus on need-based aid, but some will also estimate merit-based grants and scholarships that a student might qualify for. How can you tell which net price calculators provide information about merit-based financial aid? Easy: Just look for questions about the student’s GPA, test scores or class rank.
Of course, calculating net prices college-by-college can be difficult and time-consuming. However, there are paid software solutions that can automate the process. These services can be expensive, but they allow you to enter your financial and other information once to obtain your SAI and determine the net prices of all of the colleges you’re interested in. Some even allow you to search for colleges based on the maximum amount you’re willing to pay.
Make informed decisions
Most colleges use FAFSA data to make decisions regarding governmental and institutional financial aid. Institutional aid may include grants and merit-based scholarships. In addition, around 200 private, mostly elite colleges use the College Scholarship Service (CSS) Profile to make decisions regarding institutional aid. The CSS Profile may paint a different picture of financial need than the FAFSA. That’s because it looks at additional financial information that the FAFSA doesn’t consider.
You won’t really know how much college will cost until your student starts hearing about admissions and financial aid offers. If you’re still not sure how you’ll fund college, contact us for advice. We can help evaluate aid packages and review your financial resources.
Should high-income families complete the FAFSA?
Affluent families often wonder whether they should bother submitting the FAFSA form. If their income or assets make them ineligible for need-based financial aid, what’s the point? Actually, there are several good reasons for filling out the form regardless of your net worth. For example:
- Many schools require the FAFSA to be considered for academic scholarships, performance-based scholarships (such as music, theater, athletics) or other merit-based aid.
- The FAFSA may be required for certain state or institutional aid not dependent on income level.
- If you’re considering student loans, the FAFSA is necessary to determine your eligibility for federal subsidized and unsubsidized loans, which may have better terms than loans available elsewhere.
- In the event your family’s financial circumstances change, having a FAFSA on file makes it easier for your student to apply for aid to stay in school.
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