Intro – We began these workshops in 2006 - since then we’ve presented to over 1000 counselors - we know how much parents rely on you for information You have so much on your plates – please take advantage of us on the financial aid side
In our time together we’ll talk about two broad topics : I. The Financial Aid Process – that is, how colleges assess financial need of families: What financial aid is What financial need is and how it is determined Major components of need-based aid packages, including a look at some sample aid packages How students apply for financial aid We’ll change gears a bit –and hit… II. Other Ways to Pay for College -- How merit-based scholarships work Other options to help with college costs Consumer tips that you can share with students Resources on the Web There will be ample time for questions By the end I hope you will feel… - more comfortable with the financial aid system, - and also that you will have some language to help students be less intimidated by the process. (we don’t expect you to be experts)
Financial Aid System -- based on this philosophy : - anyone should be able to attend college, - regardless of financial circumstances So, primary goal of need-based aid -- to help students pay for college - thus making college accessible to students who couldn’t afford it otherwise A lack of financial resources - should not prevent a student from applying -including to his/her first-choice college, -regardless of how expensive that college/university is To meet these goals -- the financial aid professional evaluates : - income & expenses, - assets & debts - number of family members, - & number in college All of this information is used to assess the family’s ability to pay educational costs.
Need Analysis Financial aid professionals use a process known as need analysis , - we use it to estimate the amount that families will be expected to pay toward college costs. Need analysis is based on these principles : - 1. Parents’ role -To the extent that they’re able , parents have the primary responsibility to pay for their children’s education. - Please note: I said able , not willing . - 2. Students’ role - Likewise, students are expected to contribute to their own education -3. Current finances - Need analysis should evaluate the current financial circumstances of families. - Not 5 years ago, not 5 years from now. - 4. C onsistence and equity - Need analysis must provide an equitable and consistent way to evaluate a family’s ability to pay educational costs and -it must also must recognize that special circumstances may alter a family’s ability to pay. - if we fail to have a system that is equitable and sound, the value of a need-based aid system disappears. - 5. Greater Financial resources -And obviously – More is expected from those with greater financial resources
An Introduction to FM and IM (how many of you are familiar with those terms) FAFSA – the form behind Federal Methodology Required by almost every school in the country FM (Federal Methodology): Required, by law, to be used to determine eligibility for federal aid State of SC uses the FAFSA for its programs (see second half with CHE) Completed by custodial parent (non-custodial not considered) Custodial = one student spends most time with (if 50/50 – the one who provides greater financial support) – not tied to claim on 1040 If custodial parent is remarried – FAFSA looks at that family’s resources PROFILE – the form behind Institutional Methodology IM (Institutional Methodology): Typically used by colleges who spend significant amounts of their own money for financial aid “ Why the Profile ?” It provides much better assessment of family’s ability to afford college costs than FM – philosophy “ both biological/adoptive parents responsible ” Example: “faux poor”—negative income, assets ignored by FM; but high assets, may result in no need with FM Other information – depending on the college - tax returns and W-2s -Noncustodial Profile We will point out some of the differences between IM and FM when we discuss calculation of EFC
While the formula behind assessing a family’s ability to pay has lots of components and is fairly complex , - the financial need equation is very simple . Cost of Attendance - We take the cost to attend our college or university for one year. Estimated Financial Assistance – Outside scholarships reduce college aid, not the family’s contribution EFC - We determine the amount that the family will be expected to pay toward those college costs. Need - We compare those two amounts, and, if what a family can afford is less than what our institution costs, then the student has financial need . Now let’s look at each part of the financial need equation…
Cost of Attendance Consider both 1. direct expenses (billable costs) - like those paid to institution (tuition, fees, room, board) 2. but also allowance for indirect expenses (do not show up on bill) - books, - transportation, - personal expenses Encourage families – when considering and comparing costs – - look at total costs
One important note as we jump in: -Our discussion today will focus on students who are dependent for financial aid purposes and thus are assumed to have access to parental financial resources . -If we were to discuss independent students , we could fill another day on that topic alone! Here’s how the federal government defines independence – Note : schools that use the CSS Profile (IM) are only bound to this definition for the federal money they spend. They might very well have stricter definitions of independence.
Let’s look more closely at each component of the family contribution.
Parent Income Calculation NOTE : We evaluate the prior year’s income – e.g., we review 2008 tax information for the 2009-10 school year Also Note : formula is more heavily driven by income than assets, - assets, for many, can be an insignificant part of the EFC. Add total income : - (adjusted gross income from the federal income tax return plus any untaxed income) 2. Subtract : Amount for basic living expenses , based on size of family & number in college Taxes (federal, FICA, state and local) An allowance for additional expenses if both parents are employed or if parent is single Optional , depending on need analysis method used (FM or IM) and school’s policy: Unusually high med/dental expenses Elem/secondary tuition Amount for education savings for younger students in the household 3. Calculate: - 22%-46 or 47% of available income, sometimes called discretionary income , - that is the amount that is assumed to be available for education costs
Parent Asset Calculation 1. Add ( Calculate parents’ net worth, adding) : Cash , savings accounts, checking accounts Portion of business and farm net worth (with some exceptions—residence on farm & family materially participates in operation; family-owned small business w 100 or fewer FTE employees) Investments net worth Real estate net worth Optional : home equity (home ownership is a measure of financial strength) 2. Subtract: Education savings and asset protection allowance (reflecting education savings, emergency needs, etc. 3. Calculate: only a small portion of assets are used in as parent contribution from assets (3%-12%, depending on the need analysis method used by the college) ____________________________________ 4. Result = discretionary net worth
Total Parent Contribution Available Income, plus available assets – times a number in college percentage - equals Parent Contribution
Student Contribution Calculation: Student Assets: - FM (FAFSA) includes 20% of the student’s assets as part of the student contribution. - IM (Profile) assesses the student’s assets at 25%. If the student assets were funded by the parents, consensus methodology (used by 568 schools) assesses the assets at the parent rate, 5% on average. If the assets were given by other relatives or third party or are in a student trust fund, then there are assessed at the IM rate of 25%. Student Income: - FM only expects student contribution from income (excluding taxable portions of need-based financial aid) if exceeds a certain level ($3,080 for 2008-09) - IM has a minimum contribution from income - based on a standard summer savings expectation for dependent students; for 2009-10, $1550 for first-year students, $2150 for other undergraduate students Individual institutions set their own summer savings expectations , based on their location, demographics of their students, typical summer earnings of their students, etc.
Family Contribution Calculation: To state the obvious, we add … - the calculations of parent contribution from income, - parent contribution from assets, and - student contribution to derive the expected family contribution. NOTE: Many colleges and universities willing to consider special financial circumstances of families (like high medical expenses ). However, the family contribution will not be adjusted b/c of expenses that simply are a matter of choice and lifestyle (e.g., credit card debt, car payments). Family w/discretionary consumer debts will be treated the same as family w/o that kind of indebtedness.
Another view (this slide is missing from handout!!) : Take second look at financial need equation. Point to stress -- EFC is relatively constant ; - cost is the variable in the equation For example : EFC = $10k Harvard = $50k What does the family pay? EFC = $10k Community College = $7k What does family pay?
Typical packages include a combination of all of these
Large number of the nation’s colleges and universities offer academic merit scholarships, - such scholarships can bring some controversy Critics of merit awards argue that they use up funds that could be used for needy students and that, furthermore, they are bribes to attract bright students for marketing reasons. Proponents of academic scholarships contend that they reward talent and achievement and do not erode need-based programs of aid. Recruiting or rewarding? Won’t attempt to settle the debate today, but will discuss some of the strategies and procedures associated with merit awards.
Is scholarship renewable - for 4 years? - will value of scholarship change? Requirements - certain GPA? - certain major? - can student study abroad? Will it affect need-based aid? (Stacking)
Meeting those costs? Might seem obvious , but there are three ways to pay for college: - Savings (preferable) - Current income - Loans Most families use a combination of these three – 529 Savings plans – very effective way for parents, grandparents, friends to save. (Regulations determined by the states – have state tax benefits) Clearly, each family has to weigh its resources and decide for themselves…
Loans Federal Stafford loans (FFELP)-- $3500+$2000, $4500+$2000, $5500+$2000 (6.8%) William Ford Direct Loan Program – eliminates banks/lenders as middleman Perkins Loans – some colleges/universities – up to $4000 annually (5%) - for financial need only - Proposal for the old Perkins to be replaced by new, stay tuned… PLUS loans -- easy to get in a bunch of debt, quickly (8.5%) Lines of credit, home equity, etc . – again, clearly a decision for each family to make
Colleges and universities might use these grants as a portion of their financial aid packages, or in some cases these might be the only grant aid available: Pell – exceptional need (FM EFC of $4041 or lower). Grants range from $400 to $4731. SEOG – those eligible for PELL (max of $4000) ACG -- $750 (1 st year) and $1300 (2 nd year). Must be eligible for Pell, and have rigorous HS program. SMART – Up to $4000 for 3 rd and 4 th year of college. Students must major in science or math (or a for language deemed necessary for natl security) TEACH (gran/loan = groan!) – up to $4000 per year for students who will teach in low-income public elementary/secondary schools. Warning – converts to Stafford Loan if the student does not go into teaching.
Early Decision Trend for more students to apply ED. Two warnings: 1. May not be wise for some students-- it takes an unusually mature 17 yr old to be ready to make a binding commitment to a college in Sept. or Oct. 2. If affordability is as big an issue as admissibility : ask each college about policies concerning Early Decision students and both need-based fin. aid and merit-based scholarships. Some schools may offer less fin. aid to an ED candidate than comparable student admitted at regular decision. Some schools may not consider ED candidates as seriously for merit-based scholarships. ASK! Differential/Preferential Packaging Many institutions are no longer able to meet 100% of the financial need of their students. Several ways in which schools may choose to spread out those financial aid dollars : More attractive fin aid packages to the applicants they most want to enroll Strictly enforcing application deadlines
I know I’m preaching to the choir on this, but… Few investments are so complicated , - but few are as valuable or as important to students’ success in adult life, as a college education. - Indeed, this investment will inform both their earning power and their quality of life for years to come. As students compare schools , some things that may serve to frame their questions - Encourage them to compare such things as: - retention rates, graduation rates - accessibility of the faculty, quality of facilities, access to academic and career counseling, library resources, etc. The college that costs the least may not be the best investment over time - and may not be the best “fit” for the student In short I would encourage them to think beyond the bottom line of cost. - and make the match that fits them best!
Tools of the Trade: Financial Aid 101: Education is Affordable
<ul><li>Need-based financial aid </li></ul><ul><li>Merit-based scholarships </li></ul><ul><li>Alternative financing </li></ul><ul><li>An insider’s list of consumer tips </li></ul>
<ul><li>Equal access </li></ul><ul><li>Make education accessible to students who can’t afford it on their own </li></ul><ul><li>Enable student to apply to first-choice college </li></ul><ul><li>Attend college based on best fit </li></ul>
<ul><li>Families contribute to the extent they’re able </li></ul><ul><li>Income and assets reflect financial strength over time </li></ul><ul><li>Unusual family circumstances considered </li></ul><ul><li>Similar treatment for similar circumstances </li></ul><ul><li>More expected from those with greater resources </li></ul>
<ul><li>Federal formula </li></ul><ul><ul><li>FAFSA (Free Application for Federal Student Aid) </li></ul></ul><ul><li>Institutional formula </li></ul><ul><ul><li>CSS/Financial Aid PROFILE </li></ul></ul><ul><li>At school’s discretion: </li></ul><ul><ul><li>Institutional application </li></ul></ul><ul><ul><li>Tax returns and W-2 forms </li></ul></ul><ul><ul><li>Noncustodial PROFILE </li></ul></ul><ul><li>Families must reapply annually </li></ul>
<ul><li>Cost of education </li></ul><ul><li>- Estimated Financial Assistance (outside resources) </li></ul><ul><li>- Family contribution </li></ul><ul><li>= Student’s financial </li></ul><ul><li>need </li></ul>
<ul><li>Tuition and fees </li></ul><ul><li>Room and board </li></ul><ul><li>Books and supplies </li></ul><ul><li>Transportation </li></ul><ul><li>Miscellaneous personal expenses </li></ul>
<ul><li>Were you born before Jan. 1, 1987? </li></ul><ul><li>As of today, are you married? </li></ul><ul><li>Will you be working on a master’s or doctorate? </li></ul><ul><li>Are you currently serving on active duty in the US Armed forces (other than training)? </li></ul><ul><li>Are you a veteran of US Armed Forces? </li></ul><ul><li>Do you have children who live with you and receive more than half their support from you? </li></ul><ul><li>When you were 13 or older, were both your parents deceased, were you in foster care or a ward of the court? </li></ul>
<ul><li>Are you an emancipated minor as determined by a state court? </li></ul><ul><li>Are you in legal guardianship as determined by a state court? </li></ul><ul><li>Have you been declared by your school district liaison of an emergency shelter director funded by HUD to be homeless? </li></ul><ul><li>Did the director of runaway/homeless shelter determine you to be homeless or self-supporting? </li></ul>
<ul><li>Parent contribution from income </li></ul><ul><li>Parent contribution from assets </li></ul><ul><li>Student contribution from income and assets </li></ul>
Tuition Parent Contribution Budget (variable) EFC (constant) Need (variable) Books and Supplies Transportation Room and Board Student Contribution Estimated Financial Assistance (Outside Resources) EFA _ _ =
<ul><li>Gift aid </li></ul><ul><ul><ul><li>Grants </li></ul></ul></ul><ul><ul><ul><li>Scholarships </li></ul></ul></ul><ul><li>Self-help aid </li></ul><ul><ul><ul><li>Student loans </li></ul></ul></ul><ul><ul><ul><li>Employment </li></ul></ul></ul>
Davidson Private #1 Private #2 Public U. Total Cost $48,000 $50,000 $35,000 $19,000 Family Contribution (EFC) $10,000 $10,000 $10,000 $10,000 Financial need $38,000 $40,000 $25,000 $9,000 Merit aid $0 $0 $10,000 $0 Need grant $35,900 $33,300 $2,800 $1,500 Student loan $0 $4,000 $5,500 $5,500 Work Study $2,100 $2,700 $1,800 $1,000 Total aid $38,000 $40,000 $20,100 $8,000 Unmet need $0 $0 $4,900 $1,000 Total paid $10,000 $10,000+loan $14,900+loan $11,000+loan
<ul><li>Typically, there’s an inverse relationship between selectivity and number of merit awards </li></ul><ul><li>Strategies underlying merit awards vary </li></ul><ul><ul><li>Recruiting device </li></ul></ul><ul><ul><li>Awarded after student is admitted </li></ul></ul><ul><li>Procedures for being considered vary </li></ul><ul><ul><li>Nomination </li></ul></ul><ul><ul><li>Scholarship application </li></ul></ul><ul><ul><li>Admission application </li></ul></ul>
<ul><li>Based on athletic talent </li></ul><ul><li>Usually awarded by athletics department, not admission/financial aid office </li></ul>
<ul><li>Is the scholarship renewable? </li></ul><ul><li>If so, what are the requirements for renewal? </li></ul><ul><li>Will the scholarship affect need-based aid eligibility? </li></ul>
<ul><li>Summer/academic year employment </li></ul><ul><li>529 savings plans, other savings plans </li></ul><ul><li>Life insurance policies, retirement funds </li></ul><ul><li>Payment plans </li></ul>
<ul><li>Federal Stafford or Direct Loans </li></ul><ul><li>Federal PLUS Loans </li></ul><ul><li>Federal Perkins Loans (at some institutions) </li></ul><ul><li>Lines of credit and education loans </li></ul><ul><li>Loans against home equity, insurance policies, retirement funds </li></ul>
<ul><li>Pell Grant </li></ul><ul><li>Supplemental Educational Opportunity Grant (SEOG) </li></ul><ul><li>Academic Competitiveness Grant (ACG) </li></ul><ul><li>National Science and Mathematics Access to Retain Talent Grant (SMART) </li></ul><ul><li>Teacher Education Assistance for College and Higher Education (TEACH) </li></ul>
<ul><li>Can… meet unmet need (gapping) and/or generally reduce loans or jobs </li></ul><ul><li>Can’t… replace EFC in a need-based award </li></ul>
<ul><li>Deadlines are important </li></ul><ul><li>Early Decision/Early Action </li></ul><ul><li>Need-blind vs. need-sensitive </li></ul><ul><li>Differential/preferential packaging </li></ul><ul><li>May 1: National Candidate’s Reply Date </li></ul>
<ul><li>Avoid financial aid consultants </li></ul><ul><li>Avoid scholarship programs that charge application fees </li></ul><ul><li>Avoid scholarship search services that charge fees </li></ul><ul><li>Bargaining/negotiating? </li></ul><ul><li>Know your loans </li></ul>
<ul><li>Institutions may choose to consider individual family circumstances at different times throughout year </li></ul><ul><li>Might affect a family’s funding options </li></ul><ul><li>Might not affect EFC </li></ul>
<ul><li>The College Board </li></ul><ul><ul><ul><li>www.collegeboard.com </li></ul></ul></ul><ul><li>SmartStudent Guide to Financial Aid </li></ul><ul><ul><ul><li>www.finaid.org </li></ul></ul></ul><ul><li>Federal government </li></ul><ul><ul><ul><li>www.ed.gov </li></ul></ul></ul><ul><li>Scholarship Web sites </li></ul><ul><li>School Web sites </li></ul><ul><li>www.davidson.edu </li></ul>