Financial mistakes can often be the most painful missteps of a family’s college process. Refusing to save because you think it will hurt your financial aid, failing to apply for need-based aid, taking on student loan amounts that exceed the family’s realistic ability to pay them back—these are easy mistakes to make, but thankfully, even easier to avoid, especially if you pay attention to Mark Kantrowitz’s latest piece, Bad Advice about Paying for College.
Choosing a 529 savings plan
When I have a question about paying for college—saving, applying for financial aid, getting scholarships, etc.—Mark Kantrowitz, an expert who shares more free advice than just about anyone, is my go-to source. Here’s his latest, this time about how to choose the best 529 college savings plan.
Scholarship search tool
When financial aid changes
One of the best reasons to apply to colleges that are both a good fit and a place where you have a strong chance of acceptance is that you’re also more likely to get financial aid. Financial aid offices earmark a certain percentage of money every year just to lure academically appealing students. This practice, called preferential packaging, actually turns financial aid into a recruiting tool for colleges.
But once a student is attending that particular college, there’s no guarantee the college will continue to give the same (potentially generous) financial aid for three more years now that there’s no need to lure that student. At worst, this can feel like a bait-and-switch game.
Thankfully, a little research can tell you whether or not that’s likely to happen at a particular college. The National Center for Education Statistics offers a website called College Navigator (which I’ve profiled before) that allows you to search specific colleges for general information, admissions statistics, and most interestingly, some of the most detailed financial aid information you can find.
Compare the offers of financial aid (including the average mix of scholarships, loans, and work study) of incoming freshmen to those of all students in attendance. That will give you a rough estimate of how much, if at all, aid packages tend to change as students progress through this particular college.
Five flaws with financial aid award letters
Financial aid expert Mark Kantrowitz comes out swinging (at least a little bit) against some common practices of financial aid offices, particularly in regards to their award letters. If you’re a senior (or a parent of one) who’s reviewing your college offers of financial aid, please check out Mark’s article. It might help you avoid making a costly financial mistake before you even set foot on your new college campus.
Can you negotiate a better financial aid package?
There’s some good advice in this Washington Post article about negotiating a more favorable financial aid package. Bottom line: there may be some wiggle room, especially if your family’s finances have changed, but approach it more like a civil business discussion, rather than a used car negotiation.
Minimizing mistakes
I often remind families that the college admissions process shouldn’t be treated like an anxious life-and-death struggle; it’s an exciting time to be enjoyed. But one element that does add pressure is the permanence of many common mistakes. If you make a bad color choice when painting a room in your house, you can always re-paint. But if you forget to take required standardized tests, miss an application deadline, or neglect to take a required class—there’s not much you can do to fix those missteps. And those missteps will likely affect your college options.
Here’s a list of the most common financial aid mistakes, courtesy of Mark Kantrowitz, and just about all of them are easy to avoid once you’ve been warned. And here’s a past post of mine to minimize mistakes in college planning.
Interpreting financial aid award letters
Interpreting a college’s financial aid award letter can be tricky business. A letter that says, “Congratulations! You’ve been awarded $15,000 in financial aid” isn’t necessarily telling you that you’re getting a $15,000 discount off the sticker price. Not all financial aid is free money—financial aid can also include loans (which need to be paid back) or work-study for the student. So a family who smartly wants to compare the costs of the colleges that accepted their student must first decode the award letter.
If you have a financial aid award letter in hand, here’s how to answer the question of how much that college will actually cost for your student to attend next year.
1. Calculate the total amount of grants and scholarships in the financial aid award.
Grants and scholarships are free money that doesn’t need to be paid back. The bigger this number, the better.
2. Find the college’s total “cost of attendance.”
The cost of attendance is the sticker price. It’s the estimated cost of attending one year at this particular college, including tuition, room and board, and estimated travel expenses. If you do not see the actual words “cost of attendance” or the acronym “COA” on the letter, it means the college has neglected to include it (this is inexcusably common, by the way). Go to the financial aid section of the college’s website to find it. Or call the financial aid office and ask.
Now, subtract the amount of grants/scholarships from the total cost of attendance. That’s the net price. It’s what you’ll need to pay out of pocket to attend that school next year.
Beware: “Net cost,” which includes loans in its calculations, is not the same thing as “Net price.”
I’m not a numbers guy (as evidenced by the fact that I majored in English and history in college). So the excellent, and far more detailed, advice on this topic that Mark Kantrowitz shares here made my head spin. But if I were trying to interpret a financial aid award letter, I’d acknowledge how important it is that I get this right. And I’d follow Kantrowitz’s instructions to the (financial aid award) letter.
How to learn financial aid terminology
Esoteric jargon makes the financial aid process much more complicated than it needs to be, especially when those terms appear on every description, instruction, form, etc. Mark Kantrowitz of Edvisors offers up this 1-page glossary of financial aid terms, with a full list of over 750 terms here.
To use them, I have a few suggestions for families and for counselors who are less familiar with financial aid:
1. Learn the terms on the 1-page summary as if you need to explain to someone else what they mean (a reality for most counselors).
That level of understanding—to teach it well enough to pass that understanding on to someone else—is much deeper than the ability to recite a definition. When you really know the terms, you’ll find most parts of the process simpler and less intimidating.
One note on the definition—while grants and scholarships are different, they share one crucial trait: free money that does not need to be paid back. Grants and scholarships are always good news. They’re like discounts off the sticker price.
2. Bookmark the more complete list so you can reference it quickly and easily whenever you come across an unfamiliar term.
College funding tidbits
A few college funding tidbits to send you into the weekend:
1. Good news on the college savings front, as the President dropped his proposal to tax new contributions to 529 plans.
2. For those families that were planning to increase your 529 contributions to beat the date on which new contributions would have been taxed had the proposal gone through, consider increasing the amounts anyway. Every dollar saved is a dollar you don’t have to borrow, and every dollar borrowed will cost roughly two dollars once you pay it back. Saving the money now gives you more control and lets compound interest work for you.
3. Mark Kantrowitz shares smart, regular tips on financial aid, scholarships, saving, and budgeting on his twitter feed.
4. And the Khan Academy has a decent walkthrough of the FAFSA here.
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