Fear of (scholarship) displacement

The New York Times opinion piece “The Catch 22 of Applying for Private Scholarships” shares one student’s frustration with “scholarship displacement.” If you win private scholarships (also known as “outside scholarships”) from companies, churches, non-profits, etc., many colleges reserve the right to reduce your need-based financial aid award accordingly. For example, if you win a $1,000 scholarship from the local Rotary Club, your college may reason that you now need 1,000 fewer dollars in financial aid. It raises a logical question: What’s the point of actually applying for private scholarships if the net gain will be $0?

But it’s important not to make rash decisions around college financing. So here are a few important points that are not made clear—or are left out altogether—from the article.

First, not all need-based financial aid is free money. It can also come in the form of loans or work study programs. According to the National Scholarship Providers Organization, 80 percent of colleges will reduce loans or work study first if you receive a private scholarship. That’s not such a bad displacement break.

Also, remember that every dollar you win in scholarships is a dollar less you’ll be required to pay for college. Yes, that dollar in scholarship terms may count for more at some colleges than it does at others depending on each school’s displacement practices. But free money (that does not have to be paid back) to pay for college is pretty much always a good thing because it gives you more control over your financial destiny.

And finally, there are steps you can take to mitigate your award displacement if you find yourself in that situation. Financial aid expert Mark Kantrowitz shares some of his tips in this article.

The vast majority of the funds available to help students pay for college are accessed by applying for need-based financial aid. But private scholarships can help reduce your costs even further. If you’re concerned about college costs, don’t let fear of displacement deter you from availing yourself of every option.

Need some FAFSA motivation?

If you know you should be completing the FAFSA but just can’t quite muster the gumption to dive in yet (totally understandable), here’s some additional information from expert Mark Kantrowitz that might give you the oomph you need.

“The sooner you get your FAFSA done, the more money you’re going to get, on average… People who file it in the first few months tend to get double the financial aid, the grants, of people who file it later.” 

The rest of the article is here. And here’s the link to the FAFSA.

It’s FAFSA time

For students applying to begin college in the fall of 2018, the FAFSA (Free Application for Federal Student Aid) becomes available today. The FAFSA is the gateway to all available need-based financial aid, and every student applying to college should file one. If you believe you’re an exception, maybe because you don’t think you’ll get aid or you’re worried that filing a FAFSA will hurt your chances of admission, please read this past post and the links within, which I hope will convince you otherwise.

Colleges set their own deadlines for FAFSA submissions, but prevailing financial aid wisdom dictates that earlier is better. No need to pull three consecutive all-nighters just to file before the end of the week. But try not to make one of your New Year’s resolutions for 2018 to “File FAFSA!” either.

If you’re not yet sure exactly where you’re applying, that’s OK. Get to work on the form anyway. You can always add or delete schools later.

And finally, please remember that while just about all colleges require the FAFSA to be considered for aid, some colleges require additional forms, too. Much as you should pore over the requirements for admission (letters of rec, test scores, essays, etc.), you’ll also want to review the financial aid section of each of your chosen colleges’ websites to note what forms are required and by what dates they need to be submitted.

Updated advice on paying for college

Kalman Chany is a nationally recognized financial aid consultant and the author of Paying for College without Going Broke, a book I’ve consistently recommended since I started Collegewise in 1999. If you’re looking for advice on the best ways to save for college, to get the financial aid you need, and to avoid mistakes that can cost you thousands of dollars, I’ve never come across a single work with better or more thorough advice. He also updates the book every year, and the 2018 version was released last week. It includes line-by-line instructions for completing not only the updated FAFSA with all of its changes for this year, but also the CSS PROFILE application required by many private colleges.

I don’t have a personal or professional connection to the author—I’m just a fan of good advice that helps families, and this book is chock full of it.

Monday morning Q&A: the FAFSA and merit scholarships

Samantha asks:

Could a decision not to file a FAFSA for need-based aid negatively impact a student’s eligibility for possible merit scholarships? We have diligently saved for college and will not qualify for financial aid, but the cost still won’t be easy with other children at home. My child is a top student with a perfect GPA and near perfect test scores, and many applications ask if we will be applying for financial aid. We can’t lie and say yes. But checking “No” makes it seem like we don’t want help. Most financial aid departments have been somewhat vague when we ask.

Good question, Samantha. The foremost expert in all things financial aid and scholarships, Mark Kantrowitz, certainly wasn’t vague in this New York Times piece, “Answers to Readers’ Questions About Scholarships”:

“Never check off a box that says that you are not applying for financial aid. You can turn down the specific types of aid later. Some colleges will not consider your child for merit-based aid if you indicate that you do not need financial aid. Most colleges practice need-blind admissions, so checking the [“No”] box will not increase your chances of getting in.”

I’ll go even further than Kantrowitz does. Every admissions and financial aid officer, every knowledgeable counselor, and every qualified financial aid advisor I’ve ever heard, read, or actually spoken with about this topic advises against families assuming they will not qualify for need-based aid. The formulas are complex, they can vary by school, and they can be impacted by the strength of the student relative to the rest of the applicant pool at each college. You have nothing to lose but the time spent completing the forms.

For Samantha, and for any other readers who might still need some convincing to file a FAFSA, I’m sharing two past posts, here and here, that I hope will help you.

Thanks for your question, Samantha. I’ll answer a different question next week. Here’s the form if other readers would like to submit one of their own.

How to hit the FAFSA ground running

The FAFSA (Free Application for Federal Student Aid), the starting point to apply for need-based financial aid, becomes available October 1. And while most colleges have admission application deadlines that fall later (many in 2018), the sooner you file your FAFSA after October 1, the better.

This Wall Street Journal article shared two great tips to help families get ready for the FAFSA release.

1. Get a Federal Student Aid ID
You need a Federal Student Aid ID, obtainable at fsaid.ed.gov, to complete the FAFSA. But in the past, some families have experienced technical difficulties obtaining this, which meant they had to delay their FAFSA filing. The safe approach? Don’t wait—go to fsaid.ed.gov now and create one ID for the parent, one for the student (the student and parent must each get their own ID).

2. Gather your documents
To accurately report the FAFSA’s requested information, you’ll need your 2016 tax returns, as well as your most recent bank and brokerage statements.

Taking these two steps should help you hit the FAFSA ground running on October 1.

How grandparents can help pay for college

If you’re fortunate enough to have a generous grandparent who’s willing to help pay for college, please consider Mark Kantrowitz’s advice on the topic here. In fact, failure to do so could result in a considerable hit to your eligibility for financial aid.

Kantrowitz stays true to his form here and isn’t making any recommendation that would teach affluent families how to hide their assets or otherwise avoid paying their fair share. But the mechanics of the financial aid formula are such that some seemingly innocuous decisions, like the type of account you choose, or gifting the money to the student instead of the parent, can have significant impact on the other side of the financial aid formulas. Avoiding those mistakes is just being smart, not deceptive.

Does everyone pay the same price at a college?

One of the best analogies I’ve seen about paying for college comes from Kalman Chany’s Paying for College Without Going Broke:

“And not everyone pays the same price for a given college. In fact, going to college is a bit like traveling on an airplane. If you ask the person across the aisle what fare she paid, it may be completely different from your own. Some people may be paying the full fare for college while others pay far less, so you should never initially rule out a school based on ‘sticker price.’”

That’s also the reason every family with a student applying to college should also file a FAFSA to apply for financial aid. Imagine if there were one—and only one—website travelers could use to make sure they got the best possible price for their ticket. If you cared about how much the ticket cost, you’d use the website. You’d have nothing to lose and plenty of money to potentially save.

That website exists when it comes to paying for college. It’s the FAFSA site, and it’s here: https://fafsa.ed.gov.

Make sure to follow the directions from your chosen colleges about what to submit and when, but all of those schools will almost certainly require the FAFSA.

What “meeting 100% of financial need” really means

When a college claims to meet 100% of financial need, it can sound deceptively as if an admitted student will get whatever amount of financial aid they need to attend. But it’s not necessarily quite that generous. To understand “meeting 100% of financial need,” let’s look briefly at how the process of applying for and evaluating financial need for college works.

First, you file a FAFSA, which details the student’s and parent’s income and assets. The government crunches it through a formula, and you receive a report back containing your Expected Family Contribution (EFC)—that’s the amount of money you are expected to pay for the upcoming year at any college. Some colleges also require that you submit additional forms, which can change EFC for their own evaluation, but the FAFSA is always your starting point.

In the event that the Cost of Attendance (COA) at any college that admits you exceeds your EFC, it’s the job of that college’s financial aid department to make up the difference in the form of a financial aid package. That package can contain a combination of grants/scholarships (free money that does not need to be paid back), loans, and work study.

But financial aid offices don’t have to just blindly follow the numbers when they create those awards. In putting financial aid packages together, they might decide to offer a more generous package to a particularly desirable student. That’s preferential packaging at work.

Unfortunately, there are also cases where a financial aid package does not cover the full difference between your EFC and the COA. That’s called “unmet need,” and the higher the number, the worse the news.

So, colleges that claim to meet 100% of financial need are telling you that there will almost certainly be no “unmet need” as part of your financial aid package. That doesn’t mean you’ll necessarily like the package, as for many families, their calculated EFC is actually more than they believe they can afford to pay. And just like all financial aid packages, not all financial aid is necessarily free money, and those that come from schools claiming to meet 100% of need can still include loans and work study.

If you’re concerned about paying for college, I wouldn’t necessarily recommend that you apply only to those schools that claim to meet full financial need, because you’ll be limiting yourself to under 100 colleges (here’s a list courtesy of Mark Kantrowitz). That might sound like a lot, but the list can shorten dramatically if you’re not admissible or just don’t like the schools.

Still, it’s worth paying attention to a college’s track record regarding financial aid awards. If you’re up for some detailed and potentially revealing research, head to College Navigator, maintained by the National Center for Educational Statistics. Search for a college, and then dig into both the “Financial Aid” and “Net Price” tabs. Specifically, you want to look at the average size of the financial aid award, the breakdown of grants, loans, and scholarships, and the average net price for those students on financial aid. That will give you a sense of how many students receive aid, the amount and type of aid being distributed, and just how much of a dent that financial aid is making on the cost for those students in attendance.

A college may meet 100% of your needs as they define them. But that doesn’t mean you’ll necessarily get everything you think you need.