The difference between the value of college, indicated by price and intrinsic worth, and what a family feels they can afford to pay creates the need for financial aid. But, college bound buyer beware: NOT ALL FINANCIAL AID AWARDED BY THE UNIVERSITY IS ACTUALLY AID. Grants and scholarships (i.e. free money) that reduces the amount the family will pay for a college education is aid. However, student and Parent PLUS loans simply defer college payments until later–sometimes at a subsidized cost as interest rates are kept below market rates by government policy. Even as families sense the need for assistance paying for college, parents are often concerned that they “make too much money to qualify” for assistance, so don’t even apply for financial aid. In our decades of experience, parents would be wise to apply for financial aid no matter what doubts arise. A recent U.S. Department of Education study both further validates that families should apply and offers cautionary tips on how to be smart about distinguishing financial actual aid from a temporary financial postponement from college costs.
The study found that over two-thirds of all undergraduates in 2011-12 received some sort of financial aid, either from the federal or state governments, or their college. That’s less than one of three who pay full price for college. And, in more good news, private college undergraduates received almost three times the amount of financial aid as public university undergraduates–$8800 at public universities vs. $21,100 at private universities. So, families who take time to consider ALL college choices for application, not ruling out any campus on yearly tuition price alone, may qualify for additional financial assistance. As a bonus, private universities generally graduate higher percentages of students within 4 years in comparison with public universities–adding value to their financial investment. And, who doesn’t want more value in exchange for spending their hard-earned dollars?
On a cautionary note, the study also showed that grant aid is less than student borrowing–$6200 in grants vs. $7100 in loans. Three tips: one, families can choose line-by-line what to accept or not in a university generated financial aid award letter; in other words, no family is forced to take loans and can decide to only accept the grant (i.e. free money). Two, families can forecast repayment and interest costs of any student or Parent PLUS loan BEFORE signing the promissory notes, to gauge the monetary costs of borrowing and future possible opportunity costs while repaying loans. Three, parents MUST apply for financial aid in order to have choices. Determining that “I make too much money to qualify for assistance” without really knowing may be shortchanging options before even starting.
The recent U.S. Department of Education study offers several strategies for families seeking help to pay rising college costs, even for middle school or lower grade high school families who aren’t facing college costs in the immediate future. The challenge will by applying the same “gung-ho” spirit that families already use to make sure their children are not only eligible for college admissions, they’re competitive for a variety of colleges–to planning for the expense of college. And, talking about money can be a tricky issue. Go slowly. And, be realistic.
