College Financing Demystified
The world of college financing can be a dizzying array of acronyms. This article aims to explain some basic terms and to highlight options to pay for college.
Disclaimer: The information below is collected from the web and edited for the reader.
COA = Cost of Attendance – the average total cost of attendance, including tuition, fees, room and board, books, transportation, etc. This information is available on each college’s website.
NPC = Net Price Calculator - The “net price” or estimated total out-of-pocket cost based on your family’s financial circumstances. Since financial aid policies and resources vary by college, I recommend that you run the NPC for each college of interest. Simply search “Net Price Calculator” plus the college’s name to retrieve the calculator, or search within the financial aid section of each college’s website. The calculator takes less than 30 minutes to complete, assuming you have your recent tax return and bank statements available.
EFC = Expected Family Contribution - This figure is a measure of financial strength determined by a formula established by the Federal Government. This figure is also used by many colleges to help determine the amount of aid that they can provide to students, both for those with and sometimes for those without demonstrated financial need.
COA – EFC = Demonstrated Financial Need
Institutions use this demonstrated financial need figure to create financial aid packages that may consist of grant aid, institutional aid, work study programs, and student and/or parent loans
FAFSA = To calculate one’s EFC, families must complete a Free Application for Federal Student Aid and provide information such as family size, adjusted gross income, age of older parent, and asset outside the primary home, etc. Completing a FAFSA is not only for low-income households. FAFSA is required for:
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CA Middle Class Scholarships – for undergraduates attending UC/CSU campuses with family income and assets up to $171,000.
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Merit aid – scholarships based on academic merit. Many colleges wish to know the EFC to determine eligibility and amounts of institutional aid.
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Low-interest and subsidized student loans – Federal loans offer terms that are more generous than those from other financial institutions
Some schools also use the CSS Financial Aid Profile to determine financial aid. Depending on your college, completing the CSS may be required for institutional grant and scholarship awards. Every dollar counts, so be sure to check if your school requires the CSS even if you completed the FAFSA
Other Ways to Pay for College
Beyond federal financial aid, families can consider a number of other options. For a “high-flyer” student – ones whom colleges seek to attract, consider applying to colleges that meet full demonstrated need. That means, if your family’s EFC shows the family can be expected to contribute $30,000 a year, and a college’s cost of attendance is $60,000 a year, the college will help meet that $30,000 “gap” with generous financial aid packages.
Click here for a list of colleges that meet 100% full need.
Merit Aid – free money awarded to students based on potential, academic achievements or special talents that the colleges find desirable. This money is available to families, regardless of one’s financial status. Private colleges tend to offer more merit aid than public institutions. To determine the estimated merit aid award by college, one can check publicly-available resources including CollegeNavigator , or contact each college’s admissions office.
Loans - There are many ways to pay for college including private, state and home equity loans, but most students receive the best rates from federal student loans. Federal loans provide relatively low interest rates and flexible repayment options for students with varying levels of need. Federal loans also make up the bulk of student financial aid packages. Most students and their families will have access to Direct Subsidized Loans, Direct Unsubsidized Loans and PLUS Loans. Perkins Loans might also be available for students with the greatest financial need.
Your student takes out a Direct Subsidized Loan or Direct Unsubsidized Loan and it’s their responsibility to repay it. Students often need a combination of the two due to borrowing limits on each type. Borrowing limits depend on your student’s year of study (first, second or third year and above), dependency status (from your FAFSA) and the type of loan (subsidized, unsubsidized or PLUS loans). Loan terms also vary by degree level. Undergraduate students can currently borrow Direct Loans at 5.05% annual interest, but graduate and professional students pay a higher rate of 6.6%. Graduate and professional students are also only eligible for Direct Unsubsidized Loans at this time (U.S. Department of Education, n.d.-b).
Parent PLUS Loans are available to parents to help cover additional costs beyond their student’s financial aid package. Grad PLUS Loans also help graduate and professional students cover additional costs beyond their Direct Unsubsidized Loan borrowing limits. PLUS Loans have higher interest rates than Direct Subsidized Loans or Direct Unsubsidized Loans and are currently available at 7.6% interest (U.S. Department of Education, n.d.-b). Federal loan rates and borrowing limits can change each year, so check studentaid.ed.gov for the latest information.
Scholarships - Families need not wait until their student is his/her senior year of high school. Scholarships are available for 9th graders onwards. Visit your high school’s college and career center for a listing of local scholarships, as the local scholarships are typically more targeted and with less competition than the national scholarships. For other scholarships, try FastWeb, Scholly (a mobile app that is easy to use), and RaiseMe (a micro-scholarship platform for achievements beginning in 9th grade – over 200 colleges in Northern America accept RaiseMe scholarship awards). Set up a separate email account for scholarships and avoid entering personally-identifiable information as doing so can generate a lot of marketing emails.
It goes without saying that in-state public colleges (community colleges, CSU, UC) are the most affordable, and students from low-income households in California can also be eligible for Cal Grant Aid. However, if your student would love to consider out-of-state colleges, consider those that are part of the Western University Exchange, which offer reduced tuition for CA residents.
Begin early when it comes to identifying colleges that will be a good financial fit. Families can get an estimate of costs by researching colleges’ COA, computing NPC, computing FAFSA4caster for an estimate of financial aid eligibility, and begin researching scholarships.
