STUDENT-CENTERED SOLUTIONS FOR COLLEGE PLANNING

Managing college costs can be a challenge for any family regardless of means these days. The facts speak loudly. A college education—even at a state university where subsidies kick in for in state residents—represents a considerable investment. Moreover, the tough economy just makes money management on the home front more of a challenge. As a result, many parents feel a growing tension between lifestyle choices and prudent money management as they anticipate the cost of a college education for their children.

This tension was observed poignantly by a parent in response to the tips I posted recently for those about to navigate the financial aid process.

“For those of us who have done a good job of saving for college, and may (fortunately or in this case unfortunately) have household incomes that preclude us from being eligible for need-based aid, what is the best way of finding and getting merit-based or other non-need-based aid? Are we simply at the mercy of the institution?

While I feel very fortunate to have $200,000 to spend, had I spent all this money on boats and vacations and foreign cars instead of saving for my children’s education over the years, I would have a much better chance of getting need-based aid, which seems awfully unfair…”

The question, then, is “What to do?” As a parent, do you save and make sacrifices or do you live large and count on other sources of funding to cover costs?

Historically—and currently—the answer has been the former. A college education is a privilege—a choice to be made—and the first responsibility for funding a college education rests with the student and her/his family. Nothing has changed in that regard.

Rising college costs and the availability of need-based financial aid have, however, spawned other developments that tend to encourage a sense of entitlement while obscuring the premise of initial self-help. For example:

• Colleges and universities now engage in efforts to “strategically deploy” their financial resources in order to leverage their enrollments with special attention (scholarships and preferential packaging of need-based financial aid) given to students whom they value most.
• Financial planners promote their abilities to minimize asset exposure (to maximize financial aid eligibility) and to help families find the best “deals.”
• An emerging “live for today” cultural perspective encourages people to believe that anyone can be a winner in the financial aid sweepstakes if you play the game right.

It is no wonder, then, that many families are confused about how to approach college costs. Do you try to do the “right thing”—save, sacrifice and make lifestyle choices that enable you to support college costs as fully as possible? Or do you spend down your discretionary income and manage your assets to establish the presumption of financial need?

Given what is at stake financially, it isn’t an easy question. And, in many ways, you are at the mercy of the institutions. Selective colleges and universities in particular will admit whomever they want for whatever reasons are important to them at the time—and many will use financial aid to entice those who are most attractive to them.

Lest you are tempted to move your money around to maximize the financial return, however, I can tell you this. Financial aid officers at private colleges and universities are good detectives when it comes to intuiting family financial circumstances. I’m sure financial aid officers at all institutions are adept at finding the truth about a family’s income and asset picture, but those at private colleges are often obsessive about drawing more information into their assessments of financial “need.” Toward that end, most require the College Scholarship Service Profile, a financial aid application that, by its design, enables aid officers to take a particularly granular look at your family finances. So, if playing the “end run” on college costs has crossed your mind, be ready for the real possibility that financial aid officers will be a step ahead of you!

In the final analysis, the best chance your student has of acquiring non-need based assistance is by managing expectations. Quite frankly, some schools will not offer any type of merit scholarship and that should be evident from the outset. If you have saved well yet cost and affordability—or, perhaps, cash flow—are still concerns for you, it will be foolhardy to try and squeeze tokens of support from these places.

Work with your student, then, to target “good fit colleges”—places at which s/he will be valued for what s/he has to offer. They are typically places where the students’ academic credential falls into the top 10-20% of those competing for admission. (Much as I hate to admit it, test scores, as institutional proxies for academic ability, are often the best indicators of the range of talent in the candidate pool.) Such institutions will admit the student and be clear about their intent to invest in his/her success. Quite often, an early indication of that investment arrives in the form of merit scholarship recognition.

For more information about the financial aid process, visit Best College Fit™. “Inside the Financial Aid Application Process” is one of the featured topics for December in the Video Archives.

It’s official.

On Saturday, October 29, 2011, “net price calculators” will be required elements on college and university websites. In accordance with the federal Higher Education Opportunity Act of 2008, institutions that enroll full-time, first-time degree or certificate seeking undergraduate students must provide a mechanism on their websites that estimates the net cost of attendance for current and prospective students.

As institutional price tags continue to soar—many are now above $50,000 per year—the resulting sticker shock is seen as a deterrent to many students who might otherwise consider post-secondary educational opportunities. The intent behind the net price calculators (NPC) is to encourage access to higher education by creating greater transparency with regard to the anticipated cost of attendance as defined by the student’s individual circumstances.

In theory, the NPC will calculate an adjusted price for each student that is reflective of that student’s “expected family contribution” (EFC). While the need-based financial aid analysis for college applicants (and returning students) is already rooted in the concept of expected family contribution, the NPC is intended to give families at glimpse at the EFC before the student engages in the application process. With this accomplished, students will be able to proceed with a greater understanding of the likely cost associated with their educational experiences.

To better understand the impact of the NPC, consider that institutions are employing “means-based” pricing models. In other words, at the end of the day they expect you to pay the amount you can afford rather than the listed sticker price. If you are fully self-supporting, you will be expected to pay the sticker price. On the other hand, if you demonstrate that you cannot be fully self-supporting, the NPC will calculate an EFC—a “reduced price”—that you are likely to encounter if admitted and enrolled at the institution.

The reality is the NPC is only an estimate of the price you will pay and it does not forecast your chances of gaining admission. Most institutions engage in differential needs analysis as they assess EFCs for students they might admit. In addition to being able to choose from a range of methodologies (FAFSA, College Scholarship Service Profile, institutional forms), financial aid officers can exercise “professional judgment” in assessing your EFC. As a result, your EFC for a given institution can vary by as much as $10,000 depending on the methodology that is used.

Moreover, the NPC cannot accurately anticipate the manner in which an institution will meet your demonstrated financial need (the difference between the sticker price and your EFC). This is because most institutions utilize preferential packaging in meeting the needs of their admitted students. Depending on your desirability to the institution, your need could be met with a financial aid award that includes a lot of gift aid (grants and scholarships) or a lot of self-help (loans and campus work study opportunities). A financial aid award that includes more of the latter adds substantially to the cost of attendance that you and your family must bear—a cost that the NPC is not likely to identify for you.

The bottom line: net price calculators are not likely to give you the degree of precision in projecting college costs that you might expect. They might give you a “ball park” sense of your out-of-pocket cost, but the final tally could be far different for the reasons outlined above. If you need a very close estimate of your EFC before making a “buying” decision, consult the financial aid professionals at the school in question directly.

The premise behind the NPC is certainly noteworthy. Unfortunately, it is not a failsafe measure nor is it likely to increase the dialogue between families and financial aid officers as the latter will direct the former to the net price calculators their websites.

An unanticipated development emerging from the NPC mandate is that many institutions now have new mechanisms for pre-qualifying, screening and recruiting potential candidates for admission. While most of the related activity is fairly benign, be wary of providing information on an NPC regarding the other colleges to which you are applying. This data is not essential to the calculation of the EFC, and, frankly, it can raise questions about the sincerity of your interest in the institution.

The concept of “Expected Family Contribution” (EFC) is, and has been, at the heart of the financial aid process for years. The underlying premise is simple: the first source of funding for college is the family. In order to receive assistance from a college, a student needs to demonstrate that his/her family is not able to cover the full cost of attending. When there is a “gap” between the EFC and the total cost of attendance, financial aid is intended to make up the difference.

The basic process for determining EFC and, thus, “demonstrated need” is an exercise rooted in determining a student’s eligibility for funding from the state and federal governments. The “Free Application for Federal Student Aid” (FAFSA) was established by the United States government to accomplish this end. Since colleges also provide financial support from their own coffers, most use the FAFSA to gauge the student’s eligibility for assistance. In addition, many private colleges subscribe to the College Scholarship Service PROFILE, which features a more complex “needs analysis” formula, to determine the student’s EFC.

On the surface, then, it would appear that the question of EFC is being calibrated with precision and fairness. In reality, the data generated by both the FAFSA and the PROFILE is subject to institutional scrutiny and nuanced interpretation. As a result, it is likely that a student who gains admission to five different institutions may find herself with five financial aid award letters that look very different. And, curiously enough, none of the letters will reference the family’s EFC!

The upshot of all this for families is that, despite the prevalence of online FAFSA Forecasters and federally-mandated institutional net price calculators, it is hard to anticipate actual college costs. These estimators are constructed with generic qualifiers that don’t reflect the nuances of various agendas that come into play as colleges decide whom they want to target with offers of admission and financial aid. Unless you are able to receive an estimate of your expected family contribution (EFC) directly from the financial aid office of the schools to which you are applying, anticipating out-of-pocket college costs will be a guessing game. And, even with such an estimate, you can’t proceed with certainty.

In the final analysis, your EFC is what a college or university wants it to be. The practices of differential needs analysis (applying whichever needs analysis that suits the institution’s purposes) and preferential packaging (strategically using scholarship and loan funds to “meet need”) at many schools make it difficult to measure the true impact of the EFC in the awarding of financial aid.

As you begin to develop strategies for anticipating and managing college costs, do so with your eyes wide open. The decision to admit and support a student with financial aid is a calculated decision that is often driven by the student’s desirability to the institution. The colleges that value most the things you have to offer are the ones that will admit you and give you the financial support you need to achieve your educational goals.

The April 1 Best College Fit (BCF) Webcast, “Unwrapping the Financial Aid Award,” takes an even closer look at how financial aid is administered and provides insight with regard to interpreting your financial aid award. Subscribe to BCF to gain access to this important webcast.