Understanding College Financial Aid and Paying for College · Understanding College Financial Aid...

Understanding College Financial Aid and Paying for College

Bill Smith

[email protected]

207-773-4142

College Costs, But it Pays

College grads earn 70% more than high school grads

College grads have 47% less unemployment than high school grads

Agenda

• Net price – the real cost of college

• Types of financial aid

• Need-based aid

• The “business” of college

• Merit-based aid

• Paying for college

• Questions

My Vacation

When Brand Name = Cost

Don’t even ask!

Way too much

Still too high

Now we’re talking

Sticker Price, Gift Aid, Net Price

Sticker (13-14) $22,938 $22,912 $50,295 $59,900

Average Gift Aid $ 6,454 $ 6,407 $18,057 $37,611

Average Net Price $16,484 $16,505 $32,238 $22,289

Good news – real (net) price is less than sticker price …But nobody is “average” – what does it mean for you?

Your Real Cost – the Net Price

• It doesn’t matter what colleges charge …

• Sticker price (published Cost of Attendance)

• What matters is what you pay …

• The Net Price

• Net Price = COA minus gift aid:

Grants & Scholarships

Types of Financial Aid• Grants & Scholarships – Free Money

• Work/Study – Earned as you go

• Loans – Must be repaid with interest

• Gift aid – grants & scholarships – reduces cost

• Self-help – work/study & loans – manages cost

Paying the Net Price

• Net Price paid from income earned over time

• Prior income

– Savings

• Current income

– Payment plans, cutting back, work/study, etc.

• Future income

– Student / parent loans

Gift Aid

• Need-based aid (grants)

– Family income & assets

– Apply with FAFSA & CSS Profile

• Merit-based aid (scholarships)

– Grades (GPA), test scores, class rank

– Subjective talent: music, art, athletic – less common and less predictable

Need-Based Aid

• “Need:” potential eligibility for aid

• COA – EFC = Need

• COA = Cost Of Attendance:

• EFC = “Expected Family Contribution”

• EFC is not what you will pay

• College’s idea of need probably isn’t yours

Tuition & FeesRoom & BoardBooks & SuppliesTransportation & Other

Applying: FAFSA, Profile• FAFSA required for need-based aid & Federal

education loans at all colleges

• Profile required for college-funded aid at about 300 colleges, including many of the more selective colleges

• Apply online: FAFSA & Profile EFC calculated automatically and reported to you and college

• http://fafsa.gov

• http://student.collegeboard.org/css-financial-aid-profile

http://fafsa.gov/

http://student.collegeboard.org/css-financial-aid-profile

Determining EFC

Parent Contribution from Income

Student Contributionfrom Income

Parent Contribution from Assets

Student Contribution from Assets

Parent Contribution Student Contribution

PC + SC = EFC

Parent(s) Student

Income

Assets

Two EFC formulas – FAFSA & Profile – but same basic approach

PC from IncomeFAFSA Profile

Add:

Taxable IncomeAGI AGI

Add:

Untaxed Income

Retirement contributions,

Child support received,

VA benefits, Workers comp,

Disability

FAFSA items plus: TANF,

Untaxed social security, EIC,

Business loss & depreciation,

Flexible spending accounts

Less:

Exclusions

Child support paid,

Combat paySame as FAFSA

Less:

Allowances

Taxes paid,

Minimal living costs

FAFSA items plus:

Medical expenses,

Tuition for pre-college siblings

Equals:

Available Income

Assessed at 22-47%,

Highest rate at about $32K

Assessed similar to FAFSA but

highest rate at higher income

PC from AssetsFAFSA Profile

Assets Counted

Cash & investments,

Real estate except main home,

Business if over 100 employees,

Trusts, 529 plans

FAFSA items plus: Businesses

less than 100 employees,

Home equity (value less debt),

Assets in siblings' names

Less:

AllowancesModest savings allowance

Similar to FAFSA,

modest allowance

Equals:

Available Assets

Assessed at 12% of

income assessment rate;

maximum is 5.64%

Similar to FAFSA

Assets NOT

Counted

Personal property,

Qualified retirement savings,

Life insurance

Same as FAFSA

NotesStudent-owned 529s count

as parent asset

Student-owned 529s usually

count as parent asset,

Asset values may be imputed

Student Contribution

FAFSA Profile

Income

All parent income items plus

gifts and bills paid on student's

behalf, after $6,400 allowance

assessed at 50%

Same income items as FAFSA,

assessed at parent(s)' marginal

assessment rate

Assets

All parent asset items except

student-owned 529s (which

count as parent asset),

assessed at 20%

All parent asset items except

student-owned 529s (which

usually count as parent asset),

assessed at 25%

Notes

Most colleges have minimum

"summer earnings expectation"

of about $2,000

Special Cases

• Multiple siblings in college: PC reduced and “shared” among siblings

• Special circumstances: College financial aid office may adjust EFC in hardship cases such as loss of job, unusual medical expenses

• Divorced/separated parents:

– FAFSA includes custodial parent only, plus that parent’s spouse if applicable

– Profile looks at both biological/adoptive parents and each one’s spouse if applicable

EFC and Need Based Aid• COA – EFC = Need = Eligibility, not aid

• College aid policies vary, range from none to full need based on FAFSA or Profile EFC

• Pell: Up to $5,775 if FAFSA EFC < 5,198

• Maine: Up to $1,500 if FAFSA EFC < 5,000 and attending in Maine or at NEBHE college

• File the FAFSA as soon as possible after Jan 1

• EFC estimator: https://bigfuture.collegeboard.org/pay-for-college/paying-your-share/expected-family-contribution-calculator

https://bigfuture.collegeboard.org/pay-for-college/paying-your-share/expected-family-contribution-calculator

Myth #1: Debt

• Many people assume that debt will be factored into the EFC calculation

• Unsecured debt – like credit card and education loans – is never counted

• Debt is only counted if it directly secures an assessable asset

• Home mortgage debt counts only if the college uses the Profile

Myth #2: Savings• Savings counted in EFC, so people think it doesn’t

pay to save

• Loans cost much more than saving

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,000

Year 1 Year 2 Year 3 Year 4 AfterCollege

Cost of saving$100,000

Cost of borrowing$100,000

The Business of College

Students focus on acceptance rate –the percentage of applicants who are admitted

Colleges focus on yield rate – the percentage of admitted students who enroll

College AcceptHarvard 6%Bowdoin 15%Colby 28%Boston Univ. 35%U Maine-Orono 83%USM 84%U New England 86%

Yield81%49%33%21%22%23%16%

Colleges discount price with financial aid to compete for yield

Merit Aid• Most prevalent at private colleges, more publics

awarding merit now too

• Highest awards go to strongest students relative to the school’s other applicants

• Highest merit aid at your safety schools

• Factors: HS GPA, class rank, test scores

• SAT for merit based on reading and math

• Subjective factors can play a part

• College aid policies vary, range from no merit to primarily merit

Merit Aid ExamplesGettysburg (PA)45% admit, 32% yield$60,320 COA

Hampden-Sydney (VA)47% admit, 19% yield$54,266 COA

Merit Aid Examples

Hampden-Sydney

75th

Percentile

25th

Percentile

Gettysburg

Max $25,000 1420, 3.9 GPA

Min $7,000 1240, 3.6 GPA

1370

1200

1215

1005

Max $20,000 + 1250, 3.8 GPA

Min $10,000 1050, 3.3 GPA

Reading &Math

Test Scores

Merit Aid Conclusions

75th

Percentile

25th

Percentile

Generalization

If a college uses merit aid the best chances for large awards are when you are above the college’s 75th percentile

If a college uses merit aid the awards may phase out when you are around the college’s 25th percentile

But colleges that compete for students may award merit aid to nearly everyone

Where Might You Get Merit Aid?• Which colleges match your SATs – e.g. 1250

US News includes SAT info

Merit Aid Example: SAT = 1100US News includes SAT info

Merit Info on College NavigatorGettysburg

If institutional grants & scholarships percent is- Over 60-65% it’s likely college uses merit aid- Over 80% it’s highly likely college uses merit aid

Merit Info on College NavigatorHampden-Sydney

How Do Colleges Discount?

Type (Private) Elite Near-elite Mid-market Other

Selectivity Extreme High Mid Low

Form Profile Profile FAFSA, Both FAFSA

Early Decision Significant Significant Some N/A

Endowment Very strong Strong Weak Minimal

Admit Policy Need Blind Need Aware - -

Need Grants Nearly Full Nearly Full Some Minimal

Aid Policy Full Need Full Need Gap Gap

Merit Aid Little/None Little Significant Almost all

ExamplesStanfordAmherstBowdoin

ColbyBates

Conn College

GettysburgHSC

Wheelock

Anna MariaCurry

Defiance

About 80 - 100 colleges About 2,000 colleges

Net Price CalculatorsNPCs tell your personalized Cost of Attendance (“sticker” price

before financial aid), Gift Aid, and the Net Price

All colleges must have an NPC, but not all are reliable

Good & bad NPCs – more questions means more reliable

Find any NPC: http://collegecost.ed.gov/netpricecenter.aspx

http://collegecost.ed.gov/netpricecenter.aspx

COA is:Tuition & FeesRoom & BoardBooks & SuppliesTransportation & Other

Net Price is COA(Cost of Attendance)minus Gift Aid

Net Price Profile – Hampden-SydneyHampden-Sydney

COA: $58KA to A+1400+

A- to A1300

B to B+1200

B- to B1100

C<=1000

EFC: 65KMerit: $29KNeed: $0K

Net Price: $29K

Merit: $24KNeed: $0K

Net Price: $34K


Net Price: $39K


Net Price: $44K

Merit: $9KNeed: $0K

Net Price: $49K


Net Price: $29K


Net Price: $34K


Net Price: $39K

Merit: $14KNeed: $3.3K

Net Price: $41K


Net Price: $45K

EFC: 25KMerit: $29KNeed: $4.3K

Net Price: $25K


Net Price: $30K


Net Price: $31K


Net Price: $31K


Net Price: $34K

EFC: 15KMerit: $29KNeed: $4.5K

Net Price: $25K


Net Price: $28K


Net Price: $30K


Net Price: $31K


Net Price: $34K

EFC: 7.5KMerit: $29KNeed: $4.5K

Net Price: $25K


Net Price: $28K


Net Price: $30K


Net Price: $31K


Net Price: $34K

EFC: 2.5KMerit: $29K

Need: $7.61KNet Price: $22K


Net Price: $25K


Net Price: $27K


Net Price: $28K


Net Price: $31K

Hampden-SydneyNeed policy Merit policy Mid 50% SAT Admission profile Grid estimates:

Moderate Extensive 995 - 1210 Strong Possible Unlikely Merit aid, Need aid, Net price

Net Price Profile - WheelockWheelockCOA: $51K

A to A+1400+

A- to A1300

B to B+1200

B- to B1100

C<=1000


Net Price: $32K


Net Price: $32K


Net Price: $32K


Net Price: $32K


Net Price: $36K


Net Price: $32K


Net Price: $32K


Net Price: $32K


Net Price: $32K


Net Price: $36K


Net Price: $30K


Net Price: $30K


Net Price: $30K


Net Price: $30K


Net Price: $34K


Net Price: $29K


Net Price: $29K


Net Price: $29K


Net Price: $29K


Net Price: $33K

EFC: 7.5KMerit: $19KNeed: $4K

Net Price: $28K


Net Price: $28K


Net Price: $28K


Net Price: $28K


Net Price: $30K

EFC: 2.5KMerit: $19KNeed: $8.1K

Net Price: $24K


Net Price: $24K


Net Price: $24K


Net Price: $24K


Net Price: $26K

WheelockNeed policy Merit policy Mid 50% SAT Admission profile Grid estimates:

Moderate Extensive 850 - 1080 Strong Possible Unlikely Merit aid, Need aid, Net price

Net Price Profile - BowdoinBowdoin

COA: $63KA to A+1400+

A- to A1300

B to B+1200

B- to B1100

C<=1000


Net Price: $63K

Merit: $0KNeed: $0K

Net Price: $63K

Merit: $0KNeed: $0K

Net Price: $63K

Merit: $0KNeed: $0K

Net Price: $63K

Merit: $0KNeed: $0K

Net Price: $63K


Net Price: $42K


Net Price: $42K


Net Price: $42K


Net Price: $42K


Net Price: $42K


Net Price: $27K


Net Price: $27K


Net Price: $27K


Net Price: $27K


Net Price: $27K


Net Price: $17K


Net Price: $17K


Net Price: $17K


Net Price: $17K


Net Price: $17K


Net Price: $9K


Net Price: $9K


Net Price: $9K


Net Price: $9K


Net Price: $9K


Net Price: $6K


Net Price: $6K


Net Price: $6K


Net Price: $6K


Net Price: $6K

BowdoinNeed policy Merit policy Mid 50% SAT Admission profile Grid estimates:

Extensive None 1370 - 1520 Strong Possible Unlikely Merit aid, Need aid, Net price

Net Price Profile - UMOUMO

COA: $23KA to A+1400+

A- to A1300

B to B+1200

B- to B1100

C<=1000


Net Price: $15K

Merit: $8KNeed: $0K

Net Price: $15K

Merit: $4KNeed: $0K

Net Price: $19K

Merit: $1KNeed: $0K

Net Price: $22K

Merit: $0KNeed: $0K

Net Price: $23K


Net Price: $15K

Merit: $8KNeed: $0K

Net Price: $15K

Merit: $4KNeed: $0K

Net Price: $19K

Merit: $1KNeed: $0K

Net Price: $22K

Merit: $0KNeed: $0K

Net Price: $23K


Net Price: $15K

Merit: $8KNeed: $0K

Net Price: $15K

Merit: $4KNeed: $0K

Net Price: $19K

Merit: $1KNeed: $0K

Net Price: $22K

Merit: $0KNeed: $0K

Net Price: $23K


Net Price: $15K

Merit: $8KNeed: $0K

Net Price: $15K

Merit: $4KNeed: $0K

Net Price: $19K

Merit: $1KNeed: $.1K

Net Price: $22K

Merit: $0KNeed: $0K

Net Price: $23K

EFC: 7.5KMerit: $8K



Net Price: $14K


Net Price: $17K


Net Price: $19K


Net Price: $20K

EFC: 2.5KMerit: $8K



Net Price: $11K


Net Price: $14K


Net Price: $16K


Net Price: $16K

UMONeed policy Merit policy Mid 50% SAT Admission profile Grid estimates:

Limited Moderate 960 - 1190 Strong Possible Unlikely Merit aid, Need aid, Net price

Net Price Profile – USM (commuting)USM (at home)

COA: $15KA to A+1400+

A- to A1300

B to B+1200

B- to B1100

C<=1000


Net Price: $11K

Merit: $4KNeed: $0K

Net Price: $11K

Merit: $2.5KNeed: $0K

Net Price: $13K


Net Price: $13K

Merit: $1KNeed: $0K

Net Price: $14K


Net Price: $11K

Merit: $4KNeed: $0K

Net Price: $11K


Net Price: $13K


Net Price: $13K

Merit: $1KNeed: $0K

Net Price: $14K


Net Price: $11K

Merit: $4KNeed: $0K

Net Price: $11K


Net Price: $13K


Net Price: $13K

Merit: $1KNeed: $0K

Net Price: $14K


Net Price: $11K

Merit: $4KNeed: $0K

Net Price: $11K


Net Price: $13K


Net Price: $13K

Merit: $1KNeed: $0K

Net Price: $14K


Net Price: $11K

Merit: $4KNeed: $0K

Net Price: $11K


Net Price: $13K


Net Price: $13K


Net Price: $13K

EFC: 2.5KMerit: $4K



Net Price: $7K

Merit: $2.5KNeed: $4.6K

Net Price: $8K

Merit: $2.5KNeed: $4.6K

Net Price: $8K


Net Price: $7K

USMNeed policy Merit policy Mid 50% SAT Admission profile Grid estimates:

Limited Moderate 880 - 1110 Strong Possible Unlikely Merit aid, Need aid, Net price

Match Student-College Profiles

Finding financial fit means matching the student’s need- and merit-profiles with colleges’ awarding policies for need-based grants and merit-based scholarships

This example shows a student with a need-profile resulting in EFC of 15K and merit-profile based on B- to B grades and 1100 SAT (reading & math)

Hampden-Sydney Wheelock UMO Bowdoin USM

COA: $58KMerit: $14KNeed: $13K

Net Price: $31K


Net Price: $29K

COA: $23KMerit: $1K



Net Price: $17K

COA: $15KMerit: $2.5KNeed: $0K

Net Price: $13K

Cost of Degree Model

• First year net price is $34,865

• Cost of degree will be four years

• Questions to ask:

– How much will costs increase?

– Is aid automatically renewable?

• We’ll assume:

– Costs increase 2% per year

– Aid is renewable & constant for 4 years

– Savings: $2,000 for student & $25,000 for parents

Total Cost of a DegreeCost of a College Degree Year 1 Year 2 Year 3 Year 4 Total

Line © ScholarFITS LLC

16 Total to be paid (lines 10+14+15) 34,865 35,795 36,743 37,710 145,112

17 Paid from student savings

18 Paid from parent savings, 529 plan

19 Parent home equity loan (possibly, if Profile college)

20 Student Work/Study award

21 Paid from other student income

22 Paid from parent income, payment plans

23 Student Loans (Cannot exceed line 11 minus line 20)

24 Parent Ed Loans (Cannot exceed line 11 minus lines 20+23)

25 Parent Other Loans

26 Remaining amount to be paid (should be zero)

1,800 1,800 1,800 1,800

5,500 6,500 7,500 7,500

2,000 0 0 0

2,000 2,000 2,000 2,000

4,500 4,500 4,500 4,500

19,065

0

5,935 0 0

0 15,060 20,943 21,910

0 0 0

2,000

25,000

0

7,200

8,000

18,000

27,000

57,913

0

0

In this example student debt is $27,000 and parent debt is $58,000

Debt: When to Borrow?

• Debt is a tool to consume before you pay

• Like most tools, helpful when used properly but dangerous if misused

• Borrow when the product will last longer than the loan

AND• When you can

reasonably expect to repay the debt

What Will Federal Loans Cost?

• Student loans: 4.66% interest, 10 year term

• Parent loans: 7.21% interest, 10 year term

Monthly payment Annual payment

Per $1,000 of debt $10.44 (student) $125.28 (student)

Per $1,000 of debt $11.72 (parent) $140.63 (parent)

Student: $27,000 $282 $3,383

Parent: $58,000 $680 $8,157

What Debt Is Reasonable?

• Rule of thumb:

– Payments for education debt shouldn’t exceed about 10% to 15% of gross income

Student Parent(s)

Amount of debt $27,000 $58,000

Annual payment $3,383 $8,157

Income/year: 15% $22,553 per year $54,380 per year

Income/year: 10% $33,830 per year $81,570 per year

Free Money: Up to $600 from FAME• NextGen 529 accounts:

http://www.famemaine.com/files/Pages/NextGen/NextGen_New_Look/Grants_Maine_Residents.aspx

$200 Initial Matching Grant (IMG)– For accounts opened after 2010 for beneficiaries not

previously named as beneficiary of a NextGenaccount or received Alfond Challenge Grant

• $300 NextStep Matching Grant (NMG)– New deposits to any account matched at 50% up to

$300 grant for $600 total deposit (excluding IMG)

• $100 Automated Funding Grant (AFG)– One time, after 6 automatic contributions

http://www.famemaine.com/files/Pages/NextGen/NextGen_New_Look/Grants_Maine_Residents.aspx

Pilot Program for Seniors

• Free financial aid counseling for Class of 2016

• Limited space – priority for early sign-ups

• Estimates for:

– Your cost after financial aid at several colleges

– Identify colleges where you may qualify for aid

– Total cost of degree

– Sources of payment, and estimated loans

– Income guideline after college to repay debt

• More info: [email protected], 773-4142

mailto:[email protected]

Links to Resources

www.ScholarFits.com

Questions

?

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