Part 1: The Formula
More than half the parents who just sent their kids off for their freshmen year of college needed to supplement their contribution with financial aid.
Rapidly rising tuition costs were just one factor that rendered carefully monitored savings accounts insufficient. Luckily, it’s not as difficult as you think for your kid to get aid, even with your contribution.
COA – EFC = Need
It all comes down to a simple mathematical formula.
Cost Of Attendance is how much the tuition, books, room/board, fees, transportation, etc. is for your child’s university for a year.
You may be thinking that COA is a very fickle number, and you’re right. It changes from year to year or even semester to semester. Never fear, the cost of attendance is recalculated at the beginning of each year.
Estimated Family Contribution is how much you’ve put away to help pay for college.
There are four essential elements you need to consider when estimating your contribution to your kid’s college educational expenses:
• Your income
• Your assets
• Your student’s income
• Your student’s assets
Take a look at what you’ve saved and your current budget to determine your contribution. Don’t forget that you have other financial responsibilities. It’s noble to sacrifice for your child’s education, but not at the expense of your lifestyle, your other children, and your financial obligations.
EFC is a bit of a balancing act and it pays off to get the help of a college financial advisor so you don’t end up in over your head.
Need is the difference between COA and EFC. It is the key factor in determining how much financial aid your child is eligible for.
So if you’ve saved up $30,000 and the COA is $60,000. That means your child’s need is $30,000.
Perhaps you’ve decided that you can chip in an extra $500 a month while your child is in school. That’s an extra $24,000 you’ll contribute. That decreases your kid’s need to $6000.
Should you sell your boat or take some money out of your 401k? It’s tempting, but don’t do it. This is where financial aid comes in.
Financial Aid Awards
All financial aid is given based on need. Just because you have a substantial income does not exempt your child from having financial needs.
You can’t expect $6000 to drop from the sky in the form of a single great scholarship. Financial aid is more like a mild rain shower that sprinkles here and there as needed.
Most likely, your student will get a combination of several different types of financial aid:
• Loans (both subsidized and unsubsidized)
Often, your student will receive an offer for more than is needed. Awards must be carefully reviewed and accepted with not just the immediate future, but the distant future in mind.
Join us next week for part 2 on the basics of financial aid. You’ll find out everything you ever wanted to know about each of these types of financial aid awards and how to manage them.