Planning Strategies for Parents
Most all parents assume that because their son or daughter has been accepted for admission, the school will naturally ‘take care’ of the student and offer appropriate funding to make their attendance possible.
After all, the process is routinely portrayed to the family as free, easy, you can do it yourself, and the college will help out. Unfortunately, it’s just not that simple. Actually, not even close.
Which offer of funding is good? Bad? How can you tell? What should your family pay? Better still, what should the college pay?
What Every Parent Should Know …
Understanding the Process
The most important factor in obtaining financial aid for college is for the student and parents to have a complete understanding of the process, including the real funding sources and how best to access them, do the necessary research from the family’s perspective, devise a plan, and stay on track.
Although financial aid was originally designed to go to those who needed it the most, it usually goes to those who know the most about the process.
Keep in mind that although some financial aid (Federal PELL and SEOG grants, for example) is geared towards lower income families, college funding as a whole is not a charitable operation but rather a strategic tool used by colleges and universities to attract the students they would most like to enroll. Nowadays, many institutions are willing to offer financial aid to families with much higher than average annual earnings.
Tip – Don’t think your family makes too much money to qualify for college financial aid; many schools are willing to offer funding to students from families with annual earnings in excess of $300,000.
The Colleges' Business Approach
Colleges consider themselves a community and strive to fill their community with a wide range of talented, driven, and diverse students. Each institution will typically use their own internal formulas to gauge the attractiveness and suitability of each student as they relate to their specific community. Colleges may even go beyond the basic formulas and offer additional funding to hopefully secure the attendance of the most attractive students as well as those students who can provide a major, yet hidden, windfall for the institution.
Institutions rely heavily on endowment funds to consistently attract their ideal students. Alumni are obviously major contributors to each school’s endowment fund. From a business prospective, it would only make sense for colleges to target incoming students (primarily high school students) who are most likely to challenge themselves and graduate, ultimately giving back to the college. This is a key ingredient that helps each institution’s overall endowment fund to continue to grow.
From the student’s perspective, colleges are always looking for the most attractive students (those that ultimately provide the biggest return on the college’s investment). There are many things the student can do to increase their attractiveness, and ultimately, lower the family’s overall out of pocket college expenses. Simply put, the most attractive students almost always receive the most lucrative funding offers.
Advanced Funding Formula
The often publicized Cost of Attendance (COA) – Expected Family Contribution (EFC) = Student’s Financial Need (Need) formula is elaborated upon in this section in order for your family to gain a better overall understanding of how the process really works and colleges actually award funding.
Although the basic formula is certainly part of the considerations; there are also several other factors colleges examine / consider before they make Award Letter-formatted funding offers. You will quickly see that the EFC is really only part of a much bigger formula and not what the family is ‘expected to contribute’ at all.
Internally, the colleges expand upon the generic need formula described above to essentially attract the students they would most like to enroll by offering each additional funding; basically, an enticement to ensure their attendance.
To effectively accomplish their goal, the following advanced formula is incorporated into the overall funding process:
|Student’s Financial Need|
|x % of Need Met (1)|
|x % of Gift Aid Offered (2)|
|= Target Gift Aid (3)|
(1) Depending primarily on the resources (endowment funds) available, each institution will ‘meet’ a different percentage of the student’s Financial Need. In other words, School A may meet 100% of the student’s Need, while School B may only meet 70%.
(2) Each institution will then offer a percentage of the Need Met in gift aid. Again, this percentage varies from institution to institution based on available resources, which are primarily each college’s own endowment funds. Once again, School A may offer 60% of the Need Met in gift aid, while School B may only offer 30%.
(3) Based on the college’s recent history of awarded funding, this is the amount the student / family may expect to receive in the form of gift aid directly from the institution. Although the college may refer to this money as a scholarship, grant, or endowment; it is essentially a discount off their total cost of attendance. By deducting the Target Gift Aid from the school’s total Cost of Attendance you arrive at an Adjusted Cost of Attendance, or what may be referred to as the college’s wholesale price.
What Admit / Deny Means to You
Most all colleges and universities will offer admission to three, four, or even five times as many students as they actually need to fill their seats. Colleges know ahead of time that only a small portion of those offered admission will actually attend; with the majority often going to another school.
Along with offering admission to many more students than they actually need to fill their seats, colleges also group accepted students into three internal (secret) categories based on many qualifications ranging from classes taken, grades received and test scores all the way to volunteer work and community activity.
Colleges commonly score applications, with each school putting a slightly different emphasis on each qualification factor. After the schools evaluation, each student is placed into a specific group:
- Love the student – typically receive the most lucrative offers
- Like the student – commonly receive middle-of-the-road funding
- Fill their seats – usually are offered very little, if any, funding
With Admit / Deny, if the student falls into the middle or lower group, although the student has been offered admission, they will likely be offered little or no funding; making their attendance much more of a financial burden on the family. Although the student has been admitted, the school is actually denying admission due to the lack of funding being offered.
Unfortunately, students and families are simply not aware of the grouping procedures involved with Admit / Deny and they naturally expect that along with the college’s offer of admission will also come adequate funding … simply not the case. This is where families often needlessly deplete their financial resources (savings, home equity, retirement accounts) to make the student’s attendance possible.
Importance of Keeping Options Open
The student keeping their enrollment options open is vital. Even if you are absolutely sure you will be attending a particular school, it is important to apply to six colleges – not just one or two. The student certainly doesn’t want to become a captive audience.
Committing to a school too early can also have a very negative influence on the amount of funding the student receives. Even though the goal of the colleges is to get you to commit as soon as possible, it is best for the student and parents to wait until all available options have been reviewed.
The Hazards of 'Early Decision'
Committing to a school too early through early decision can often have a negative influence on the amount of funding the student receives. Even though the school’s goal is to get the student to commit as soon as possible, early decision could affect the family’s ability to appeal for additional funding later.
Early decision is most-often a contract the student signs to agree to attend and withdraw all applications from other institutions.
Colleges will often use clever marketing tactics such as only a couple spots remain, the dorm is almost full, etc. to secure the student’s early decision. Regardless of the tactic, most all early decisions usually benefit the college and leave the student / family with far fewer financial options.
Many times, colleges will even go so far as to say that early decision will in no way influence the funding they are offering. What else are they going to say? You are now a captive audience and we have no reason to ever increase your funding.
The ultimate decision is certainly that of the student and family; however, just be aware of the implications early decision can create. You would never go on a car lot and tell the salesman that you were going to buy that red car today with no shopping around or comparing. Oh, and by the way, be sure to give me a great deal. Not to compare a college education to a used car lot; however, schools do fall into much the same category when it comes to early decision and funding.