Aid Explained

The two biggest factors controlling how much your family will pay for college are the list of schools your student selects to apply to, and how well the aid policy of those colleges matches your AidProfile.

Since 86% of all financial aid is distributed directly by the colleges themselves, doesn't it make sense to focus your efforts

  1. on where you have the best chance of getting help and,
  2. on controlling your costs?

As you read through this section, keep this in mind and you'll learn why these factors are so important and how you may want adjust what you're doing.

Types of Financial Aid

In general, when most people think of financial aid, they are thinking about need-based aid, but there are actually several different types of aid:  need-based, merit based, tuition discounts, tax aid and private scholarships.

Need-based aid :  Cost of Attendance (COA) - Expected Family Contribution (EFC) = "Need"
Need-based aid is assistance provided to a student based upon the family's capacity to pay, as determined by the financial aid formula used by a given college.  You provide information about your family, including income and asset information.  This information is used to calculate your Expected Family Contribution (EFC).  Different colleges use different formulas.  The most common formulas are Federal Methodology, Institutional Methodology and Consensus Methodology.  If your EFC is greater than the Cost of Attendance, you have need.

Federal Methodology is calculated using information on the Federal Application for Federal Student Aid form (FAFSA).  A few notables things about the formula is that it doesn't count the equity in your primary residence, the value of retirement plans and the value of a small business  (fewer than 101 employees).  A school that only requires the FAFSA form is typically using the federal methodology.

Some schools use what is called the Institutional Methodology to calculate aid eligibility.  Unlike the federal methodology, home equity and the market value of your business is considered.  Retirement plans are not officially counted, but their values are requested on the form.  In addition to the FAFSA, a school using the institutional methodology may require the CSS Profile form or their own form for gathering information not provided by the FAFSA.

Note:  Some colleges customize the institutional methodology to fit their needs.

A third common formula is referred to as the Consensus Methodology.  It is similar in many ways to the institutional methodology, but there are significant differences.  The amount of home equity included in the formula is capped based upon a family's income.  The student's assets are evaluated in the same way as parent assets. (Not so in the federal or institutional formula). Unfortunately, there is a limited list of colleges that have agreed to use this formula.

Other methodologies:

Several elite colleges have announced initiatives to help more moderate income families in their efforts to pay for college.  Make sure you understand how they will view your situation.  Some colleges may consider assets above a certain level and count that against you.

Merit Aid

Some money for college is awarded without regard to financial need.  This type of college aid is usually awarded for a student's academic achievements in high school, as well as for community service, leadership, musical or athletic talent.  Awards and scholarships like this are usually awarded by colleges and universities during the admission process.  Some may require you apply for admissions by a certain date to be considered.

One place to learn about the available merit aid at a college is at Cappex's website.

Tuition Discounts

Tuition discounts are granted by many colleges and universities across the county. Some colleges, in their desire to fill their freshman class, will provide discounts on tuition as an incentive to get students to enroll.  These discounts have nothing to do with need and more to do with the college’s desire to fill a new freshman class.

Tax Aid

Tax aid refers to the deductions and credits allowed on your tax return by the federal governments for families paying for qualified college expenses.  If you qualify, these provisions indirectly put money in your pocket by reducing your tax bill.

Private Scholarships

For the motivated student, private scholarships are great opportunity to raise money for college bills.   It's never too soon to try for these scholarships.  Many are awarded to students prior to their senior year.  If you find that private scholarships represent your best chance for financial aid, be sure to begin early.  Don't wait until you fail to get the financial aid package your were hoping for.  The mistake most families make with private scholarships is that they wait until March or April of the senior year before getting serious about looking.  Don’t fall into this trap.

Aid Application Process

College Aid Policies

Some colleges state that they are need-blind and meet 100% of demonstrated need.  This information often provides a false sense of relief to some families.  Why?  Because the college is saying one thing and the family is understanding something else.  The college is saying, "we accept students to our institution independent of the family's ability to pay.  And, we meet 100% of the demonstrated need.  The key word being "demonstrated".  What most families hear is "they're going to help us."  The problem arises when a family can't demonstrate need according to the college's formula. The college wasn't dishonest.  They are in fact very generous...if you have need and can properly demonstrate the need. 

This misunderstanding is a big reason it's so important to learn about your own AidProfile and become knowledgeable about the aid distribution policy for the colleges your student has interest in.  If you learn before your student applies to college that you won't be considered needy, you have time to adjust the list to include different colleges if your lack of need will make these colleges unaffordable.

Some colleges only offer financial aid based on need.  If you have "no need", you'll have to pay the entire bill or not attend because there is no merit money available.

Some colleges have a policy of "gapping".  In these cases, you may demonstrate need, but won't have all of your need met.  For a family that is extremely reliant on aid, this may create a problem because you will have to pay that portion of your need the college didn't cover.

Faced with a relatively limited endowment or financial aid budget, a college may spread their dollars in a way that helps accomplish their enrollment targets.  These colleges may attempt to entice students to enroll by offering a university grant that really just represents a discount off the full sticker price.  In some cases, they know that they may not be able to afford to meet the full need of all of its needy students.  So, instead of offering one grant of $40,000 to one student, they may offer grants of $10,000 each to four students.

This is a way for some colleges to use your need for financial assistance to help them enroll a full class of students.  Often these students are from middle and upper income backgrounds and may offer the added benefit of having parents that may also become donors in the future.

AidProfileTM

If you've already done some reading up on financial aid and the process, this is probably the first you're hearing of an AidProfile.  And that makes sense...because we made it up! 

It's one thing to know the EFCs for your family.  But it's something completely different and more powerful to know your AidProfile.  Knowing your EFC is key to beginning to understand financial aid.  Knowing your AidProfile is key to finding your family's best chance of obtaining assistance with the college bill.

So what exactly is an AidProfile? 

After calculating EFCs for more families than we can count, we began to see the patterns or pathways to money.  Combining a family's unique situation with our extensive knowledge of the financial aid system, allows us to identify possible roadmaps to maximizing your aid potential: an AidProfile.

The first step in determining an AidProfile is calculating the Expected Family Contributions for your student.  This makes the most sense because, if you qualify for need-based aid, it's the easiest money to get.  File the appropriate financial aid forms and documents in a timely manner and the school handles the rest.

The next step is to evaluate the variables that will also affect where and how much aid you might qualify for.  Maybe you don't qualify for need-based aid right now, but will next year when you have two students in college at the same time.  Or you have a large amount of home equity that will be counted against you by certain schools.Or you are divorced and can't expect a lot of assistance from the non-custodial parent.  These are simple examples of things that could influence your AidProfile.

College Selection

What happens if you don't qualify for financial aid, but your student's college list is filled with colleges that only offer need-based aid and no merit money?  Or, you learn that you qualify for a significant amount of aid, but the college has a history of gapping, i.e. it won't be as generous as others might be?  In either case, you are left with paying the bill.  If you can afford to do so, no worries.  But what if you can't?

To have the best chances of maximizing your aid, you need your AidProfile to align with the aid policy of the colleges on your student's list.

When they don't, you have two options: 

  1. Pay the bill anyway, somehow. 
  2. You can choose colleges that have an aid policy that is compatible with your family's financial situation.

We can show you how to figure this out before your student finalizes their college list.  Or you can wait to hear from the college after your student gets accepted.  Believe me, it's much less painful to have these kind of conversations before the admissions decisions come. 

If you’d like to learn more about how we can help you improve your chances of receiving more financial aid, please visit our complete list of services HERE