Every year families go through the tedious process of filling out financial aid forms in hopes of getting enough money to make college affordable for their student(s). If you do happen to qualify for aid, most of it will most likely be in the form of loans, which today have a high fixed interest rate.
However, even if the student is awarded some grant money, many families will struggle financially to pay the balance due to the college. This ‘balance due’ is usually determined by the Expected Family Contribution (EFC) of the family.
The EFC is computed by using family financial data submitted on the FAFSA financial aid application form. Private colleges may use their own Institutional EFC forms. The EFC is then subtracted from the Total Cost of Attendance (tuition, fees, room and board, books and supplies, personal expenses, cost of a computer, and transportation to and from college) to arrive at the student’s “need”, or eligibility for financial aid.
Johnny wants to attend XYZ Private College. The cost is $40,000 per year. XYZ college offers Johnny $10,000 in grant money and $6,000 in student loans.
Question – Is this an attractive financial aid offer?
Answer – Maybe.
Question – Can Johnny get a better deal from this college?
Answer – With professional help… probably.
Question – Does this offer make college affordable to the family?
Answer – Probably not.
You see, the real problem is Johnny’s family must still come up with $24,000 per year to pay the balance due the college. And even if Johnny’s aid package was negotiated by a professional to $13,000 in grant money and $3,000 in student loans, the family still owes the college the $24,000 balance.
What can this family do?
They could go into debt and take out parent (PLUS) loans at a 6.84% fixed interest rate (this could very easily lower the parent’s credit rating). They could take out some loans and pay the balance out of their income and assets. They could also take money out of their retirement to pay college expenses (this is absolutely the wrong thing to do).
As a last resort, Johnny could decide to forego his dream college and attend a public university. However, with a cost of $20,000 and a family EFC of $24,000, Johnny would not receive any need-based aid. Consequently, the student and parents would have to decide how to split the $20,000 cost, which is still unaffordable to some families, especially if they have two or more children to educate.
Is there a solution for Johnny’s family?
Yes, there is, but it can’t be found by poring over voluminous college books in the library or searching endlessly through Google for answers. Many families have tried to figure out how to pay for college all by themselves… and failed. And remember: even if you do get financial aid… it’s your out-of-pocket cost that you end up paying the college that comes back to haunt your bank account.
There are many financial strategies that can help you fund college expenses without raiding your retirement fund. Strategies such as:
- EFC strategies – minimize your EFC and maximize your financial aid eligibility
- Loan strategies – reduce your education debt so as not to jeopardize your current budget, your credit rating, or your retirement funding
- Tax strategies – increase your potential tax savings that can be converted to funding college costs
- Cash Flow strategies – find potential areas of cash flow improvement in your investments, health costs, insurance costs, mortgage costs, and current living expenses – all which can be used to help fund college costs
- Investment strategies – uncover “hidden costs” that can be converted to real dollars used to help fund college costs
Have you seriously thought about how you plan to pay your tuition bill? If you don’t qualify for financial aid, will you need to go into considerable debt, or even raid your retirement fund, to cover college expenses? Do you really have the time to try to figure out all this for yourself?
Don’t wait until the last minute to find out if you qualify for financial aid. Waiting could cost you dearly. Give us a call ASAP! We can help, but time is definitely running out!
The author of this newsletter is Brock Jolly.
If you have any questions about the information contained in this newsletter, or any questions about college funding in general, please contact our office.