Out of all the confusing parts of the college admissions puzzle, financial aid is the one that seems to cause the most heartburn (and heartache). Misconceptions and misinformation abound. “Money for College,” shouts the latest direct mail piece. “I heard Tom got a free ride to Harvard,” whispers a classmate. “No. I heard the Ivys only give need-based aid,” protests another.

Merit-based, need-based, FAFSA, scholarship searches, tuition & fees, room & board, Pell Grants, Direct Loans, fellowships, work-study, in-state, out-of-state, “sticker prices,” “public Ivys,” “needs assessments,” Expected Family Contributions-the terms boggle the mind.

The purpose of this article is not to provide the last word on financial aid, but merely to shed some light on the subject.

What is Financial Aid or Assistance?

Understanding all the steps of financial assistance is not easy, but it also doesn’t have to be extraordinarily difficult.

The first thing to do is to determine how much college would cost at the schools to which you are likely to apply. The total cost of a year is comprised of several components: tuition & fees, room & board, books & supplies, transportation costs, and other personal expenses.

Tuition & fees will make up the biggest component for out-of-state public institutions and private schools, generally.

At public universities, room & board may be the largest piece of the budgetary pie for resident students. Travel costs are mostly determined by distance from home. The other two factors will remain practically the same, no matter the school.

Here are some cost examples (prices are in USD):

So what do all these numbers really mean? Typically, a student will end up paying somewhere between $10-15,000 (including other expenses) annually to attend one of their state’s public universities; $20-25,000 to attend a public university in a state in which they don’t have residency status; $25-35,000 for a less “prestigious” private school; and $35-50,000 to attend an elite private institution.

The question is, who pays for all that education? Families will certainly be footing some of the bill, but a range of other sources of financing can help cut it down to size. It may make sense to sit down and figure out how much you and your family can actually afford in case outside sources fail to deliver.

The Family Contribution

On the one hand, there is “what you can afford,” and on the other hand is “what they say you can afford.” Wouldn’t the world be a brighter place if those two numbers were equal? Sadly, that is rarely the case.

When determining the Expected Family Contribution (a technical term introduced by the Free Application for Federal Student Aid-FAFSA-and individual colleges’ “needs assessments”) the Federal Government assumes quite a bit of sacrifice from parents, even if they don’t intend to pay anything towards their children’s education; even if they are divorced; even if they have other kids in school. It is probably a fairly easy thing for you to figure out what YOU think you can afford. T

o get a feel for “their” calculations, try one of the popular financial aid calculators, like the one at www.finaid.org or similar.

It turns out that 55% of all undergraduates receive some sort of financial aid: grants, loans, scholarships, etc. (according to the U.S. Department of Education). At schools where the price of attendance tops $12,000, almost 80% of students receive some aid (of which only one-fourth do not take out loans).

Among even high-income families (income over $80,000), almost 50% of undergraduates are supplementing their budget with financial aid. In essence, only very few are paying the full “sticker price” of a college education (but even the discounted price is pretty high).

So how can you knock that sticker price down?

Loans

The Federal Government is by far the largest source of financial aid in this country-providing nearly 70% of aid awarded each year and most of this aid is provided via low-interest, federally guaranteed loans.

For students with “exceptional” financial need, there are Federal Perkins Loans, providing $4,000/year for undergraduates (up to $20,000). Most go to families with incomes under $30,000. Perkins Loans have a 5% interest rate and a 10-year re-payment period. Your qualification for Perkins Loans is determined by your university or college’s financial aid office (e.g., it is a “campus-based program”).

Stafford Loans (provided by either the government or private lenders) are subsidized and unsubsidized. With subsidized loans, the government pays the interest until six months after graduation. Unsubsidized loans accrue interest throughout your time at school (though you can pay off the interest every year, if you want).

Dependent undergraduates can borrow up to $2,625 their first year, $3,500 their second year, and $5,500 each year after that. If the student’s parents have been turned down for a PLUS loan, the student can borrow an additional $4,000 in the first two years (un-subsidized) and $5,000 in the remaining years. Stafford Loans have a variable interest rate and are capped at 8.25%.

PLUS loans allow parents to borrow any remaining costs of a child’s education not covered by the financial aid package up to the full cost of attendance. PLUS loans have a variable rate, capped at 9%, and go into repayment 60 days after the funds are fully disbursed.

Private loans provide another alternative-especially home equity loans or home equity lines of credit. These offer tax advantages but may not have the best interest rates. Usually, parents have to take out these loans, becoming the responsible party, just like the PLUS loan program. Stafford and Perkins loans make the students the responsible party.

Some Concerns

A lot of parents worry about saddling their kids with large debt loads upon graduation. (A lot of kids worry about this too).

It may not seem fair, but to some extent, the college choice will be constrained by financial realities. When is it okay to take on a lot of debt? It’s probably the most justifiable if a student plans a career in a high-paying field (or at least where they have high-paying options), such as engineering or accounting.

Then loan payments may not amount to a large proportion of monthly income. In a typical 10-year repayment plan, borrowers can expect to pay a bit more than $100 per month for every $10,000 borrowed. For an Ivy League or elite private school education, for a student borrowing half of the total cost of attendance, this could mean an $800/month payment.

To put that in perspective, the typical engineer, accountant or consultant probably takes home at least $3,500/month (after tax). In that case, the monthly student loan payment is rather affordable.

If the student has aspirations to attend graduate school or is thinking about a less lucrative profession, student loan payments are more of a problem. All of a sudden, the $800/month seems pretty steep. Especially when adding the extra $800-1,000 burden of, say, law school debt. Still, there are ways to keep the debts down.

Grants and Scholarships

One way to keep debt down is to qualify for grants. Grants are basically need-based scholarships. Most grants are distributed to graduate students and professors who are involved in research projects, but undergraduates qualify for grants, too.

The most common grant available for undergraduates is the Federal Pell Grant, for which eligibility is established by filling out the FAFSA. The current limit for Pell Grants is $4,000. In 2001, almost 4 million students received a Pell Grant of some size.

In addition to the Pell Grant, the Federal Government sponsors the Federal Supplemental Educational Opportunity Grants (FSEOG) for exceptionally needy undergraduates-e.g., Pell Grant recipients with the lowest Expected Family Contribution.

These grants are administered through campus financial aid offices and also have a $4,000 maximum. Some state grants are also available. For example, the Iowa Tuition Grant provides up to $4,000 per year for students with demonstrated financial need. State grant money is concentrated in about 10 “high aid” states (GA, IL, IN, MN, NJ, NM, NY, PA, VT, VA).

Most of the State and Federal Government-sponsored grants are going to students with families making less than $40,000/year. According to the 1999-2000 National Postsecondary Student Aid Survey, 28.7% of dependent students with families earning more than $100,000 are financing their education with some grants (an average of $5,100/year), but most of those grants are coming from the institutions themselves, and some from the state.

What About Private Sector?

Once you move beyond government grants, only 19% of scholarship and grant money comes from private sources (according to the U.S. Department of Education’s National Center for Education Statistics). The vast bulk of scholarship aid for most students comes from the colleges and universities they attend.

The average private scholarship is only slightly more than $2,000. While that doesn’t mean there aren’t large scholarships out there, it does mean that you should be skeptical of the scholarship search hype. Do not pay anyone anything to find scholarships for you when there are tons of free search services available.

Most high school guidance counseling offices have free scholarship search books or software right there at the school. But keep in mind that most private scholarships have very narrow targets: cellists, biochemistry majors from Nevada, Samoan islanders, etc. It is worthwhile to take the time to run a search and to fill out the forms.

Common sources for private scholarships are local alumni organizations, community civic groups, and parents’ employers. One of the services professional admission consultants offer is assistance with specific scholarship applications-especially when there is an essay.

Jobs, Work-study, and Internships

The final source of funds for college is good, old-fashioned hard work. Work-study opportunities are a typical part of financial aid packages. The Federal Government pays part of a student’s salary, thus subsidizing their cost for universities and colleges.

Generally, these are part-time on-campus jobs providing students with cash to put towards tuition, books, or even personal expenses. Even if you don’t qualify for a work-study program, you can always get a job.

Consider being a waiter or waitress, working as a teller at a bank, or doing research for a professor (though these are rarely paid positions for undergraduates). Working 20 hours a week is not a ridiculous amount for a responsible college student it could mean an extra $6,000 per year.

Summer jobs, internships or even school-year internships or co-ops are also potentially valuable ways to add to your budgetary bottom line. Paid internships are available, but competitive. You could easily make $3-5,000 in a summer and improve your resume at the same time.

Wrapping Up

Above all remember that college is a good investment, generating significant financial returns and amazing new opportunities. We should not be surprised that it is expensive; it means the free market is working! After a grand tour of your dreamed universities, with a little learning and some financial discipline, most families can get college financed without breaking the bank.

Furthermore, the value of a college education extends beyond mere financial gains. It opens doors to a world of new perspectives, professional networks, and personal growth opportunities.

The investment in higher education is not just in monetary terms, but also in the wealth of knowledge and experiences gained. By choosing the right institution and program, students can align their academic pursuits with their career goals, ensuring that their investment pays off in both professional success and personal fulfillment.

Many institutions offer scholarships, grants, and flexible payment plans to aid families in managing their expenses. Additionally, exploring external scholarships and work-study programs can further alleviate the financial burden.

It’s about smart planning and being proactive in seeking financial support. With these strategies, obtaining a college education becomes an achievable goal, not just for a few, but for many.