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Understanding College Financial Aid and Paying for College
Bill Smith
207-773-4142
College Costs, But it Pays
College grads earn 70% more than high school grads
College grads have 47% less unemployment than high school grads
Agenda
• Net price – the real cost of college
• Types of financial aid
• Need-based aid
• The “business” of college
• Merit-based aid
• Paying for college
• Questions
My Vacation
When Brand Name = Cost
Don’t even ask!
Way too much
Still too high
Now we’re talking
Sticker Price, Gift Aid, Net Price
Sticker (13-14) $22,938 $22,912 $50,295 $59,900
Average Gift Aid $ 6,454 $ 6,407 $18,057 $37,611
Average Net Price $16,484 $16,505 $32,238 $22,289
Good news – real (net) price is less than sticker price …But nobody is “average” – what does it mean for you?
Your Real Cost – the Net Price
• It doesn’t matter what colleges charge …
• Sticker price (published Cost of Attendance)
• What matters is what you pay …
• The Net Price
• Net Price = COA minus gift aid:
Grants & Scholarships
Types of Financial Aid• Grants & Scholarships – Free Money
• Work/Study – Earned as you go
• Loans – Must be repaid with interest
• Gift aid – grants & scholarships – reduces cost
• Self-help – work/study & loans – manages cost
Paying the Net Price
• Net Price paid from income earned over time
• Prior income
– Savings
• Current income
– Payment plans, cutting back, work/study, etc.
• Future income
– Student / parent loans
Gift Aid
• Need-based aid (grants)
– Family income & assets
– Apply with FAFSA & CSS Profile
• Merit-based aid (scholarships)
– Grades (GPA), test scores, class rank
– Subjective talent: music, art, athletic – less common and less predictable
Need-Based Aid
• “Need:” potential eligibility for aid
• COA – EFC = Need
• COA = Cost Of Attendance:
• EFC = “Expected Family Contribution”
• EFC is not what you will pay
• College’s idea of need probably isn’t yours
Tuition & FeesRoom & BoardBooks & SuppliesTransportation & Other
Applying: FAFSA, Profile• FAFSA required for need-based aid & Federal
education loans at all colleges
• Profile required for college-funded aid at about 300 colleges, including many of the more selective colleges
• Apply online: FAFSA & Profile EFC calculated automatically and reported to you and college
• http://fafsa.gov
• http://student.collegeboard.org/css-financial-aid-profile
Determining EFC
Parent Contribution from Income
Student Contributionfrom Income
Parent Contribution from Assets
Student Contribution from Assets
Parent Contribution Student Contribution
PC + SC = EFC
Parent(s) Student
Income
Assets
Two EFC formulas – FAFSA & Profile – but same basic approach
PC from IncomeFAFSA Profile
Add:
Taxable IncomeAGI AGI
Add:
Untaxed Income
Retirement contributions,
Child support received,
VA benefits, Workers comp,
Disability
FAFSA items plus: TANF,
Untaxed social security, EIC,
Business loss & depreciation,
Flexible spending accounts
Less:
Exclusions
Child support paid,
Combat paySame as FAFSA
Less:
Allowances
Taxes paid,
Minimal living costs
FAFSA items plus:
Medical expenses,
Tuition for pre-college siblings
Equals:
Available Income
Assessed at 22-47%,
Highest rate at about $32K
Assessed similar to FAFSA but
highest rate at higher income
PC from AssetsFAFSA Profile
Assets Counted
Cash & investments,
Real estate except main home,
Business if over 100 employees,
Trusts, 529 plans
FAFSA items plus: Businesses
less than 100 employees,
Home equity (value less debt),
Assets in siblings' names
Less:
AllowancesModest savings allowance
Similar to FAFSA,
modest allowance
Equals:
Available Assets
Assessed at 12% of
income assessment rate;
maximum is 5.64%
Similar to FAFSA
Assets NOT
Counted
Personal property,
Qualified retirement savings,
Life insurance
Same as FAFSA
NotesStudent-owned 529s count
as parent asset
Student-owned 529s usually
count as parent asset,
Asset values may be imputed
Student Contribution
FAFSA Profile
Income
All parent income items plus
gifts and bills paid on student's
behalf, after $6,400 allowance
assessed at 50%
Same income items as FAFSA,
assessed at parent(s)' marginal
assessment rate
Assets
All parent asset items except
student-owned 529s (which
count as parent asset),
assessed at 20%
All parent asset items except
student-owned 529s (which
usually count as parent asset),
assessed at 25%
Notes
Most colleges have minimum
"summer earnings expectation"
of about $2,000
Special Cases
• Multiple siblings in college: PC reduced and “shared” among siblings
• Special circumstances: College financial aid office may adjust EFC in hardship cases such as loss of job, unusual medical expenses
• Divorced/separated parents:
– FAFSA includes custodial parent only, plus that parent’s spouse if applicable
– Profile looks at both biological/adoptive parents and each one’s spouse if applicable
EFC and Need Based Aid• COA – EFC = Need = Eligibility, not aid
• College aid policies vary, range from none to full need based on FAFSA or Profile EFC
• Pell: Up to $5,775 if FAFSA EFC < 5,198
• Maine: Up to $1,500 if FAFSA EFC < 5,000 and attending in Maine or at NEBHE college
• File the FAFSA as soon as possible after Jan 1
• EFC estimator: https://bigfuture.collegeboard.org/pay-for-college/paying-your-share/expected-family-contribution-calculator
Myth #1: Debt
• Many people assume that debt will be factored into the EFC calculation
• Unsecured debt – like credit card and education loans – is never counted
• Debt is only counted if it directly secures an assessable asset
• Home mortgage debt counts only if the college uses the Profile
Myth #2: Savings• Savings counted in EFC, so people think it doesn’t
pay to save
• Loans cost much more than saving
05,000
10,00015,00020,00025,00030,00035,00040,00045,00050,000
Year 1 Year 2 Year 3 Year 4 AfterCollege
Cost of saving$100,000
Cost of borrowing$100,000
The Business of College
Students focus on acceptance rate –the percentage of applicants who are admitted
Colleges focus on yield rate – the percentage of admitted students who enroll
College AcceptHarvard 6%Bowdoin 15%Colby 28%Boston Univ. 35%U Maine-Orono 83%USM 84%U New England 86%
Yield81%49%33%21%22%23%16%
Colleges discount price with financial aid to compete for yield
Merit Aid• Most prevalent at private colleges, more publics
awarding merit now too
• Highest awards go to strongest students relative to the school’s other applicants
• Highest merit aid at your safety schools
• Factors: HS GPA, class rank, test scores
• SAT for merit based on reading and math
• Subjective factors can play a part
• College aid policies vary, range from no merit to primarily merit
Merit Aid ExamplesGettysburg (PA)45% admit, 32% yield$60,320 COA
Hampden-Sydney (VA)47% admit, 19% yield$54,266 COA
Merit Aid Examples
Hampden-Sydney
75th
Percentile
25th
Percentile
Gettysburg
Max $25,000 1420, 3.9 GPA
Min $7,000 1240, 3.6 GPA
1370
1200
1215
1005
Max $20,000 + 1250, 3.8 GPA
Min $10,000 1050, 3.3 GPA
Reading &Math
Test Scores
Merit Aid Conclusions
75th
Percentile
25th
Percentile
Generalization
If a college uses merit aid the best chances for large awards are when you are above the college’s 75th percentile
If a college uses merit aid the awards may phase out when you are around the college’s 25th percentile
But colleges that compete for students may award merit aid to nearly everyone
Where Might You Get Merit Aid?• Which colleges match your SATs – e.g. 1250
US News includes SAT info
Merit Aid Example: SAT = 1100US News includes SAT info
Merit Info on College NavigatorGettysburg
If institutional grants & scholarships percent is- Over 60-65% it’s likely college uses merit aid- Over 80% it’s highly likely college uses merit aid
Merit Info on College NavigatorHampden-Sydney
How Do Colleges Discount?
Type (Private) Elite Near-elite Mid-market Other
Selectivity Extreme High Mid Low
Form Profile Profile FAFSA, Both FAFSA
Early Decision Significant Significant Some N/A
Endowment Very strong Strong Weak Minimal
Admit Policy Need Blind Need Aware - -
Need Grants Nearly Full Nearly Full Some Minimal
Aid Policy Full Need Full Need Gap Gap
Merit Aid Little/None Little Significant Almost all
ExamplesStanfordAmherstBowdoin
ColbyBates
Conn College
GettysburgHSC
Wheelock
Anna MariaCurry
Defiance
About 80 - 100 colleges About 2,000 colleges
Net Price CalculatorsNPCs tell your personalized Cost of Attendance (“sticker” price
before financial aid), Gift Aid, and the Net Price
All colleges must have an NPC, but not all are reliable
Good & bad NPCs – more questions means more reliable
Find any NPC: http://collegecost.ed.gov/netpricecenter.aspx
COA is:Tuition & FeesRoom & BoardBooks & SuppliesTransportation & Other
Net Price is COA(Cost of Attendance)minus Gift Aid
Net Price Profile – Hampden-SydneyHampden-Sydney
COA: $58KA to A+1400+
A- to A1300
B to B+1200
B- to B1100
C<=1000
EFC: 65KMerit: $29KNeed: $0K
Net Price: $29K
Merit: $24KNeed: $0K
Net Price: $34K
Merit: $19KNeed: $0K
Net Price: $39K
Merit: $14KNeed: $0K
Net Price: $44K
Merit: $9KNeed: $0K
Net Price: $49K
EFC: 40KMerit: $29KNeed: $0K
Net Price: $29K
Merit: $24KNeed: $0K
Net Price: $34K
Merit: $19KNeed: $0K
Net Price: $39K
Merit: $14KNeed: $3.3K
Net Price: $41K
Merit: $9KNeed: $4.5K
Net Price: $45K
EFC: 25KMerit: $29KNeed: $4.3K
Net Price: $25K
Merit: $24KNeed: $4.5K
Net Price: $30K
Merit: $19KNeed: $8.4K
Net Price: $31K
Merit: $14KNeed: $12.9K
Net Price: $31K
Merit: $9KNeed: $14.8K
Net Price: $34K
EFC: 15KMerit: $29KNeed: $4.5K
Net Price: $25K
Merit: $24KNeed: $6K
Net Price: $28K
Merit: $19KNeed: $9K
Net Price: $30K
Merit: $14KNeed: $13K
Net Price: $31K
Merit: $9KNeed: $14.8K
Net Price: $34K
EFC: 7.5KMerit: $29KNeed: $4.5K
Net Price: $25K
Merit: $24KNeed: $6K
Net Price: $28K
Merit: $19KNeed: $9K
Net Price: $30K
Merit: $14KNeed: $13K
Net Price: $31K
Merit: $9KNeed: $14.8K
Net Price: $34K
EFC: 2.5KMerit: $29K
Need: $7.61KNet Price: $22K
Merit: $24KNeed: $9.1K
Net Price: $25K
Merit: $19KNeed: $12.1K
Net Price: $27K
Merit: $14KNeed: $16.1K
Net Price: $28K
Merit: $9KNeed: $17.9K
Net Price: $31K
Hampden-SydneyNeed policy Merit policy Mid 50% SAT Admission profile Grid estimates:
Moderate Extensive 995 - 1210 Strong Possible Unlikely Merit aid, Need aid, Net price
Net Price Profile - WheelockWheelockCOA: $51K
A to A+1400+
A- to A1300
B to B+1200
B- to B1100
C<=1000
EFC: 65KMerit: $19KNeed: $0K
Net Price: $32K
Merit: $19KNeed: $0K
Net Price: $32K
Merit: $19KNeed: $0K
Net Price: $32K
Merit: $19KNeed: $0K
Net Price: $32K
Merit: $15KNeed: $0K
Net Price: $36K
EFC: 40KMerit: $19KNeed: $0K
Net Price: $32K
Merit: $19KNeed: $0K
Net Price: $32K
Merit: $19KNeed: $0K
Net Price: $32K
Merit: $19KNeed: $0K
Net Price: $32K
Merit: $15KNeed: $0K
Net Price: $36K
EFC: 25KMerit: $19KNeed: $2K
Net Price: $30K
Merit: $19KNeed: $2K
Net Price: $30K
Merit: $19KNeed: $2K
Net Price: $30K
Merit: $19KNeed: $2K
Net Price: $30K
Merit: $15KNeed: $2K
Net Price: $34K
EFC: 15KMerit: $19KNeed: $3K
Net Price: $29K
Merit: $19KNeed: $3K
Net Price: $29K
Merit: $19KNeed: $3K
Net Price: $29K
Merit: $19KNeed: $3K
Net Price: $29K
Merit: $15KNeed: $3K
Net Price: $33K
EFC: 7.5KMerit: $19KNeed: $4K
Net Price: $28K
Merit: $19KNeed: $4K
Net Price: $28K
Merit: $19KNeed: $4K
Net Price: $28K
Merit: $19KNeed: $4K
Net Price: $28K
Merit: $15KNeed: $6K
Net Price: $30K
EFC: 2.5KMerit: $19KNeed: $8.1K
Net Price: $24K
Merit: $19KNeed: $8.1K
Net Price: $24K
Merit: $19KNeed: $8.1K
Net Price: $24K
Merit: $19KNeed: $8.1K
Net Price: $24K
Merit: $15KNeed: $10.1K
Net Price: $26K
WheelockNeed policy Merit policy Mid 50% SAT Admission profile Grid estimates:
Moderate Extensive 850 - 1080 Strong Possible Unlikely Merit aid, Need aid, Net price
Net Price Profile - BowdoinBowdoin
COA: $63KA to A+1400+
A- to A1300
B to B+1200
B- to B1100
C<=1000
EFC: 65KMerit: $0KNeed: $0K
Net Price: $63K
Merit: $0KNeed: $0K
Net Price: $63K
Merit: $0KNeed: $0K
Net Price: $63K
Merit: $0KNeed: $0K
Net Price: $63K
Merit: $0KNeed: $0K
Net Price: $63K
EFC: 40KMerit: $0KNeed: $21K
Net Price: $42K
Merit: $0KNeed: $21K
Net Price: $42K
Merit: $0KNeed: $21K
Net Price: $42K
Merit: $0KNeed: $21K
Net Price: $42K
Merit: $0KNeed: $21K
Net Price: $42K
EFC: 25KMerit: $0KNeed: $36K
Net Price: $27K
Merit: $0KNeed: $36K
Net Price: $27K
Merit: $0KNeed: $36K
Net Price: $27K
Merit: $0KNeed: $36K
Net Price: $27K
Merit: $0KNeed: $36K
Net Price: $27K
EFC: 15KMerit: $0KNeed: $46K
Net Price: $17K
Merit: $0KNeed: $46K
Net Price: $17K
Merit: $0KNeed: $46K
Net Price: $17K
Merit: $0KNeed: $46K
Net Price: $17K
Merit: $0KNeed: $46K
Net Price: $17K
EFC: 7.5KMerit: $0KNeed: $54K
Net Price: $9K
Merit: $0KNeed: $54K
Net Price: $9K
Merit: $0KNeed: $54K
Net Price: $9K
Merit: $0KNeed: $54K
Net Price: $9K
Merit: $0KNeed: $54K
Net Price: $9K
EFC: 2.5KMerit: $0KNeed: $58K
Net Price: $6K
Merit: $0KNeed: $58K
Net Price: $6K
Merit: $0KNeed: $58K
Net Price: $6K
Merit: $0KNeed: $58K
Net Price: $6K
Merit: $0KNeed: $58K
Net Price: $6K
BowdoinNeed policy Merit policy Mid 50% SAT Admission profile Grid estimates:
Extensive None 1370 - 1520 Strong Possible Unlikely Merit aid, Need aid, Net price
Net Price Profile - UMOUMO
COA: $23KA to A+1400+
A- to A1300
B to B+1200
B- to B1100
C<=1000
EFC: 65KMerit: $8KNeed: $0K
Net Price: $15K
Merit: $8KNeed: $0K
Net Price: $15K
Merit: $4KNeed: $0K
Net Price: $19K
Merit: $1KNeed: $0K
Net Price: $22K
Merit: $0KNeed: $0K
Net Price: $23K
EFC: 40KMerit: $8KNeed: $0K
Net Price: $15K
Merit: $8KNeed: $0K
Net Price: $15K
Merit: $4KNeed: $0K
Net Price: $19K
Merit: $1KNeed: $0K
Net Price: $22K
Merit: $0KNeed: $0K
Net Price: $23K
EFC: 25KMerit: $8KNeed: $0K
Net Price: $15K
Merit: $8KNeed: $0K
Net Price: $15K
Merit: $4KNeed: $0K
Net Price: $19K
Merit: $1KNeed: $0K
Net Price: $22K
Merit: $0KNeed: $0K
Net Price: $23K
EFC: 15KMerit: $8KNeed: $0K
Net Price: $15K
Merit: $8KNeed: $0K
Net Price: $15K
Merit: $4KNeed: $0K
Net Price: $19K
Merit: $1KNeed: $.1K
Net Price: $22K
Merit: $0KNeed: $0K
Net Price: $23K
EFC: 7.5KMerit: $8K
Need: $1.1KNet Price: $14K
Merit: $8KNeed: $1.1K
Net Price: $14K
Merit: $4KNeed: $2.2K
Net Price: $17K
Merit: $1KNeed: $3.2K
Net Price: $19K
Merit: $0KNeed: $3.4K
Net Price: $20K
EFC: 2.5KMerit: $8K
Need: $4.1KNet Price: $11K
Merit: $8KNeed: $4.1K
Net Price: $11K
Merit: $4KNeed: $5.4K
Net Price: $14K
Merit: $1KNeed: $6.4K
Net Price: $16K
Merit: $0KNeed: $6.8K
Net Price: $16K
UMONeed policy Merit policy Mid 50% SAT Admission profile Grid estimates:
Limited Moderate 960 - 1190 Strong Possible Unlikely Merit aid, Need aid, Net price
Net Price Profile – USM (commuting)USM (at home)
COA: $15KA to A+1400+
A- to A1300
B to B+1200
B- to B1100
C<=1000
EFC: 65KMerit: $4KNeed: $0K
Net Price: $11K
Merit: $4KNeed: $0K
Net Price: $11K
Merit: $2.5KNeed: $0K
Net Price: $13K
Merit: $2.5KNeed: $0K
Net Price: $13K
Merit: $1KNeed: $0K
Net Price: $14K
EFC: 40KMerit: $4KNeed: $0K
Net Price: $11K
Merit: $4KNeed: $0K
Net Price: $11K
Merit: $2.5KNeed: $0K
Net Price: $13K
Merit: $2.5KNeed: $0K
Net Price: $13K
Merit: $1KNeed: $0K
Net Price: $14K
EFC: 25KMerit: $4KNeed: $0K
Net Price: $11K
Merit: $4KNeed: $0K
Net Price: $11K
Merit: $2.5KNeed: $0K
Net Price: $13K
Merit: $2.5KNeed: $0K
Net Price: $13K
Merit: $1KNeed: $0K
Net Price: $14K
EFC: 15KMerit: $4KNeed: $0K
Net Price: $11K
Merit: $4KNeed: $0K
Net Price: $11K
Merit: $2.5KNeed: $0K
Net Price: $13K
Merit: $2.5KNeed: $0K
Net Price: $13K
Merit: $1KNeed: $0K
Net Price: $14K
EFC: 7.5KMerit: $4KNeed: $0K
Net Price: $11K
Merit: $4KNeed: $0K
Net Price: $11K
Merit: $2.5KNeed: $0K
Net Price: $13K
Merit: $2.5KNeed: $0K
Net Price: $13K
Merit: $1KNeed: $1.4K
Net Price: $13K
EFC: 2.5KMerit: $4K
Need: $4.2KNet Price: $7K
Merit: $4KNeed: $4.2K
Net Price: $7K
Merit: $2.5KNeed: $4.6K
Net Price: $8K
Merit: $2.5KNeed: $4.6K
Net Price: $8K
Merit: $1KNeed: $7.4K
Net Price: $7K
USMNeed policy Merit policy Mid 50% SAT Admission profile Grid estimates:
Limited Moderate 880 - 1110 Strong Possible Unlikely Merit aid, Need aid, Net price
Match Student-College Profiles
Finding financial fit means matching the student’s need- and merit-profiles with colleges’ awarding policies for need-based grants and merit-based scholarships
This example shows a student with a need-profile resulting in EFC of 15K and merit-profile based on B- to B grades and 1100 SAT (reading & math)
Hampden-Sydney Wheelock UMO Bowdoin USM
COA: $58KMerit: $14KNeed: $13K
Net Price: $31K
COA: $51KMerit: $19KNeed: $3K
Net Price: $29K
COA: $23KMerit: $1K
Need: $0.1KNet Price: $22K
COA: $63KMerit: $0KNeed: $46K
Net Price: $17K
COA: $15KMerit: $2.5KNeed: $0K
Net Price: $13K
Cost of Degree Model
• First year net price is $34,865
• Cost of degree will be four years
• Questions to ask:
– How much will costs increase?
– Is aid automatically renewable?
• We’ll assume:
– Costs increase 2% per year
– Aid is renewable & constant for 4 years
– Savings: $2,000 for student & $25,000 for parents
Total Cost of a DegreeCost of a College Degree Year 1 Year 2 Year 3 Year 4 Total
Line © ScholarFITS LLC
16 Total to be paid (lines 10+14+15) 34,865 35,795 36,743 37,710 145,112
17 Paid from student savings
18 Paid from parent savings, 529 plan
19 Parent home equity loan (possibly, if Profile college)
20 Student Work/Study award
21 Paid from other student income
22 Paid from parent income, payment plans
23 Student Loans (Cannot exceed line 11 minus line 20)
24 Parent Ed Loans (Cannot exceed line 11 minus lines 20+23)
25 Parent Other Loans
26 Remaining amount to be paid (should be zero)
1,800 1,800 1,800 1,800
5,500 6,500 7,500 7,500
2,000 0 0 0
2,000 2,000 2,000 2,000
4,500 4,500 4,500 4,500
19,065
0
5,935 0 0
0 15,060 20,943 21,910
0 0 0
2,000
25,000
0
7,200
8,000
18,000
27,000
57,913
0
0
In this example student debt is $27,000 and parent debt is $58,000
Debt: When to Borrow?
• Debt is a tool to consume before you pay
• Like most tools, helpful when used properly but dangerous if misused
• Borrow when the product will last longer than the loan
AND• When you can
reasonably expect to repay the debt
What Will Federal Loans Cost?
• Student loans: 4.66% interest, 10 year term
• Parent loans: 7.21% interest, 10 year term
Monthly payment Annual payment
Per $1,000 of debt $10.44 (student) $125.28 (student)
Per $1,000 of debt $11.72 (parent) $140.63 (parent)
Student: $27,000 $282 $3,383
Parent: $58,000 $680 $8,157
What Debt Is Reasonable?
• Rule of thumb:
– Payments for education debt shouldn’t exceed about 10% to 15% of gross income
Student Parent(s)
Amount of debt $27,000 $58,000
Annual payment $3,383 $8,157
Income/year: 15% $22,553 per year $54,380 per year
Income/year: 10% $33,830 per year $81,570 per year
Free Money: Up to $600 from FAME• NextGen 529 accounts:
http://www.famemaine.com/files/Pages/NextGen/NextGen_New_Look/Grants_Maine_Residents.aspx
$200 Initial Matching Grant (IMG)– For accounts opened after 2010 for beneficiaries not
previously named as beneficiary of a NextGenaccount or received Alfond Challenge Grant
• $300 NextStep Matching Grant (NMG)– New deposits to any account matched at 50% up to
$300 grant for $600 total deposit (excluding IMG)
• $100 Automated Funding Grant (AFG)– One time, after 6 automatic contributions
Pilot Program for Seniors
• Free financial aid counseling for Class of 2016
• Limited space – priority for early sign-ups
• Estimates for:
– Your cost after financial aid at several colleges
– Identify colleges where you may qualify for aid
– Total cost of degree
– Sources of payment, and estimated loans
– Income guideline after college to repay debt
• More info: [email protected], 773-4142
Links to Resources
www.ScholarFits.com
Questions
?