Answers to Your College Questions

Now that we are well into spring, it is that time of the year for seniors and their parents to receive college financial aid award letters. Of course, with the costs of colleges as they are, these official award letters offer critical pieces of information to help families determine their final college choice—a decision that must be made by May 1st.

Follow these five steps as you read your college award letter (or look to the sample award letter provided below) to ensure that you understand the exact amount each college will cost.

After filing your FAFSA (your Free Application for Federal Student Aid), you will receive a very important number in your Student Aid Report—your EFC. The EFC, or your Expected Family Contribution number, is critically important to determining the cost of your college options.   But many families don’t understand what this number actually means and how colleges use it.

So what is the EFC? Look to these four commonly asked questions to fully understand your EFC and how it will affect your college costs.

As parents of high school seniors begin to file the FAFSA, some are having difficulty completing the form accurately. To ensure that your FAFSA is completed correctly, be sure to avoid these seven commonly made errors:

1. Listing non-working income (i.e., social security income) in the untaxed income category. If your non-working income already shows up as a part of adjusted gross income, you do not need to list it twice. Untaxed income and adjusted gross income are added together to arrive at total income. If you list non-working income in the untaxed income category, you will increase your EFC (expected family contribution) number.
2. Listing the equity of your home or the value of retirement plans as an asset. These items should not be included.
3. Listing student’s college savings as a student asset as opposed to a parent asset. In the 2013–2014 FAFSA, college savings accounts should be listed as a parent asset. This will reduce the EFC number.
4. Not including all members of a household. When listing members in a household, anyone who lives in the parents’ household and receives more than 50 percent support from them, such as grandparents or older siblings, should be included.
5. Listing parent income in the student income line item.
6. For divorced families, including a parent who should not be included. Only the parent and/or stepparent with whom the student resides most of the time (i.e., for more than six out of the last twelve months) should be included. Divorce decrees or tax return exemptions are not involved in this decision.
7. Waiting to complete the FAFSA until tax returns are filed in April. If you plan to file your taxes after mid-February, it is wiser to complete the FAFSA now using estimated information and then update your Student Aid Report (SAR) after you’ve completed your taxes.

For a line-by-line explanation of the electronic 2013–2014 FAFSA, watch the How to File Your FAFSA Online video on CollegeCountdown.com.

Many parents have asked this same question during my live seminars on finding affordable colleges. It is a common misconception that the sticker price of a college is directly related to the quality of the education your child will receive. This is understandable considering how goods and services are given value in our country—we often perceive items or services that are more costly as being somehow of higher quality. Obviously, in some cases, such as cars or homes, this might be true. The real question, though, is does that perspective hold true when examining colleges?

In our country, the most prestigious colleges—the Ivy League schools, for example—are typically the ones that have the highest sticker price. However, the sticker price, or the listed cost, of a college is not what each family pays. The amount each individual family actually pays is based on net price. Net price is calculated by subtracting grants and scholarships that the student has been awarded from the original sticker price. This is what makes college selection so different from many other purchases. The net prices for schools with the highest sticker prices can often be lower than those at many other colleges. That is just one reason why you can’t correlate price with the quality of a college.

Soon, after January 1st of 2013, parents of high school seniors will be filing the Free Application for Federal Student Aid—the FAFSA—in their pursuit of financial aid for college.

The federal government uses the FAFSA to calculate families’ EFC number. EFC is a term that is often misunderstood; it stands for Expected Family Contribution. Many people believe that the EFC number is the exact amount that schools expect families to spend on college. This is not the case. Actually, your EFC is the number that colleges will use (along with information they garner on a student’s application for admission) to develop their award letters. The award letter—which lists eligibility for all scholarships, grants, student loans, and campus employment options—allows families to determine their official net price of the college.

Most parents of high school students recognize the value of a college education and actively discuss the benefits of getting a degree with their children early on. Before their high school years even begin, parents emphasize the necessity of good grades, strong test scores, and involvement in extracurricular activities to make their student a desirable candidate for college admissions. Unfortunately, there is one aspect of the college process that doesn’t seem to come up in dinner-table conversation: paying for college.

There has been a great deal written about rising student loan debt. According to the Institute for Student Access and Success, the average student debt in 2011 was $26,600. In 2010, it was reported that the average debt parents were taking on to support their students was approaching $35,000. Thus, one could argue that the real debt per family for four years of college is now averaging more than $60,000.

I do not recommend taking on excessive loan debt. The following ten loan options, when used wisely, can make it possible to take on manageable debt to help you pay for college.

Here is something that baffles me. Let’s assume that your son or daughter is one of the best basketball players in the country. You probably know what happens when your child possesses that gift: colleges come calling, willing to offer scholarships if the student chooses their school. Generally, student athletes end up choosing the college that provides the most attractive scholarship offer.

When we discuss college costs, we need to understand what “cost” actually means.

Officially, colleges list a cost of attendance, what I call sticker price, which includes tuition and fees, room and board, transportation, books and supplies, and personal expenses. Families don’t pay the sticker price, though, so don’t get a case of sticker shock when you start looking at colleges.

Figuring out what you can afford to pay for college is the first step in helping your child attend college without having to take on excessive student loans or burdening your family with unreasonable debt.

The best way to start thinking about college costs and affordability is to assess what you can afford by looking at such factors as tax credits, cash flow, any savings available beyond an emergency fund, and reasonable parent borrowing.