Is Your Family Eligible for (Enough) Financial Aid?
In recent years the cost of college has reached astronomical heights and is expected to keep rising in coming years. The cost of earning a four-year undergraduate degree from one of California's two public university systems has reached $40,000 at the University of California and close to $30,000 at the California State University. And that's if you are a California resident. For non-residents the cost increases to about $73,000 and $42,000, respectively. The numbers are even more mind-boggling at California's top private colleges, where the cost of attendance now averages over $80,000 (!) (You will find the costs of attendance for 11 of California's top private colleges costs in this blog post of mine).
For the vast majority of families, these costs are prohibitive and, well, despiriting. They certainly were for our family. Most of us simply cannot afford to cut $30,000 checks, not to mention $40,000 or $80,000 checks, four years in a row. So what are your options?
If, like most families, your family cannot pay for the full cost of college in cash, you have basically three options:
1) need-based financial aid (aka need-based aid),
2) merit-based financial aid (aka merit aid/scholarships) and/or
3) student/parent loans.
In this blog post, I will introduce you to the basics of need-based financial aid. Most importantly, I will explain how to figure out whether your family is eligible for need-based aid and, if so, for how much. The answers to these two questions are absolutely critical, as they may not only determine how much money you will need to spend on college, but also which colleges to apply to – and which colleges not to apply to – in the first place.
At the outset, you should know that the three options above are not mutually exclusive. You may, for example, be eligible for a certain amount of need-based aid and cover the rest with loans. Or you may qualify for both need-based aid and merit aid. In that case, it is important to note, you would receive only the larger of the two amounts, not both. Because you won't know for sure which type of financial aid, need-based aid or merit aid, will be higher, you should always apply for both. Typically, this won't require separate forms, as most colleges that award both need-based aid and merit aid will automatically consider applicants for both types of aid, unless they opt out or fail to provide required financial information by the financial aid application deadline.
Now, let's take a look at your eligibility for need-based financial aid.
The good news is that your family will probably be eligible for some need-based financial aid. The reason is that colleges are businesses and the college market is highly competitive. Offering financial aid to most applicants is one of the most effective ways for a college to compete for applicants with other colleges. The more financial aid a college can offer, the more applications it will receive. And the more applications a college receives, the more selective a college can be about who to admit, which in turn translates into lower acceptance rates and thus greater prestige.
So, the real question is how much need-based aid you are eligible for. This is where things get tricky for various reasons, among them: 1) Some colleges are wealthier than others and thus can afford to give out more need-based aid, and 2) every college uses its own proprietary formula to calculate financial aid awards. As a result, the amount of financial aid you may be awarded will vary greatly from school to school. When our oldest applied to various small private liberal arts colleges in the Northeast and Midwest, the financial aid awards ranged from $0 to $40,000(!).
This means that you will need to get a rough estimate of the level of need-based aid you can reasonably expect to receive for each college to which your student is considering applying. To do this, you should use the so-called "net price calculator" on the website of each institution. Basically, you enter financial information about your family, income, and assets into the calculator, and the net price calculator will generate a personalized estimate of the net price of attendance, i.e., the amount your family will be expected to pay after need-based financial aid and, if applicable, merit aid. That amount is known as the Expected Family Contribution (EFC).
Note that your EFC as calculated by a net price calculator is only an estimate and your actual EFC may differ, i.e., it may be higher or lower. In our experience, net price calculators are pretty accurate, though, and, if anything, tend to be conservative in their estimates. Generally, the more data a college's net price calculator requires, the more accurate its EFC estimate will be. So, beware of calculators that ask only for two or three data points than can be provided in just a couple of minutes.
Another thing to bear in mind is that your EFC as calculated by a net price calculator is valid only for the first year of college. If you are awarded financial aid by a college, you will be asked to reapply for financial aid each year. If your financial situation does not substantially change from year to year, chances are that your EFC, and thus your financial aid award, will remain the same. If your income is prone to fluctuations, however, (e.g., because you are a business owner) you may want to consider pursuing merit aid rather than need-based aid. Merit aid is generally stable throughout all four years of college and requires no renewed application every year.
To avoid having to enter your data into multiple net price calculators (this process can take 20 minutes or even longer) over and over again, you should initially enter your financial data into the EFC calculator of the College Board. Many, if not most, colleges are connected to the EFC calculator of the College Board. A list of these colleges can be found here. Once you have entered your data into the EFC calculator of the College Board, you will be able to transfer that data to the EFC calculator of any of the listed colleges by the click of a button.
When you look at your EFC from any given college, be prepared for surprises. As I mentioned before, your financial aid award, and thus your EFC, may vary widely from one college to another. Regardless of any variation, chances are you will feel that your EFC is too high, probably much too high. The reason is that your "financial need" as calculated by colleges generally will be significantly lower than your actual need. A private college where the cost of attendance is $70,000 may, for example, tell you that your financial need is $40,000 and that therefore you are expected to contribute $30,000 of the total cost, even though in reality you can afford only $15,000 or less. Another thing to watch out for is financial aid in the form of loans and/or work-study aka "self-help." Self-help doesn't reduce the net price of college, it simply helps you cover some of the costs through loans and/or work-study programs. True financial aid that actually reduces your net price is called a "grant (award)."
To get a better sense of what is involved, let's look at some actual EFCs generated for different financial profiles by the net price calculator of the University of California Santa Cruz (UCSC), one of the most attractive UC schools where applicants still have a reasonable chance of admission and where the cost of attendance (as of 2023) is $40,977.00.
Each hypothetical financial profile assumes that the applicant's parents are married, there are four household members, only one person, the applicant, is in college, and the applicant has no reported income or assets. Obviously, the numbers I used are just ballpark figures and will not accurately reflect your actual financial situation. Note that assets exclude non-retirement assets and home equity, because these types of assets are not considered by UCSC (note, however, that many private colleges do consider home equity to calculate financial aid).
When you look at the first financial profile, notice that even though the EFC is fairly low, $5,743.00, the grant award covers only about 50% of the cost of attendance. The remaining balance, $13,101.00, is covered by self-help — i.e., loans and work-study. In other words, even a family with a modest household income of $100,000 (by coastal California standards) and equally modest assets (savings, investments) would still be expected to pay a net price of almost $19,000 at UCSC! If savings or investments were substantially higher than $25,000, the net price could well exceed $20,000. Financial aid looks even worse for the second and third financial profiles. I will let you do your own arithmetic for these profiles, I am sure you get the idea by now. Basically, once household income reaches $150,000, a family won't receive much, if any, financial aid from UCSC. The numbers are very similar for the other UC campuses.
As I indicated above, the financial aid situation at private colleges is more complicated, as financial awards tend to differ substantially from one institution to another, sometimes by tens of thousands. Generally, private colleges award significantly more financial aid than public colleges (such as UCSC), because their cost of attendance is much higher (typically between $50,000 and $80,000) and they tend to have more money available per student. As a general rule, the more prestigious a private institution, the better its financial aid. The reason is that prestigious institutions, such as Ivy League schools or top-20 liberal arts colleges, have larger endowments than lesser known institutions and thus can afford to be more generous with financial aid. The problem is that, almost by definition, only a small fraction of all applicants will be admitted to these prestigious, highly selective institutions, so that staking your ability to pay for college on admission to any of them is not a good bet.
A more promising strategy is to apply to colleges 1) where your student has a good chance of admission based on their academic record and 2) which, though not as prestigious, have a track record of giving generous need-based financial aid to all or most eligible applicants. Depending on your family’s financial situation, this strategy can produce excellent outcomes. If your family's household income is around or below $100,000 a year and your student applies to the appropriate colleges, there is a good chance that your family will be eligible for need-based financial aid that will bring the net price of attendance down to $20,000 or less.
This has been a long post, I realize, and it will probably take you some time to digest all of the information. The most important takeaway is to use the net price calculator of each and every college under consideration to get an estimate of how much you will be expected to pay. Chances are that in the process, you will eliminate some, but hopefully not all, of the colleges on your list from further consideration because their net prices are just too high for your budget. If so, remember that need-based aid is only one form of financial aid. Even if your family isn't eligible for enough need-based aid, your student may well qualify for merit aid.
I will talk about the ins and outs of merit aid in my next blog post.
