Last week representatives from hundreds of universities filled the Monarch High School gym. Along with them were hordes of Boulder and Broomfield county students and families trying to figure out their options. It’s an exciting time for student families. It’s a stressful one, too, as not only are you weighing college fit and admissions chances, but also the family financial impact. Follow these steps to make the process easier.
Know how much you’re expected to pay. With October comes the availability of the free application for federal student aid form, which all universities require in order to qualify for financial aid. I recommend filling it out as soon as possible online at studentaid.ed.gov. It’s a good idea to do this even if you think your family won’t qualify for need-based financial aid in case it’s required for merit aid, as well as work study and federal student loan options. Once you’ve filled out the FAFSA, you’ll have your expected family contribution, or EFC. This is the pound of flesh the financial aid wizards have determined you could give up each year toward college costs.
You may go through the EFC calculation and object to its conclusion. Unfortunately for most universities it doesn’t matter. That’s what the student and family will be expected to pay for the first year of college. There’s also a subset of mostly private schools that also require the CSS Profile, which includes other data points such as home equity, non-custodial parent assets and retirement accounts. If you’re thinking about applying to a CSS Profile school, it’s important to Google that college’s net price calculator. If it’s a good one, it should provide you a reasonable estimate about how much that college would expect your family to pay each year.
Once you know your EFC and net price calculations, you’ll have a better understanding of the true cost after need-based financial aid. Then you need to make peace with that cost or come up with colleges that also offer merit aid. Jennie Kent and Jeff Levy have compiled a fantastic updated list of colleges with the merit- and need-based aid they offer that is available at bit.ly/2VfCVMc.
Have your financial independence plan In place. It’s natural for parents of school-aged kids to prioritize college savings. After all, college costs for most parents come sooner than retirement. The thinking is we need to handle the challenges in order. The trouble with this approach is it neglects the relative importance of these goals. No one will loan you money for your retirement. It’s something for for which you must save.
In contrast, there are many options for attending and paying for college. The total cost could be under $30,000 for a degree with two years of community college and finishing up at an in-state university. There are plenty of colleges that have a cost of attendance over $70,000 a year. Students can work while in school and may have access to subsidized and unsubsidized student loans. Other planners may disagree with this point, but I truly believe paying for a college education (including taking out loans) should not be considered without knowing if it jeopardizes your financial independence. There are online tools out there such as at personalcapital.com or through your workplace retirement plan that can give you a good snapshot of your financial state.
Only apply to schools you can afford. This seems like an obvious point — why would your child apply to a college if it’s going to drive a financial wedge into your family? Many times it goes back to the sequential thinking — apply for schools in the fall, see where you get in, and then figure out the finances later. In my experience if you put off the financial calculations until decision day in May, emotions will be running high and it’s more likely you’ll do something under pressure that you’ll later regret. Don’t expect there to be some financial aid fairy that cuts the cost of college if your EFC is high and the college’s net price calculator is not encouraging. The exceptions to this rule are colleges that give significant merit aid, such as our local University of Colorado Boulder and University of Denver. Merit aid can reduce the ultimate cost of college as long as your student qualifies with a strong application. Just don’t expect merit aid from the most competitive universities, as they largely don’t offer it. See the Kent and Levy spreadsheet mentioned earlier for more details.
David Gardner is a certified financial planner with a practice in Boulder County and can be reached with questions david.gardner@merceradvisors.com and on Twitter @Dave_CFP. The views expressed in this article are the author’s alone.
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