Our daughter will be attending college next year. Is there a way to estimate how much financial aid she'll qualify for?
As you know, paying for college is a daunting task. During the past school year, the average tuition, room and board and other expenses at private universities was $26,070, while public universities rang in at $11,976. Fortunately, there are lots of ways to fund an education — even for people without sizeable bank accounts.
But if your daughter is interested in dipping into the $45 billion of available federal financial aid, you'll soon discover that the government expects families to pitch in, too. And while many parents might feel like they can't afford to help out, the Department of Education likely sees things differently.
To get a piece of the action, students should fill out the Free Application for Federal Student Aid — also known as FAFSA — as early as possible. (You can apply online at FAFSA.ed.gov.) While this year's deadline is still many months away, the money will be distributed on a first-come, first-served basis. Once it's gone, even the most needy will be turned away.
Federal aid can come in several different forms: grants, student loans, parental loans or work-study opportunities. Obviously, not everyone qualifies. "Federal aid is geared toward needy families that work hard and still don't have enough money to fund their child's education," says a spokeswoman with the U.S. Department of Education. For this reason, all parents must include their financial information on the FAFSA forms, even if they feel cash-strapped or have no desire to help foot the bill.
Once the Department of Education has a clear picture of a family's financials, it uses a formula to come up with what it calls the Expected Family Contribution, or EFC. This is the amount of money the government believes the parents can afford to spend on Junior's expenses for that academic year. Many parents will be surprised to see how much the government believes they can afford. Under the EFC formula, parents are expected to contribute between 22% and 47% of their net income (after any Department of Education allowances) and, at most, 5.6% of their assets (after allowances) toward college. (For more on this, see our Financial Aid calculator.)
With the EFC figure in hand, a college financial-aid administrator then determines how much federal aid the student should receive. "The EFC will be held against the student even if the parents don't plan to hand over the money," says David Cooper, a managing director at Sallie Mae.
The only way for a student to remove his or her parents from the overall financial-aid equation is to be deemed "independent." The government has numerous criteria for this designation. According to the Department of Education, the student must be an orphan or a veteran, be married, have a date of birth before 1979, be enrolled in a graduate program or have a child of his or her own. Students who qualify for independent status can receive up to twice as much federal aid — a maximum of $46,000 in Stafford loans over four years.
Most students, of course, don't qualify for independent status. What's a parent slapped with an onerous EFC to do? We suggest you contact the financial-aid administrator at your child's school and plead your case. Parents who've recently been laid off or have above-average medical expenses have the best chances of success. The self-employed might be able to make a strong case as well, since they tend to qualify for less aid. Many colleges automatically disallow some of the basic deductions the self-employed take as business expenses — things like meals and entertainment, travel and depreciation. A financial-aid administrator might take these things into consideration. (For more on financial aid for the self-employed, read our story.)
If the parents make a persuasive case, the administrator can use his own "personal judgment" to lower the EFC and help the student qualify for more federal aid. This doesn't happen often, however. Such aid is reserved for the truly needy. "The administrators are not very sympathetic to asset-rich but income-poor parents or to step-parents who think they are off the hook," says Sallie Mae's Cooper.
Now for the student's part. He or she will need to fund the gap between awarded federal financial aid and school expenses with a combination of scholarships, private loans, part-time employment and any grants the school itself might be willing to make. Students can apply for private loans through one of the lenders recommended by the school or through Sallie Mae's Signature loan program. One warning: Interest rates for private loans tend to be higher than federal loans and can be difficult to get if the parents don't offer to cosign the deed. So while parents might not feel they can afford to chip in for tuition, they could do their child a huge favor by signing on the dotted line and helping him or her qualify for a competitive interest rate.
For more on financial aid, check out our college-planning section. This includes detailed information on the College Tax Breaks For Parents as well as advice on How to Negotiate for More Aid.