My boys, Reece and Ryder, love rooting for the Tar Heels and the Fighting Irish.
Reece recently asked me how much it costs to attend both schools. When I told him it was over $70,000 a year for Notre Dame, he looked like a deer in headlights. This is high enough to scare most parents away from even asking for an application.
But maybe it’s not such an impossible goal to send your kids to the university they’ve set their sights on. Let’s take a deeper look into how college selection affects financial aid and why a private school, such as Notre Dame, might be within your reach after all.
We first need to determine the “true” cost of attending a school. And to get that figure, you need to calculate your expected family contribution, or EFC. This is the minimum amount that colleges will expect you to contribute toward the cost of your child’s education.
The EFC is calculated based on the information you provide on one of the two financial aid forms – the Free Application for Federal Financial Aid (FAFSA) and the CSS/Financial Aid Profile. All colleges that award federal aid require the FAFSA. Some schools also require the CSS Profile to determine eligibility for their own institutional aid.
Information you provide on the forms is used in one of three aid calculations, or methodologies, to determine your EFC. The FAFSA uses the “Federal” methodology, while the CSS Profile uses either the “Institutional” or “Consensus” methodology, depending on the college. Each methodology has its own formula for assessing a family’s income and assets for aid purposes.
For example, depending on the methodology used, College X might consider 100 percent of your home equity when looking at your assets, while College Y excludes home equity altogether. That is why it’s so important to understand what aid calculation each college uses.
Once your EFC is calculated, your eligibility for need-based aid is determined by taking the cost of attendance and subtracting your EFC. The result – assuming your EFC is smaller than the cost – is your financial need.
Let’s take an example of someone applying to two colleges – a state school that costs $25,000 and a private school at $70,000. If the family has calculated its EFC to be $25,000, then its out-of-pocket cost at both schools could be the same – $25,000. The student would not be eligible for need-based aid at the state school but would have a financial need of $45,000 at the private school. If that private school met 100 percent of the student’s need with grants, then both schools would effectively be identical in price.
As you can see, your child’s eligibility for need-based aid is relative to the cost of attendance. The higher the price tag, the greater the likelihood you have of qualifying for need-based aid. In fact, most elite schools will meet the majority of a student’s demonstrated need. Notre Dame, for example, says on its website that it will meet 100 percent of a student’s financial need.
If you happen to be a good candidate from an admissions standpoint, the college would probably meet your need in the form of grants, tuition discounts and scholarships, minimizing or eliminating the need for student loans. This is a prime example of how college selection and affordability are integrated.
College will most likely be one of the largest investments you ever make. You need to determine your best strategy to pay for it and protect your assets and income for retirement. That strategy should be based on your family’s unique circumstances and coordinated by your advisor, and it should cover college selection, financial aid, tax aid and the best use of your personal resources.
If your current financial advisor is not providing guidance in this area, find an advisor who can. The right college planning strategy can make all the difference for your child and your retirement.
At Tushingham Wealth Strategies, our goal is to help you proactively oversee all of your financial affairs by serving as your “Personal CFO” and fiduciary, so that you may live your ideal life worry free. As part of our "Personal CFO" service we help families develop "late stage" college planning strategies so that they can save money on college, protect their retirement assets and help their children graduate with minimal student loans. This is why our “Personal CFO” services will help you integrate college and retirement planning into one strategy.
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