It won’t be long before rising seniors start applying to colleges this fall. 

By that time, families should construct a predetermined list of schools based on several factors, one being financial aid optimization. 

Let’s look at the two types of financial aid and how they play a part in the college planning process.     

Need-Based Aid

Need-based financial aid includes federal loans, grants and work-study programs, in which students earn money through campus-based jobs. States may also provide need-based aid in the form of scholarships and grants.

The Free Application for Federal Student Aid, better known as FAFSA, determines your family’s eligibility for need-based financial aid. Your family must submit one to receive federal aid from any undergraduate or graduate institution.
 
Some colleges require an additional form called the College Scholarship Service Profile (CSS Profile) to determine eligibility for nonfederal financial aid. The CSS Profile gathers much more detailed financial information than the FAFSA.

Because of this, it might come to a different conclusion about the amount your family should pay toward your child’s education, or your expected family contribution (EFC).

For example, home equity on a primary residence isn’t counted under the federal methodology (FAFSA) but is partially included under the institutional (CSS) methodology. Other factors will also affect your EFC. For instance, having multiple children in college at once will reduce your EFC and thereby increase your aid eligibility. 
 
Advisers who do true college planning should be able to tell you your EFC before you apply to schools. This will save you time, application fees and put you in a much better position to garner financial aid. 
 
Just because your family qualifies for aid doesn’t that mean you’ll receive it. A college doesn’t have to meet 100 percent of each student’s need, but most colleges do publish their percentages of need met on their websites. The more a college wants to admit your child, the more likely it is to offer a generous aid package, with more grants and scholarships than loans.

Your child shouldn’t exclude higher-priced schools from his or her college search. If your family’s EFC is $30,000, you’ll receive no aid from a school that costs $30,000 but would be eligible for up to $30,000 worth of aid at a school that costs $60,000. Provided your student’s financial need was met with grants, your family would effectively pay the same price at both schools.

Merit-Based Aid

Students whose families don’t qualify for need-based aid can still receive merit-based aid. This type of aid is based on your child’s unique abilities, be they academic, athletic, musical or civic. It has nothing to do with your family’s income or assets and generally comes in the form of scholarships, grants or tuition discounts – which means that it doesn’t have to be paid back.
 
Academic scholarships are the most common form of merit aid. They’re typically based on your child’s grades, standardized test (SAT and ACT) scores or class rank. The key is to apply to schools where your child ranks in the top 20 percent academically when compared to last year’s incoming class. 

Many colleges publish their requirements for merit-based aid online, so you can easily tell if your child qualifies. If his or her top choices don’t publish this information, you can use websites such as College Navigator to determine how your child’s academic profile compares with that of current students.

Understand Your Options

Students are graduating with enormous amounts of student loans and most financial advisors are doing little to help. You should never pay the sticker price for college, and you won’t if you plan accordingly. 

Your college plan needs to go well beyond just saving. It should incorporate “late stage” planning strategies, such as college selection, tax aid, financial aid and how to best use your personal resources – and help you pay for college without jeopardizing your other financial goals, such as saving for retirement.

Be proactive and start developing the best strategy to pay for your child’s education today.

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.