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As a financial planner I help my clients with college-bound students pay less for college by educating them on how the college financial aid system works and the specific things they can do reduce the sky-high cost of a college education. Over the years I have heard it all and some of the misconceptions and myths people have about paying for college come up every year. Unfortunately, there is often a grain of truth in many of these misconceptions which only adds to the confusion.
Below is a short list of the more common myths and misconceptions about financial aid that I hear often.
“I’ve got plenty of time”
If you’re the parent if a high-school aged student that intends to go to college, you need to be educating yourself on financial aid and how the college planning process works – starting now. Parents of seniors are already behind and falling further behind every day.
The Free Application for Federal Student aid or FAFSA form can be completed as soon as October 1st of your senior year of high school. Deadlines for college applications, including applying for financial aid, may come as early as November or even earlier at some schools.
Delaying the application process and postponing your college planning can cause you to miss significant scholarship opportunities. Some of these opportunities can be literally thousands or even tens of thousands of dollars in financial aid, but if you miss a deadline, your financial aid award can be $0.
“I won’t get any benefit out of completing the FAFSA form”.
Generally, when people say this what they mean is they make too much money to qualify for any need-based financial aid so why bother? Certainly, there are cases where an average student comes from a high-income family and their financial aid opportunities are more limited, maybe even zero, especially at a lower cost state or community college.
But that’s not always the case.
In my experience, most families can find merit-based financial aid or even need-based financial aid opportunities for their student if they know where to look. Subsidized government student loans, one in which the government covers your interest while you are enrolled at least half-time at an accredited institution, scholarships and grants, and work-study programs all count as financial aid.
Every year billions of dollars in financial aid are left on the table by parents and students who failed to take the first step which is to complete the FAFSA. Even relatively high-income families with significant financial assets may qualify for financial help especially at the most expensive schools.
Unfortunately, to qualify for any of these financial aid opportunities, students and parents must fill out the FAFSA form even if your income is high and you are certain you won’t qualify for the Pell grant. In the end, you may only be offered only a basic Stafford Loan, but you won’t know if you don’t complete the form.
“Public colleges and universities are always less expensive than private schools”.
I often tell parents that for most families, most of the time, public colleges and universities in your state of residence will probably offer the lowest cost of college education.
Of course, there are many exceptions.
Talented students who have strong academic merit can often get significant merit-based financial aid awards at most of the private schools on their list. Families of more modest means may also qualify for need-based financial aid at many of these schools.
In some cases, the public colleges and universities, may actually be the most expensive schools on your list, especially the out-of-state schools that charge non-resident tuition. Depending on the student and the schools, the private colleges on your list may actually be MORE price competitive than the state colleges and universities.
To determine what you can expect to pay to attend a particular school, check out the Net Price Calculator found on your favorite college’s website. These calculators provide an estimate of how much your student can expect to pay to attend that specific school after accounting for financial aid and other considerations.
“I know which schools are the best fit for my student”
There are over 4,000 colleges and universities in the United States. This means that 90% or more of the schools that could be a fit for your student are schools that you have never even heard of before.
Many of these unknown schools might have a particular niche that could be especially helpful to your student. Perhaps the school is a polytechnic university that focuses on hands-on learning. Or they offer co-operative education programs where your student alternates between studying in the classroom and working in the field. Some schools may even offer to meet 100% of your student’s financial need or provide large merit-based scholarships that can help close your funding gap.
Cast a wide net and consider a variety of colleges, even those you have never heard of before. Your high school guidance counselor, the school websites, even a basic Google can help you find the schools that may be a best fit for your student.
“After the first year of college at an out-of-state school, my student will be eligible for resident tuition”.
Don’t count on it. Most states have strict residency requirements that require people to have a job and actually live in the state for up to a year, before residency can be established. Moving to another state to go to college usually prevents a person from receiving resident tuition rates.
Of course, there may be exceptions. If you are considering this strategy, talk to the school and find out their requirements for qualifying for resident tuition rates.
If that doesn’t work, look for out-of-state schools that offer scholarships to non-resident students. Iowa State University, for example, offers a merit-based scholarship to students which can bring the net cost more in line with the University of MN or UW-Madison. Reciprocity with other states, programs like the Midwest Student Exchange Program, and other opportunities may bring the price down closer to resident tuition levels as well.
“Students who graduate from elite, private colleges make more money and have better career opportunities”.
I once met an engineer who graduated from MIT, a school with a current sticker price of over $77,000 per year. I asked him if he thought his MIT degree resulted in more career earnings than if he had attended another school. His response, “Well, the guy in the cube next to me does the same thing I do and he went to the University of Iowa”.
So, basically the same job and the same salary, very different schools.
Of course, that is just an anecdotal example. Some people may disagree. In fact, the Wall Street Journal published an article that argues the opposite, that the Ivies do result in higher career earnings. There has been plenty of other research that contradicts that. You be the judge.
To some degree it depends on the career track of the student. A high school math teacher at your local high school gets paid essentially the same regardless of if they received their education at an expensive private school or a more affordable state college. Likewise for nurses and other medical personnel, government employees, and many others.
Will you make contacts at an expensive, exclusive college that can propel your career forward? It’s possible, but at more than $70,000 per year for an undergraduate degree, that’s a big gamble.
“Students can borrow as much as they need to pay for college”.
The schools will say that a student can borrow up to the total cost of attendance for college. That is true. However, you need to read the fine print.
The Direct Stafford Loan caps out at $5,500 for first-year undergrads. The cap increases in subsequent years, but no more than $31,000 may be taken in the form of the Direct Stafford Loan, the basic government student loan for undergraduates. Considering that the total cost of attendance at many schools can be $30,000 a year or more, it would be hard to borrow the total cost of attendance amount using Stafford Loans.
The only way a student can borrow the full cost of attendance is if someone else is on the hook for paying off the loan if the student fails to do so. Someone like you.
Paying for college is different today than it was when you and I went to school. Long gone are the days when a small loan, a part-time job, and a little help from our parents were enough to finance a college education.
Yet, an affordable college education is still possible if you take time to educate yourself on how the process works and become an informed consumer of a college education.
To discuss any of the topics in this blog or to learn more about how we can help you Cross The Bridge To A Confident Retirement, please contact me through my web site mikebranch.net, call me directly at 651-379-3935 or email me at mpbranch@focusfinancial.com.