When “Jim” and “Pam” sent their first child to college, they were thrilled that their daughter was accepted to her first-choice school, their state’s flagship public university. That education came with a total cost of attendance around $27,000 per year. Their daughter was a fantastic student who graduated with a 4.0 GPA and numerous AP credits. But the scholarship game is competitive, and she received only a handful of modest institutional awards that brought down her cost of attendance to about $22,000.
Together, the couple earned about $110,000. When the family filed the Free Application for Federal Student Aid (FAFSA), they learned their Expected Family Contribution (EFC, now called the Student Aid Index, or SAI) was $17,000. Pam and Jim were stunned. How could they possibly be expected to contribute 15% of their annual income to their child’s college costs? They had two other children at home to care for. They were also paying off their own student loan debt, consumer debt, medical debt, and a mortgage.
As of this writing, Pam and Jim have taken out more than $30,000 in Federal Parent PLUS loans, and their daughter has accrued more than $23,000 in Federal Student Loans. Grad school debt looms.
Unfortunately, Pam and Jim’s situation is not unusual in today’s college climate. Middle-income Americans find themselves feeling the squeeze of increased college costs, including an expectation that they take on more out-of-pocket expenses than they can realistically afford.
We can see a similar struggle play out with another family several states away, although with different results. “Michael” and “Holly’s” daughter “Amy,” their youngest of three, was accepted to several best-fit schools that ranged from public, in-state colleges to both public and private out-of-state colleges. Their sticker prices ranged widely from $27,000- $73,000 per year.
Holly and Michael had a combined household income of $170,000, and their FAFSA revealed an SAI of just under $27,000. Amy was a good student but not a strong competitive scholarship candidate. She had a modest college fund containing about $20,000.
Amy’s situation was complicated by two of her schools requiring the CSS Profile, an additional financial aid application overseen by College Board. Around 400 colleges use the Profile to supplement information provided by the FAFSA, but it digs much deeper into family assets and liabilities. Colleges use the CSS Profile to determine how much more or less families should pay at their institution. For Michael and Holly, the Profile became a detriment because the pandemic-era housing boom significantly increased the value of their home in a high-cost-of-living area. Without significant debts to offset it, their home became an asset that made Amy’s colleges require more out-of-pocket expense.
Fortunately, Holly, Michael, and Amy live in a state with a statewide scholarship program funded by lottery money. It awards free aid to students who maintain minimum academic standards. Amy qualified for a state-funded scholarship that took $9,000 off the top of the in-state school on her list.
When Amy received her financial aid offers, here’s how it shook out:
- School A- private, out-of-state school: After a small academic scholarship and Amy taking on federal student loans, the family would owe $61,000 per year.
- School B- public, out-of-state school: After a small academic scholarship and Amy taking out federal student loans, the family would owe $59,000 per year.
- School C- public, in-state: After a small institutional academic scholarship and the statewide academic scholarship, the family would owe about $14,000 per year. Between her modest college fund and her parents’ ability to cash flow some of it, Amy would not need to take out student loans.
A financially prudent choice was clear. Amy has enrolled at School C, happy to take full advantage of a debt-free undergraduate experience thanks in part to her state’s scholarship program.
So what are the take-aways from these examples?
- For middle income families, it’s important to research all possible options for funding college (understanding independent scholarships aren’t guaranteed).
- It’s worth understanding the impacts your assets and liabilities could have on your child’s college options.
- Start saving for college as soon as you can, little by little. A 529 College Savings Plan is a great way to harness compound interest and squirrel away money for your child’s higher education expenses. Plus, the contributions are tax-deductible, and the money can be used in many trade schools. 529 plans aren’t just for four-year college!
- Take time to research the financial aid policies of colleges you’re interested in. They can vary widely.
- Finally, be flexible about what “best fit” means for your family. In the U.S., four-year universities sit on a cultural pedestal. But in many fields, the right two-year degree or trade school can pay off more than an undergraduate degree. And it can be a smart financial move to get core credits out of the way in community college before transferring to a larger, more expensive university.
Many thanks to the “Halperts” and the “Scotts” for allowing me to write about them.