This article was written and provided to National Beta by one of our partners, Jason Slone, PhD, CCFC. Jason is a Financial Advisor with Ivy Bridge Planning Fiduciary Financial Advisors.
College is a great investment, but it is expensive. On average, the cost can be anywhere from $100k to $300k for a 4-year degree!The good news is there are many things you can do to lower the cost, even if you make too much to get need-based financial aid. I’m a former university Dean turned Financial Advisor, and in this article I will share my 6-Step College Affordability Plan for how to make college more affordable.
Financial Aid 101
“Financial Aid” is any money that helps you pay for college. There are two types: gift aid and self-help aid. “Gift” aid consists of (1) grants (based on financial need) and (2) scholarships (based on a student’s merit, like grades and test scores). Importantly, gift aid lowers the cost of college because the money is a “gift” that doesn’t have to be paid back.“Self-help” aid, on the other hand, consists of (1) work study and (2) loans. Work study is a job the school will give you on campus. It helps you pay for college but doesn’t lower the cost. And loans, of course, increase the cost of college because of the interest you have to pay.
To make college more affordable, your goal should be to lower the cost of college as much as possible by, for example, getting the most grants and/or scholarships that you can.
Here’s how you do that.
Step 1 – Know Your Student Aid Index (SAI)
To qualify for financial aid, you must submit the Free Application for Federal Student Aid (FAFSA) in the Fall of the Senior year. The FAFSA will ask you to report your (and your student’s) income and non-retirement “assets” like money you have in savings/checking accounts, 529 plans, etc. Based on what you report, you will be given a “Student Aid Index” number (SAI). The SAI is a snapshot of your ability to pay and determines how much financial aid you qualify for. Importantly, it’s the amount of money that colleges think you can afford to pay per year.
The formula colleges use to determine how much aid to give you is:
Cost of Attendance – Student Aid Index = Financial Aid Eligibility
For example, if Fancypants U is $50k/yr and your SAI is 25,000, then you qualify for $25k in financial aid based on “need.” Importantly, not every school will meet your need with gift aid. Many will “meet need” with loans, which again, increase the overall cost of college. So, ideally, look for colleges that meet need primarily with gift aid (see Step 3).
Step 2 – Budget
Once you know your SAI, the next step is to build a budget so you know how much you can afford – and where the money will come from to pay the bill. Most parents use a combination of savings, cash flow, and loans. For example, if you have $30k saved, can “cash flow” $500 per month for 4 years ($24k), and have your student take the max amount of Federal Direct Student Loan ($27k), you have a 4-year budget of $81k (~$20k/year). You can avoid taking out parent loans if your student finds schools in that budget range. That is ideal for most parents in this stage of life (retirement right around the corner), because the loan payments can delay the retirement you’ve been waiting for.
Step 3 – Net Price Calculations
Once you know your SAI and have a budget, then you can go “shopping” for colleges. Ignore the advertised “sticker” price. Instead, do net price calculations for the schools you’re considering to know their true price after financial aid is applied.
How do you do that?
Colleges are required to have net price calculators on their websites, but they’re often hard to find and use, and often inaccurate. Instead, use a free tool like our FREE College Money Report™, which will calculate your SAI, tell you how much in grants and scholarships your student will get, and the net price of your top 3 schools.
Step 4 – Scholarships
Once you have a list of schools with net prices in your budget, the next step is to look for scholarships. In addition to the scholarships that the schools themselves will give you, look for private organizations that give scholarships – like the National Beta! Ask your high school guidance counselor for a list of local scholarships, and apply to every one you qualify for. Think of it like a part-time job. If you spend 10 hours in a month (2.5 hours/week) applying for scholarships, and you get one scholarship for $500, you made $50/hour!
Step 5 – Analyze and Appeal Financial Aid Offers
In the Spring of the Senior year, colleges will send you their financial aid award offers. Read through them closely because they can be confusing. Note how much they’re offering in gift aid vs. self-help aid. If a school’s net price is beyond your ability to pay, you can appeal and ask for more aid. It doesn’t always work, but often it does.
Step 6 – Pay the Bill Efficiently
Once your student decides where they’re going, the last step is to figure out how to pay the bill. If you need loans, start with the Federal Direct Student Loan (FDSL), which is in your student’s name and capped at $27k total for 4 years. Many states also offer college loan programs, so check your states for those. As a last resort, if you need a parent loan, you can get a Federal Direct Parent PLUS Loan. Or, you may get a better rate with a private lender like College Ave, Sofi, Sallie Mae, Discover, etc. Again, try to minimize the use of parent loans because they increase the already high cost of college and they may impact your ability to retire on time.
Conclusion
College is expensive, but there are many things you can do to lower the overall cost. 9 out of 10 families can get some form of financial aid. You just need to know how the system works and what to do. By following this 6-Step College Affordability Plan, you should be able to lower the cost by a lot, ideally enough to avoid parent loans. That way, you can put your kids through college and still meet your other goals like an on-time retirement.
Questions? Contact Me
If you have questions or would like to get advice on how to make college more affordable, I’m happy to offer a FREE College Strategy Session to all Beta Club members ($299 value).
Click here to book your free session, or email me at IvyBridgePlanning@gmail.com.
*The content contained herein is intended as education and entertainment, and does not constitute investment, tax, or legal advice. Please consult the relevant advisor before making any decisions. Additionally, any opinions expressed here are solely those of the author, and do not represent the opinions of Ivy Bridge Planning, LLC or Fiduciary Financial Advisors.