Making Money-wise College Decisions

Making Money-wise College Decisions

A college education increases your child’s ability to think critically, advance in a career, contribute to the community and better understand the world. No wonder choosing the right college is such an important task. Your child and you must carefully consider the many aspects of a college – academic offerings, size, location, and campus life – to ensure the best possible match with his/her academic, personal and career interests.

The right college choice must be affordable as well. Financial aid is available in many forms to help students meet college costs. This assistance is intended to supplement, not replace, the efforts of students and families.

This guide gives parents and students the basic information needed to begin securing financial aid. It will help you find the information you need to ask the right questions and make informed decisions about managing college costs.

Understanding the different types and sources of financial aid is the first step to making money-wise college decisions. Financial aid is available in many forms. Gift aid – i.e., grants and scholarships – is money that students do not have to repay. Self-help aid – i.e., loans and work-study – is money that students must repay or earn. Financial aid eligibility is determined in different ways. Need-based aid is awarded to students who demonstrate financial need as determined by the college they attend. Credit-based aid consists of loans given to parents whose past history with credit cards or borrowing indicates they will be able to repay their debts.

Federal tax credits and deductions are another source of assistance with college costs. These programs have certain requirements and conditions that families must meet in order to qualify. You should consult your tax advisor for details. To apply for financial aid, students must complete one or more of the forms described below. Many colleges also require student and parent tax forms as part of the application. Ask the colleges to which your child is applying about the forms required and their application deadlines. Students must re-apply for financial aid each year they attend college.


  • Comply with deadlines! Estimate financial information if necessary rather than miss a deadline.
  • Be as accurate as possible. Adjustments may be made in your child’s aid award if the information you provide is not correct.
  • Do not wait to receive admissions decisions to file financial aid forms.
  • Take time to read the directions. Many commonly asked questions will be answered in the step-by-step guidelines.
  • Keep copies of applications and related documents together in a file folder.
  • Use – Federal Student Aid is the largest provider of financial aid for college in the U.S.
  • Be sure to sign and mail in the signature page if you file your application electronically.


Learning about financial aid is part of exploring college possibilities and selecting colleges to which to apply. As part of this process, you should ask admissions officers questions about their financial aid programs and policies. If they cannot answer your questions, ask who can help you in the college’s financial aid office.

  • Will applying for financial aid affect a student’s chances of being admitted? Is the family’s ability to pay college costs considered in the admissions decision?
  • Does applying for admission on an early decision or early action basis affect the amount of financial aid a student receives?
  • Does the college offer scholarships based on merit alone, without consideration of financial need? Are there any such scholarships which require a special application?
  • How important is academic achievement in determining a student’s financial aid package, including need-based aid?
  • Does the college meet a student’s full need, or only partial need?
  • What is the policy regarding contributions from non-custodial divorced or separated parents?

The student and family have the primary responsibility of paying for college. Eligibility for need-based financial assistance is determined by estimating a family’s ability to absorb college costs. The information you and your child provide on the applications you submit is evaluated, using guidelines developed by the federal government and the college, to determine the Expected Family Contribution (EFC). The EFC is not necessarily an amount you can pay from current income and assets. Rather, it represents a reasonable figure a family is expected to invest in the student’s future, based on current income, future earnings and any savings.

There are several ways to estimate your EFC. Reference books available at high school guidance offices and public libraries can help you determine your EFC. Some parents use the services of independent consultants who specialize in college financial planning. If you decide to use such services, you first should check their references carefully. Some consultants charge high fees for calculations families can easily do themselves.

The factors below are typically considered in determining the parent and student contributions:

– Total Income: Taxable income, including wages, unemployment, alimony, and income from savings, investments, and businesses; Untaxed income, including Social Security, child support, public welfare assistance, earned income tax credit, and pre-tax contributions to retirement programs; Step-parent’s financial information, if parents are divorced and the parent with whom the student lives has remarried

– Allowances Made Against Income: Federal, state, local, and FICA taxes; A standard allowance for living expenses, depending on the size of the household.

– Assets: Value of cash, savings, investments, businesses, and farms (minus mortgages).

– Allowances Made Against Assets: Portion of family assets for emergencies, retirement and other long-term savings needs, based on age of older parent.

Factors ordinarily NOT considered in the Parent Contribution:

  • Consumer debt
  • Actual amount of rent or mortgage payments
  • Expenses for siblings’ private elementary/secondary school costs*
  • Equity in the family home*
  • Savings in retirement plans*
  • For divorced or separated parents, financial information of the parent with whom the student does not live*

* Not considered for federal aid but may be considered for institutional aid

Factors generally considered in the Student Contribution

– Total Income: All sources of taxable and untaxed income, even if the student is not a tax filer; Adjustments made for income earned through Federal Work-Study Program and community service jobs.

– Allowances Made Against Income: Federal, state, local, and FICA taxes.

– Assets: 35% of student’s net assets.

There is a common misconception that saving for college penalizes families when colleges calculate what parents can contribute. While it is true that parent savings will increase the Parent Contribution somewhat, the increase is slight compared to the overall amount saved for college. The parents who have not saved, on the other hand, may have to borrow more to pay for college, which could cost them a substantial amount in interest payments over time. The contribution from savings varies depending on family circumstances such as income and the number of children in college. If savings are in the student’s name, the student will be expected to contribute 35% of the amount saved toward college costs each year. This expectation is based on the assumption that education is a worthwhile investment for the student.

Sometimes, there are special circumstances that make it hard for parents to contribute as much as the financial aid formulas require. These include:

  • Reduced income because of unemployment, job change or loss of untaxed benefits
  • Unusual medical or dental expenses, or expenses associated with a physical disability
  • Emergency or unexpected expenses

If there are special circumstances you want the college to consider in reviewing your child’s financial aid application, you should send a letter to the financial aid administrator, describing your situation in detail.


Once colleges have reviewed your financial information and determined your EFC, they calculate your child’s financial need using the following formula:


Cost of Attendance (tuition, fees, room/board, books,

supplies, personal expenses, transportation)

– Expected Family Contribution (EFC)


Financial Need


Based on the student’s financial need, colleges will award a “package” of different types of aid to help meet the cost of attendance. Normally, colleges meet a student’s need first with federal and state financial aid resources (grants, loans and work-study). Then, if the student has additional need and institutional resources are available, colleges may add other funds to the package.


You should read the award letter your child receives from a college carefully. In order to fully understand the award, you may want to ask the financial aid administrator the following questions:

  • Which parts of the financial aid package are need-based and which are based on other criteria?
  • Are scholarship and grant awards renewable? Can a similar package be expected in future years? Will future aid depend on academic performance, extracurricular activities or other factors such as need or meeting deadlines?
  • How much of the EFC is from the parents and how much is from the student? How much of the student’s summer employment earnings does the school expect the student to contribute
  • What are the college’s policies for work-study awards? Is a campus job guaranteed? How is the work-study position determined? Can a student earn more than the award letter indicates?
  • Can a student borrow more than the amount listed in the award letter?
  • Are any figures in the financial aid package estimates? If so, how will the difference between the estimated and actual award be made up?
  • What is the total cost of attendance? Which expenses are not reflected in the term bill?
  • How much will student loan amounts change each year?
  • How does the college treat outside scholarships? Do scholarships replace items in the college’s financial aid package? Do they replace gift aid or self-help aid? Can they be used to off-set unmet need?
  • Is anything required from the family to finalize the aid award and receive funds, e.g., provide tax returns, submit promissory notes, pay a deposit by a deadline?

Financial aid packages can vary considerably between colleges for the same student. Using the chart below, you can compare the financial aid from different colleges to determine which package provides the best opportunity for your child. The chart includes two sample financial aid packages as a guide. It is important to keep your child’s interests and needs foremost, and to consider that the college offering the best financial aid package in terms of “gift” dollars may not be the best one for your child to attend.

In comparing financial aid packages, you should consider the following:

  • Cost of attendance at each college
  • Total gift aid
  • Total student self-help aid – loan and work-study
  • Actual cost to your family
  • Whether institutional grants and scholarships are renewable


In addition to federal, state, and college aid, many students and families also use other resources to help cover college costs.


Private scholarships are sponsored by organizations, businesses and groups to support students with special interests or characteristics such as a specific field of study or occupation/career, individuals from a particular nationality or race/ethnic group, church affiliation, and special skills and talents. The criteria may or may not include having financial need. An important source of private scholarships are groups with which parents are affiliated. Employers often offer scholarships for children of employees. Community and civic groups, labor unions, religious groups, fraternities and sororities, and veterans’ organizations are other examples.


High School Guidance Office – Your child’s high school guidance office usually has information about private scholarships. Ask if there are scholarships for which they can nominate or recommend your child. They also may know about scholarships other students have received for which your child can apply.

The Internet – The Internet/World Wide Web is the fastest way to identify private scholarships. You can access over 500 online scholarship databases, many of which you can use at no cost.

Public Library – Public libraries have books on specialized topics such as scholarships for women, people with disabilities, minorities, athletes, etc. Many libraries also maintain files of newspaper clippings on local scholarships not listed in books or on the Web.

Local Chamber of Commerce – The Chamber may have a list of local businesses and civic organizations awarding scholarships to area residents. Elks, Jaycees, Kiwanis, Lions and Rotary Clubs often offer scholarships for students in their community.

Community Organizations – YM/YWCA’s, Boys and Girls Clubs, settlement houses, and the Urban League and NAACP often have private scholarship information. Some cities also have community-based education information centers, which offer free scholarship information.

Scholarship Search Firms – If you decide to pay for a scholarships search firm, ask for references and check them carefully. Don’t be fooled by empty promises such as guarantees of scholarships or your money back. Scholarship searches don’t need to cost money. Without spending a penny, you can find all the information your child needs.

If your child receives need-based aid from a college and a private scholarship, the college will require you to inform them of the scholarship amount. In most cases, the college will let your child use the private scholarship to cover unmet need. If the student’s full need is being met, the college may reduce the grant and/or self-help amounts. Students are not allowed to receive more financial aid than they need, as determined by federal and college guidelines.


U.S. Military Service – Options include ROTC scholarships, tuition reimbursement for participants in the Army Reserves, and contribution programs while serving on active duty such as the GI Bill.

AmeriCorps/Community Service – Students volunteering in some community service programs, including the federal government’s AmeriCorps, receive an educational award to be used for college costs, including loan repayment.

Co-op – Co-op, or cooperative education, allows students to work for pay in a job related to the program of study as part of their college attendance.


Alternative financing is another option to help students and their families manage college costs. It comes in the form of parent loans based on credit-worthiness rather than need as determined by federal and college guidelines. The loans are a supplement to cover college costs after all other sources of aid have been tapped.

There are alternative loans available to cover the costs of education, including tuition, fees, room and board, transportation, personal expenses, books and supplies. Some loans may also be used to pay past due balances owed to a college from a prior academic period. Alternative loans are generally administered by guarantee agencies or lending institutions. The amount parents can borrow, as well as fees and interest rates, vary; the financial aid office at your child’s college can recommend alternative loans and answer your questions.


You need to compare several alternative loan programs to determine which best meets your needs. Points to compare include:

  • Interest rate and variability
  • Fees
  • Which tests of credit-worthiness are used
  • Repayment period and repayment options
  • Whether there is a home mortgage option enabling you to deduct the interest
  • Prepayment incentives
  • Penalty for early prepayment


When choosing a college and the financial aid award package that works best, keep in mind your child’s ultimate educational and professional goals. If you think your child will attend graduate or professional school, you should keep student borrowing for undergraduate study as low as possible. Doing so will make it easier to handle the education loans necessary for advanced degrees. You also need to anticipate the financial obligation you and your child incur when you borrow for college.


While borrowing for college may seem expensive, higher education is an investment with powerful dividends. Undergraduate and advanced degrees dramatically increase a person’s earning potential. A bachelor’s degree can result in your child earning $900,00 more over the course of a 30-year career than someone with only a high school diploma.

Besides the tremendous economic advantages of a college degree, your child will gain even more from higher education:

  • College prepares students to think critically and solve problems analytically, which are highly marketable attributes in our rapidly changing global economy.
  • College exposes students to diverse people and new ideas, which enable them to learn about other places and cultures, experience the arts and humanities in new ways, and cultivate a rich understanding of the world.
  • College graduates are future-oriented, which may explain why studies show they pay careful attention to health, financial planning, and political issues, and as a result, live longer, more satisfying lives.

In short, investing in a college education is the most enduring and worthwhile gift you can make to your child – providing a solid foundation for a lifetime of prosperity and fulfillment.


Jeff C. Palmer is a teacher, success coach, trainer, Certified Master of Web Copywriting and founder of Jeff is a prolific writer, Senior Research Associate and Infopreneur having written many eBooks, articles and special reports.


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