The Financial Aid Game

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The Financial Aid Game
Troy Onink, 03.10.09, 06:00 PM EDT
The sticker price of college is daunting. Here's how to pay less.


The price of college, after growing faster than inflation for three decades, is enough to give all but the wealthiest families sticker shock.

Four-year private colleges now charge an average of more than $37,000 a year, including tuition, fees and room and board, with expenses at the most elite colleges topping $50,000. (See "The Most Expensive U.S. Colleges.") Four-year public colleges, on average, top $18,000 per year. Even the average cost of attending a two-year public college has reached $14,000 per year.

That's the sticker price. Your family's actual cost will vary depending on how much financial aid, need-based and/or merit-based, your student receives. Merit aid is a separate topic and intertwined with the question of admissions, since schools use this aid to attract the students they want most. It's always difficult--and even harder this year--to predict how much merit aid a student will be offered by any given school, yet it can be crucial to determining where your child goes. For more, see "The Mysteries Of Merit Aid."

By contrast, need-based aid is generally based on set formulas determining a student's and parents' ability to pay for college out of both their income and some of their assets. These formulas may not be entirely fair or generous, but at least they're somewhat predictable.

The formulas are used to come up with something known as your "expected family contribution." The EFC is subtracted from the college's total cost of attendance, including tuition, fees, room and board. If the family's EFC is less than the cost, the student is eligible for need-based aid. (Yes, you can appeal the results and ask a school for more help in special circumstances. But first, you must go through the formulas.)

The needs-based calculation may be predictable, but it's not simple. There are different methods for determining a family's EFC. One, the "federal methodology," determines eligibility for federal Pell Grants and Stafford student loans. It is also used by public colleges and most private ones to determine how much need-based "institutional aid" a family will get--basically, how much of a price break a school will give you. The Free Application for Federal Student Aid (FAFSA) is the form used to determine a student's need under the federal methodology.

Another formula, called the "institutional methodology," is used by about 300 pricier private colleges to determine need for their institutional grants and scholarships. These schools require families to fill out both the federal form and a so-called CSS Profile, which asks additional questions and calculates contributions somewhat differently. It's sort of like filling out your 1040 income tax form only to find that you must then fill out form 6251 to calculate the alternative minimum tax.

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In some ways, these forms are more intrusive than tax forms, since they ask about your assets (and in some cases, asset transfers and purchases) as well as your income. The formulas don't count your retirement accounts as available for college, and the federal formula ignores your home equity too. Some private colleges, however, do expect you to tap into that equity--or, these days, what's left of it.