Category Archives: Student Loans

EFC, Net Cost and Aid Packaging

Step 1 in figuring out how to pay for college is estimating your EFC. You can use the FAFSA4caster, or the more detailed EFC Formula Guide (note that’s for 2018-2019; the 2019-2020 version should be released this month). But EFC is just a starting point: schools aren’t required to meet your need, and they certainly aren’t required to meet it through gift aid. That’s why net cost and aid packaging are important concepts to understand.

Colleges are required to have net price calculators on their websites. Many have adopted the helpful tactic of linking them through the College Board website so you can save your information rather than re-enter it for each school. A good net price calculator will ask about all factors that go into aid decisions at the school– need and merit, if applicable. If you’ve estimated your EFC, you might be disappointed at your net cost. For example, the closest anyone came to our EFC was $6,000 above it. Our net cost for two schools we visited was $10,000 more than our EFC; another was $20,000 more; a fourth offered us full-price admission. (In our case, the gap between EFC and net price is partly due to the fact that the FAFSA divides your EFC evenly between two college-aged children, whereas private schools tend to assume it’s not evenly divided; and partly due to the CSS PROFILE including home equity and thus calculating a higher EFC to begin with.)

Once you’ve got your net cost, though, you need to look at the actual aid package. Taking a step back, colleges are generally funded primarily through one of the following:

  • State or other public revenues
  • Endowments
  • Tuition

Aid packaging philosophies follow from there. Publicly-funded schools typically rely on state grants and Title IV federal aid programs including Pell Grants, direct student loans, and parent PLUS loans. (Yes, some public universities also have sizable endowments which may contribute additional scholarship funds.) Endowment-funded schools tend to have larger grants available, which are awarded based on the institution’s priorities. Tuition-funded schools are just that, and will have limited scholarships or discounting available outside of federal aid programs.

All by way of saying, a net cost of, say, $25,000 may be considerably more than that, depending on how the aid is packaged. Let’s say a school costing $60,000 annually offers the student the following:

  • $25,000 scholarship
  • $2,500 subsidized direct loan
  • $3,000 unsubsidized direct loan
  • $2,000 of work study
  • $2,500 parent PLUS loan

In that case, the student’s net cost is really $35,000, not $25,000, because the work study and loans are in fact the student’s or family’s money.

So your EFC is a good starting point, but once you start identifying schools of interest you need to be doing their net price calculators, and then comparing how the aid is packaged.

Need-Blind, No Loan, 100% Need Met Policies

On our recent college odyssey, we heard about a lot of need-blind admissions policies, and no loan/100% of need met financial aid policies. These are mostly good things but perhaps not as good as they sound on the surface, so it’s worth unpacking them. Continue reading Need-Blind, No Loan, 100% Need Met Policies

EFC vs Net Cost

Families who are a few years out from college should calculate their EFC, but as college approaches and students start identifying schools they’re interested in, net price calculators become far more valuable. There can be vast differences between EFC and net price, and even significant school-to-school differences in net price due to different aid policies. Continue reading EFC vs Net Cost

Manipulation of Student Loan Default Rates

A recent New York Times article brought attention to a GAO report about schools manipulating their cohort default rate data to avoid federal sanctions that can result from schools having too high a percentage of students default on their loans. Because cohort default rates are a metric I’ve encouraged prospective students to look at, I wanted to provide some additional detail. Continue reading Manipulation of Student Loan Default Rates

AAUW’s Student Debt Showdown

AAUW did their own version of March Madness, and the results are pretty interesting. They took the men’s and women’s NCAA tournament brackets and had the teams compete based on median student debt held by women upon leaving the institution. The results are of course quite different than the basketball games’ outcomes, with Duke winning the men’s bracket and Princeton the women’s.

Full details and results are here. Even if you’re not a basketball fan, check it out because it’s probably among the more entertaining ways to view student debt burdens by school.

Potential Changes to Federal Loan Programs

In late 2017 and early 2018 there was a flurry of news about plans to reauthorize the Higher Education Act, which governs student loan programs among other things. Both the PROSPER Act which passed through committees in Congress in December and the White House budget proposal earlier this year called for changes to loan programs, especially the PLUS loan program. (PLUS loans are those used by parents and graduate students. Despite their relatively high interest rates– in the 7% range– they are an Continue reading Potential Changes to Federal Loan Programs

Feeling Guilty About College Savings?

If your college savings fund is generating negative emotions, you’re in good company: A recent survey by Student Loan Hero found that almost half of parents who are saving for their children’s college feel guilty about not saving enough. The survey also showed some rather worrying data: Continue reading Feeling Guilty About College Savings?