Paying for College–so many acronyms and terms

No one can use a TLW (three letter words) like a financial aid office at a college. They also work under many state and federal regulations, causing them to be very process oriented, and not always relational or warm (even though they are great, and often very caring, people).

The Financial Aid Office can often be called Finaid, or FA or OFA (Office of Financial Aid). It is the place that creates your financial aid offer and process the aid. The Bursar, Business Office, Office of Student Accounts is typically the place that handles the actual billing. They are often not housed together or lead by the same manager. This can result in being bounced around when you have questions. I typically recommend parents and students ask the person on the phone (or if you are in person) to transfer you (or walk you over ) to the right person and explain the situation so you don’t have to keep repeating your needs/story over and over. Plus when staff speak to staff, they often explain the situation more clearly using the right lingo–getting the problem solved more quickly.

Financial Aid starts with two forms. The Free Application for Federal Student Aid (FAFSA) is a form used by most colleges and the federal government to determine approximately what your family can afford to contribute to the cost of college. It is free–never pay to file it. FAFSA doesn’t give you money. The college creates your financial aid offer and distributes all aid. Some schools use an additional, and more complicated form, called the CSS Profile, a form by the College Board. You do have to pay for each school where you submit the CSS.

There are two categories of aid–merit and need-based. Merit aid typically comes from the college and is in return for a grades, a special talent, or background. Some scholarships have specific criteria because a donor has given the money for a specific reason. But typically, the college is just giving a discount, reducing what they are charging you for tuition. Merit aid may come with the offer of admissions, or shortly after (as a marketing tool) but some schools wait and include it in the total financial aid offer. It typically has a gpa or requirements the student must meet throughout college to keep the award (this is very important to note–lots of students lose their scholarship because they don’t maintain a high enough college gpa).

Need-based aid is based on your family’s financial situation. It typically requires you to file a FAFSA, and at highly selective schools, the CSS Profile. Need-based aid includes funds from the federal government but can also include state and school aid. Need-based aid may include:

Grants or scholarships: free money that does not need to be paid back.

Loans: money you borrow and must be paid back after graduation or leaving the school, more details on loans below.

Work study: students must get a position on campus and will be paid via a paycheck or direct deposit. Part of their salary is paid by the federal government (and some states have work study). Students don’t receive the money if they don’t take a work study position on campus (or near campus–some places partner with the colleges like YMCA or boys and girls clubs). Students will then need to apply this money to a tuition bill or use for expenses/spending money.

The parent and student each need to create a FSA ID to sign and submit the FAFSA. Go to https://studentaid.gov/help/fsa-id to learn more and start that process. You will use this every year you file, so keep them both in a safe place (like in the contacts on your phone).

After you file the FAFSA–which you must do each year for each child in college (if you have two kids in college you file one for each child, each year they are in school, and they each need their own FSA ID), you will receive a Student Aid Report (SAR). This report is now emailed to the student. Don’t use your child’s high school email as it often is disabled by the high school after graduation. The student email and parent email must be different. Create an email the student can use for the college process. The SAR will provide your Estimated Family Contribution (EFC). This is the dollar amount the federal government determined you can contribute to your child’s education. It can range form 0 to over $100,000. Most people don’t agree with the EFC calculated. FAFSA changes are coming over the next few years in a process to simplify the FAFSA but this will detail how it works now.

You can list up to 10 colleges on a FAFSA initially (you can update it later if needed by removing schools and adding schools). Colleges will receive your FAFSA data through a digital file called the Institutional Student Information Record (ISIR). The aid office will use this data to create your financial aid offer. Some schools state they meet need–so they will provide a combination of federal, state and school money to meet your financial need (minus your EFC) to attend that college. That is rare (about 50 colleges). Most schools will do their best to meet your need but may provide a gap==an amount of tuition or costs you still need to pay above and beyond the EFC you are also expected to pay.

Direct Costs are the fees you pay directly to the college or university. This includes tuition, fees (parking, printing, sports, activity–colleges are great at charging fees), room and board.

Cost of Attendance (COA) is a budget a school can set to give you a sense of the expenses you may have as a student including books, transportation, personal expenses, childcare (for adult students) in addition to the direct costs of tuition, room, board and fees.

Some colleges build their aid packages off of the Cost of Attendance. Some build it off direct costs. As you compare your aid packages, make sure you are comparing apples to apples.

Let’s look at two hypothetical aid situations:

College A has a tuition cost of $28,000 a year, room and board is another $12,000 for a total of $40,000

The Families EFC is $25,000

The college takes the direct costs of $40,000

subtracts the EFC of $25,000 leaving a balance of $15,000

They offer $5500 in federal student loans (the federal loan limit)

They offer $2500 in work study

and have a gap of $6000

The family would need to come up with their $25,000 and the $6,000 gap in this situation, so $31,000 plus pay back the loans.

College B also has a direct cost of $40,000

They awarded the student a merit aid award of $19,000 at admission.

They also award the $5500 in loan

The family now has to find $15,500 plus pay back the loans.

There are several types of loans. Federal student loans are subsidized or unsubsidized. Subsidized do not accrue interest while in college because the government subsidizes the interest. Unsubsidized do accrue interest while in college. Interest rates are not fixed but are low. These loans are in the student’s name. Payments begin 6 months after graduation or separating from school, if they don’t graduate. They can be paid back through a variety of plans (different year lengths, schedules that have the same payment the whole time or a payment plan where payments go up over time as your income increases). Payment plans are decided closer to graduation or when they leave the school. They can be deferred if students go to graduate school. There are some forgiveness programs but have specific requirements. There are limits to how much a student can borrow each year.

Parent Plus Loans are loans in the parent names. Parents can borrow up to the Cost of Attendance if they are credit worthy (haven’t had a bankruptcy). Payment begins 60 days after disbursement of the loan although can be delayed until after graduation. This debt is in the parents’ name, not the students.

Families can also take private loans. These are through a private bank or lender like INvestED (Indiana specific) or Discover Student Loans. These are typically in the student’s names but require a co-signer. Schools typically have a vendor they partner with for private loans, but parents can also explore their own. Interest rates vary as do origination fees.

You don’t have to accept loans and they won’t automatically be added to your account. You have to complete entrance counseling (typically an online process) to make sure you understand what you are borrowing. Then shortly before graduation or if a student leaves a college, they should complete an exit counseling process that explains their payment plans.

Colleges will have a deadline for their financial aid process. State’s often have a specific deadline. You should file your FAFSA by whichever deadline is earliest. Don’t wait until the last minute as technology can crash. You file the FAFSA at http://www.fafsa.gov. It becomes available in October for the next academic year–so for students entering college Fall 2023, the FAFSA will open in October 2022. It uses your taxes from two years prior (known as your prior prior year taxes). For Fall 2023 that is 2021 taxes. You can link directly to the IRS pulling in most of your data but you will need to have all assets and social security numbers for the parents and students available to complete the forms. Check here for specifics.

If the child’s parents are divorced, only the child’s household has to list their assets on the FAFSA. If parents have equal custody, who provides 50% or more of the support (such as health insurance) or who had the child one extra day since there are 365 days in a year. If the household parent is remarried, step parent’s income is also considered. It doesn’t matter who declares them on their taxes, who is paying the tuition or what your divorce decree says. Only the household has to report their income in the current FAFSA structure.

Any person can be selected for verification (like a financial aid audit) so be honest. If you are selected you must submit documentation to substantiate your information. Lying on a federal form is a federal crime.

Coffman Consulting knows just enough about financial aid to be dangerous. But specific questions should be addressed to the financial aid offices, your financial planner or the federal government. But if we can help, we are happy to work with you and point you in the right direction.

Published by Kate Coffman

Kate has worked in admissions, financial aid, college and career readiness for over twenty years. She most recently served as the Vice President and Dean of Admissions and Financial Aid at Franklin College. Kate has also worked in admissions at Butler University and Indiana University. Kate has presented at numerous schools and conferences helping families, educators and those who work with youth understand how to be college and career ready, how to apply to college and how to afford their education.

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