As I See It: College Affordability 101
Published in the Worcester Telegram & Gazette, October 18, 2016
There’s no denying that college can be expensive. Yet, it can also be affordable if, during the search process, students and families can make their college choices both good academic and financial fits.
For those planning to enroll in a two or four year college for the first time in 2017-18, you may be aware that the U.S. Department of Education has made some changes to the Free Application for Federal Student Aid (FAFSA). No, they haven’t shortened it! But for those applying for fall 2017, families are now able to file the FAFSA as early as October 1 using their 2015 tax returns.
Why is this noteworthy? A vast majority of students and families will require financial aid in order to meet today’s college costs. By filing the FAFSA early, families will receive a Student Aid Report. This report will show what the government and colleges expect that family to contribute toward one year of college costs. This Expected Family Contribution (EFC) is subtracted from a student’s total cost of attendance for that year and determines a family’s financial need. For example, if the total cost of attending a specific college for one year is $40,000 and your expected family contribution is $5,000, your financial need is $35,000.
Having this information early on in the college search process is key to college planning and making sound financial decisions. It’s also a great opportunity for families to have open and honest discussions about what they can and cannot afford.
While the family is discussing college affordability and its family’s finances, it’s also a good time to use some online tools. A key one today is the net price calculator. The term ‘net price’ refers to the price a student will pay once scholarships and grants are subtracted from the total cost of attending that college for one year. The calculators, found on every college’s website, are designed to give students and families an early estimate of what they might receive in financial aid from that institution, should they be accepted.
A good net price calculator will ask a variety of questions pertaining to parents’ and students’ incomes and assets, family size, age of parents, as well as questions pertaining to a student’s academic background, including grade point average and standardized test scores.
Using this estimated financial aid information will help a family determine if the college is affordable for them. For example, if the net price, after scholarships and grants are subtracted, is $25,000, and your family’s expected contribution is $5,000, you need to find another $20,000, per year.
So the question at this point is how much is reasonable for a student to borrow? The rule of thumb these days is about 10% of your after-tax monthly income after graduating from college.For example, if your anticipated annual salary is $45,000, and your after-tax monthly income is $2,800, a reasonable monthly student loan payment would be $280. That equates to borrowing a total of $26,000 during a student’s undergraduate and possibly graduate school years. In this scenario, a student would be in good shape if they kept the loan amount to no more than $6,500 a year and did not plan on borrowing for graduate school.
Here’s the challenge, though. All too often, students and families find themselves wanting a specific school that they clearly can’t afford. I understand that attraction. But I also know that there are countless colleges that would be great academic matches and are more affordable. The key here is to continue searching for schools that are both good academic and financial fits.
To me, it’s all about planning. Filing the FAFSA early, knowing your Expected Family Contribution, and using net price calculators is sure to help students and families make sound financial decisions about their college choices.
Mark Bilotta is author of ‘Paying for College: Before, During and After’(2017 Edition), Board President of MassEdCO, and a member of the Reach Higher Massachusetts leadership team.