Anatomy of a Financial Aid Award Letter

         As college admission letters begin to roll in, financial aid award letters will follow shortly. These letters are the result of the completion of the Free Application for Federal Student Aid or FAFSA that families with seniors who will continue their education after high school should complete after October 1st of senior year.

Financial aid award letters will only come from schools that a student has been accepted to and their structure can vary a bit from one school to the next. However, there are usually some basic elements you’ll always find. The first of these is a snapshot of the cost of attendance at a given school. Of course, this number will include tuition but it will also include things like living expenses and meals. It should basically be the amount of money the school projects it will cost to attend school and live for a year.

From here, you’ll hope to see items on the letter that will reduce this number. One of those potential items are institutional scholarships. Institutional scholarships are those awarded directly from the college. These are usually merit-based and they often have automatic qualifications (i.e. students with a given high school GPA and/or test score automatically get this amount.). If a student is an athlete and is being awarded an athletic scholarship, they’ll find this on the letter as well.

Next, you’ll find monies that might be awarded from government programs. This could be merit-based scholarships that are awarded by some states for students who meet certain qualifications in high school. Some students might also find government grants like the Federal Pell Grant which are need-based.

Some students will be offered money through Federal Work Study programs. This is a guaranteed job on campus with earnings designated to go towards expenses at the college. 

Finally, many students will find an offer for student loans on their award letter. This could be a collection of a handful of different types of loans–most notably, subsidized loans that do not accrue interest while a student is in school and unsubsidized loans that do.

Now, the letter will add all of these sources of money together and subtract them from the established cost of attendance. It is possible for a student to be awarded more money than it costs to attend a school. In this scenario, a student can actually profit from attending school. Other students might find a balance of zero. The cost of their college is fully covered. Finally, many students will find a positive number. 

If there are remaining expenses, they are expected to be paid out of pocket by the student and their family. This number can be scary, but there are a few things to remember.  The student might have other funds earmarked for college that don’t appear on the award letter. If the student is awarded a local scholarship by some organization in their community, it’s probably not included on the letter. Neither are savings from vehicles like 529 plans or state-sponsored prepaid plans. Some students are fortunate to have parents or grandparents who have simply set aside a pool of money for their college education. All of these can be impactful in reducing those out-of-pocket expenses. 

If out-of-pocket expenses are not something a family can cover they may seek additional loans through banks and colleges can help connect families and lenders. Just be wary that other loans may already be a part of what is being awarded to a student.

Accepting A Student's Limintations With Standardized Testing

            In Florida, where I counsel, we have a state funded scholarship called Bright Futures. In order to qualify, students must meet certain criteria. The most challenging of those is a standardized test score. As I write this, the minimum SAT score one needs to qualify for Bright Futures is a 1210 which is a pretty good score.

I was recently working with a student who had taken the SAT two times, both scores were around the mid 1000 mark or 1050ish. In her case, she actually went down a little between her first and second test. That’s a little unusual as I more commonly see students improve a bit, but it happens. The problem this student faced is that her mother was insistent she was capable of obtaining a score that would make her eligible for Bright Futures. This is a good student and I have plenty of respect for her intellect, but based on where she started with the SAT, I’m not so sure she can get the score she needs.

The fact is not every student is great at testing. The subject of whether standardized testing is fair or just or accurately indicative of a student’s capabilities is perhaps a topic for another day. My point here is that I believe test takers generally are who they are.

The College Board's own data from their SAT suggests that students typically improve their score 60-70 points from where they start. Anecdotally and very unscientifically, I tell my students a 100 point improvement is a reasonable expectation. The parent above and many others I’ve spoken to have expectations that fall well outside a statistical range of high probability.

To be clear, I’m not arguing that statistical anomalies don’t happen. I don’t enjoy being pessimistic about my students’ capabilities, and I have high regard for the impact test preparation can have on results. However, I also approach most things in my life with an emphasis on consideration of what is most likely to happen rather than what is possible to happen. In other words, I consider myself a realist.

There are so many financial and emotional implications in the college planning process and testing is tied so much to the same.  I believe we do ourselves a disservice when we aren’t honest with ourselves about who our students are as test takers. I hope that the parent above has a backup plan for their very academically talented and capable student if she can’t obtain the Bright Futures score. She’s worked too hard not to go to college and there are other ways to fund her post-secondary goals. 

Again, I think test prep is important. It might be the difference in a student making a 60 point improvement and a 120 point improvement and that can be a significant difference. However, to insist and make the assumption with your child that they will improve by astronomical amounts fails to allow for a realistic conversation about what the most likely opportunities for them will be. This can make a whole family unprepared for the transition to college and that’s not good for anybody.

What are Parent PLUS loans?

     After families of graduating seniors complete their FAFSA, hopefully soon after October 1 when the FAFSA opens, a financial aid package from the colleges the student has been accepted to should follow. In theory, these packages should cover the student’s cost of attendance at the school the student chooses to attend. In theory. So, what happens when it doesn’t? How can a family put together the money they will actually need to send their senior to college?

For most, the answer to this question will be a Parent PLUS loan. Parents can apply for this through the federal government after the student receives their financial aid package and if they calculate a shortage of needed funds there. As you might expect, there are some key differences between the Parent PLUS loan and the Stafford loan which is the more common type of loan that will likely already be a part of the financial aid package. Perhaps the biggest difference is that the Stafford loan is tied to the student, the Parent PLUS loan is tied to the parent. So, at the end of the day, those are different people on the hook for repayment.

Students don’t have to pass a credit check to be eligible for a Stafford Loan but Parent PLUS applicants do. If the parent fails that check, the student can talk to their financial aid office about increasing the amount of their loan. That request is usually granted. It is important to note too that Parent PLUS loans come with a fixed interest rate and a few options for repayment terms ranging from 10 years to 25 years as well as an income-based option. The repayment starts immediately though, whereas students don’t have to begin repayment of their Stafford loan until six months following their graduation. Stafford loans may or may not be subsidized as well. If they are, the loan won’t accrue interest while the student is in school which can significantly reduce the overall cost of the loan. A Parent PLUS loan is never subsidized. Lastly, Parent PLUS loans carry a 4% origination fee. That’s something Stafford loans don’t have.

In short, the Stafford loan is a better deal than the Parent PLUS loan. The terms are always going to be better and cheaper. Also, Parent PLUS loans are where the amount of loan debt can spiral out of control. Remember, what’s in the financial aid package ought to cover the cost of attendance. If it doesn’t, a family would do well to examine their budget and see if there are changes or cuts that can be made. As a college recruiter once told me, sending your child to college shouldn’t come without some expectation of sacrifice or change to lifestyle. If you can’t find a way to do that, you may well need to borrow money to better your child’s future. As those repayments come due, what will that mean to your future lifestyle? Parent PLUS loans can be the bridge between a financial aid package and a college education for your child. That’s a good thing, but be careful with them. 

The Common App

 Over the past several years or so, the college admissions process has seen a revolution. Paper applications have essentially been extinct for some time, and it now appears that unique applications or applications that only serve one institution are headed in the same direction. At the forefront of this revolution is the Common App which now serves over 900 institutions. According to Forbes Magazine, Common App applications increased 11% between the 19-20 and 20-21 school year. This number is expected to grow which is likely to increase the number of participating schools which should increase applications in turn. The cycle is likely to continue. 

The prevalence and growth of Common App is a good thing for high school seniors. Its beauty lies in its efficiency. As the name implies, it is a generic college admissions application that is accepted at many colleges. So, students can complete one application and simply check off which subscribing institutions they want their application sent to. 

This is one of the initial steps of the College App, students should have an idea of which colleges they intend to apply to before they get to. They will have to pay an application fee to each college they send the Common App to, so this step should be approached with some discrimination. 

Next, you’ll get into the meat of the application. Here, you’ll include some academic information but also your activities and awards. You should think of activities as anything you’ve participated in like clubs and sports, including ones outside of school. You can think of awards as anything you might have won as a result of those activities. This is your chance to demonstrate a lot about your personality and the kinds of things you’re into which is very important to the colleges. Spend some time prior to completing the application dwelling on this. You don’t want to leave things out that might not come to mind in the moment you’re working on your application.

Following that, students will need to write their essay. The Common App provides six prompts from which to choose. This is where students can express their voice to the colleges and tell their story. Numbers and grades are just data. This is where students become humans and my advice here is to be honest. Don’t try to say something you think the colleges want to hear or come up with some off-the-wall gimmicky essay you hope will make you stand out. Admission reps have to read thousands of these essays and they’ll sniff these things out in a heartbeat. Instead, use the essay to express who you are with substance and conviction, perhaps by sharing what important things led to the development of You.

Finally, there are recommendation letters. Not every school will require these and if you can’t figure out how to add them to your application, the colleges you’re applying to don’t want them. Ultimately, when rec letters can be submitted, you’ll just add an email address of the people you’ve chosen as a recommender and they’ll get an email directing them to log-in to the Common App themselves and add their recommendation.

Once you get all that done, you should be close to hitting submit. There could be some other caveats and requirements from individual colleges so be sure to monitor your Common App and emails from colleges closely.

College Homesickness

 

                    So maybe this is more properly a post for a college student than a high school one, but it’s not too soon to be thinking about these things for students in high school. By now, colleges are in full swing and freshmen there are settled into their dorm rooms or apartments. However, many of those students are unsettled emotionally.

            Despite the excitement of moving out of the nest and the anticipation of freedom a young person often has during their senior year of high school, the first couple of months of college can be a pretty challenging time. Most college-bound high school students are incredibly busy people--up early for study sessions, school, practice and extracurriculars, work, homework and social time with family (a little) and friends (lots) before it’s time for bed again. That makes for a pretty full schedule.

            Fast forward to college. You’ve got class for just two or three hours a day, a little bit of homework here and there, but the extracurriculars are probably gone, there’s often not a job early on in college, and the number of friends you now have has decreased dramatically. One of those friends, a dorm roommate, is almost a stranger and you’re stuck with them in this tiny dorm room. Learning to do so much on your own that mom and dad used to help with (like so much of your meal planning) complicates matters. This abrupt change in lifestyle is the perfect recipe for a good case of homesickness.

            The cure is assurance and patience. As that first semester (or sometimes second) stretches on, the student adjusts to their new lifestyle. Their new friendships grow some roots, they get to know their new community better, and they find ways to fill the extra time they have on their hands. These things don’t happen overnight though, and so it is a parent’s job to help their child through this period. Be accepting of their visits home on weekends, but encourage them to stick it out and stay at school some weekends too. Encourage them to reach outside of their comfort zone and go to events and functions happening around campus. Remind them that many other students are experiencing the same emotions they are. Ultimately, be aware that homesickness is extraordinarily common in college freshmen. Prepare for it by talking about it before the student moves away to college and instilling a mindset that things aren’t going to be picture perfect in early going, but they will get better if the student has a positive attitude and is willing to work at acquiescing to the college lifestyle that can encompass some of the best years of a young person’s life if they give it a chance. 

            Going off to college is often the biggest change that has happened to a person in their life to that point. Change often comes with a learning curve, so it only makes sense to be open and honest about what to expect with this change. Talk to your child seriously about homesickness and make sure you both know it will get better in time. 

What is Class Rank

 There are many numbers or metrics that colleges use as they evaluate students for admissions. Among those is class rank. Most people are familiar with this and have an idea of what it means, but let's dig a little deeper into how it is calculated and how colleges use it.

Class rank is simply where a student’s GPA ranks compared to the other students in their graduation class. The student with the highest GPA is ranked first, second highest is second and so on. However, as I’ve written about before, students really have more than one GPA. They might have an unweighted and weighted GPA (and others depending on who is looking at it) so they really have more than one rank. Weighted and unweighted rank are the most common. Some schools report a student’s exact rank while others only report rank in deciles. Students can also be tied with the same rank.

From the collegiate standpoint, the purpose of rank is to give a college some perspective on how a student performs within their school and among their peers. High schools are different from one another. Some are very large, some are very small, some schools offer a very rigorous curriculum, some schools are weaker. So, rank gives some insight into a student’s performance in a way that GPA alone cannot. Let’s say a student has a 3.85 GPA. That sounds like a great GPA, but what if there are only 22 kids in the graduating class and I learn that ten of them actually have a GPA higher than that. Maybe this student is just average. On the other hand, what if I find that this 3.85 student is ranked tenth in a class 750. Now I think this is an elite student in a challenging school. Rank gives me the backdrop to compare the student against.

It’s important to make sure that you accurately report your rank. Colleges usually ask for weighted or unweighted rank or let you choose which one to report. If you have a choice, my advice is to always report the one that sounds most impressive. At my school, we typically end up with 8-10 students by senior year who have a perfect 4.0 unweighted GPA. They usually have varying weighted GPAs, but from the unweighted standpoint, they are all tied for first. So, they can all list their rank as first, though if they listed their weighted, one of those people might be tenth.

I encourage my students not to lose sleep about that or anything related to rank though. It does matter, but it’s not the end-all. A college or university is going to see your grades and course history. They’re going to know that you might have taken some pretty hard classes and done well in them, if you indeed have. Most colleges also request a profile from the high school which provides additional perspective, and the colleges that are in the same state or region with a given high school are usually already versed in what students from that high school are capable of at a certain level.

529 Plan Withdrawals

     A 529 plan can be a great way to save for college. These work a little like Roth IRAs in that they are investment vehicles in which you won’t have to pay taxes on your investment’s growth. So, when it comes time to pay for college you can pull all that money out without having to worry about the tax implications.

Well, that’s actually only true to a point. Perhaps the biggest downside to 529 plans is that their monies can only be spent on what the federal government deems as “qualified expenses.” To paint a broad stroke, qualified expenses include tuition, room, board, books, as well as some necessary supplies including technological ones like computers, but it’s a little more complicated than that.

    You can’t just pull however much money you want from your 529 and say “We have a really nice off campus apartment, and the rent is really expensive. All this money is for that.” Every college publishes a detailed cost of attendance. I like to describe this as an all-inclusive price to attend a college and stay alive for a given year as it includes tuition, room and board, supplies, transportation, clothing, personal expenses, and computer and phone. Again, note that not all of these are considered “qualified expenses” for the purposes of 529 plans. For those that are, the amount the individual colleges assign to each category is significant because that is the maximum you are allowed to withdraw from a 529 plan to spend on that category. 

    For example, the University of Florida lists $5,800 as the average annual cost of housing for the upcoming school year. So, even if you’re paying $6,800 a year for your apartment at UF, you won’t be able to withdraw more than $5,800 from your 529 plan to pay for it. Again these numbers are specific to each university. So, at Emory University which is located in a nice area of Atlanta and where you would expect housing costs to be higher, the housing allowance is $9,254.

    Maybe it’s worth mentioning too that as with many other things on your tax return, the IRS doesn’t have an efficient system to verify what you’ve actually spent your 529 withdrawals on. It’s the honor system really. However, were you to be audited, the IRS would certainly want to see concrete documentation of what you spent your 529 withdrawals on and they might reach as far back as 6 years.

    To be sure, you can actually withdraw any amount of money from a 529 plan to spend on anything you want. It’s just that anything that doesn’t fall under the category of a qualified expense counts as income and is subject to a 10% penalty. This is true for the earnings portion of your investment and not the contribution portion. Some states like California, impose additional fees on unqualified withdrawals. So, do your research. Paying these taxes and penalties definitely diminishes the advantages of a 529 plan, therefore it’s best to plan ahead and avoid these when possible.