Colleges don't give you money

Tomorrow, December 1, the newly revised FAFSA will open up online, several months later than it usually does.

I haven’t seen the updated website yet, so I don’t have any specific advice about the FAFSA. But I do have some big-picture advice about affordability and paying for college. And that advice comes down that one reminder: colleges don’t give you money.

Pretty much everyone, myself included, goes along with the idea that financial aid is money that the colleges are giving away. We use the verbs “give” and “offer” all the time. If the sticker price is $50,000 and the price that you’ll be charged is $25,000, then they “gave” you $25,000 in aid. You might contact them to see if they can “offer” you more. And that $25,000 is real. It’s money that you’re not paying, and it makes a huge difference in your life. But it’s not money that they’re giving you, it’s just a discount on what they charge you.

Compare it to buying clothes. Imagine you go to Macy’s to buy some jeans. The price tag says $100, but they’re on sale for 20% off. So you pay $80. That $20 difference is real—it’s money that you can spend on something else. But it would sound kind of silly if Macy’s told you they were “giving” you $20 to buy the jeans. It would sound ridiculous if Macy’s added up all the discounts they gave over a year and claimed they “provided” Americans with millions of dollars in aid. That sale price isn’t money they’re giving away, it’s a discount on what they’re bringing in. It’s a slight distinction, but it can have a huge effect.

Unlike Macy’s, colleges do this all the time. They have a sticker price, and they offer you a discount, and then they frame it as money they’re offering you. They can have you focus on how generous their offer is instead of how much money you and your family are paying. You don’t have to play along if you don’t want. You can stay laser-focused on your cost, not their generosity.

And then there’s debt. When colleges offer you loans to help you pay for college, this counts as aid. That actually makes sense, because if you’re able to afford the college by taking the loan and paying over years when you wouldn’t be able to afford it in cash, then they are indeed aiding you in your ability to go to college. But don’t let that aid get too caught up in the language of “offer” and “giving.” It’s money you’re spending. You’re spending it over time, not all at once, and that’s really helpful. But you’re spending it, and taking a risk doing so. Give your future self credit for that money, not the college, because it’s your future self that is actually paying.

This advice is about mindset and perspective. By reminding you that colleges don’t actually give you money, I’m hoping to help you make more rational decisions and have healthier emotions. So when you get your financial aid offers in the coming months, keep a few things in mind:

Stay completely focused on the cost to you, not what the college is offering. If you read a financial aid offer and still aren’t sure what your cost is (it happens often), get in touch and ask them to explain the offer so that you can understand what your cost it. While you’re at it, ask them what the average price increase is every year.

The sticker price is completely made up and arbitrary. On average, only about 15% of students pay the full price. There are lots of factors that go into the sticker price, but one strategy that some schools use is setting a higher sticker price so that they can advertise how generous they are with aid. It’s like Macy’s changing the price of those jeans from $100 to $110 so they can still get $80 but also advertise a $30 discount instead of $20.

The price that you pay is your price, and almost every student has a different price. How much of a discount schools offer is determined based on your family finances and how much you can afford, your perceived long-term value to the school, and how many discounts they’re offering other people. Your perceived long-term value to the school is complex. How much a school perceives your value to them may take into account how likely they think you are to graduate; how much time and talent you may contribute to the campus while you’re there; athletic, artistic, or other talents you have that can be useful to a school team or program; how likely you and your family are to donate to the school in the long term; and what academic and/or social gaps the school is experiencing that you can help fill. When you hear “merit,” you probably think of how well you performed in high school. When the colleges say “merit,” they’re probably thinking about your long-term value to them. They aren’t the same. There’s no way for you to know your perceived long-term value to a school ahead of applying for admission and financial aid.

If you’re trying to estimate your cost at a particular school, skip over their stats about average aid offered or percentage of students who receive aid. Don’t get caught up in the “offers.” Look at two numbers: the average net price and the average indebtedness at graduation. Use those as your reference points. If your family has normal finances, that is likely to be around the price they ask of you. If your family has less money than average, expect a lower price. If your family has more money than normal, expect a higher price.

Pay attention to debt. If you graduate college within five years and don’t take on too much debt, then the debt is probably worth it. The average lifetime earnings of college graduates is much higher than that of people who don’t have a college degree. If you already feel like there are obstacles that may keep you from graduating, then you should be very hesitant to take on student debt. You should also be hesitant of taking on more than $30,000 debt total over the four-five years you’re a student. I’d like to say that you can adjust a reasonable debt load based on your career path. Maybe higher debt is fine if you’re going into computer engineering, and you should be more frugal if you’re going into early childhood education. But the truth is that you don’t know what job you’ll have in your first few years after graduation, or how much it will pay.

Talk to your family about money, as soon as possible. You should know your line between “affordable” and “not affordable” before you apply to schools, and definitely before you start getting financial aid offers.

Never skip applying to a college that you think is a good fit because you think you can’t afford it. Wait until you know your cost, and then decide if you can afford it. People are surprised by their financial aid offers, in both directions, all the time. Maybe you’re right and you can’t afford it, but make them tell you so.

Assume that you’re going to attend the least expensive school that accepts you. If you decide to go to a school that is more expensive than other schools that accept you, you should be able to explain—to yourself and others—why. “Because it’s a better school” or “because it’s a better fit” aren’t good enough. Be able to explain why you think it’s a better school for you and why you think the extra cost is worth it.

Thanks for reading! If you enjoyed this post, here are three easy things you can do:

1. Share it on your social media feeds so your friends and colleagues can see it too.

2. Read these related posts:

   Things for parents to know about paying for college

   Not all merit aid is the same

   Three things parent should stop saying to their children

3. Ask a question in the comments section.

Apply with Sanity doesn’t have ads or annoying pop-ups. It doesn’t share user data, sell user data, or even track personal data. It doesn’t do anything to “monetize” you. You’re nothing but a reader to me, and that means everything to me.

Photo by Angela Elisabeth

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Things for parents to know about paying for college

Last night I had a great conversation with some neighbors about paying for college. Most of them I’ve known a long time, but this get-together was organized specifically for me to answer their questions—as best as I could—about college admission and affordability.

The discussion kept circling around two central themes. One, it is so important for parents to talk to their students about the cost of college, their expectations, and their budget. Soon. Don't save those conversations until after the finial aid offers come in. Secondly, because the cost of college can be so unpredictable and confusing, you have to apply broadly. This broad approach to cost mirrors the broad approach to admission. You need to apply to a few college that are a good fit and that you’re really confident you can afford. You can also apply to some that may or may not be realistic depending on how much merit aid they may offer. And you need to be aware of which schools are so selective that they offer no merit aid.

I wasn’t sure where the conversation would lead, and so I made sure to have my main “talking points” ready. We covered some of these, but not all. I’m sharing them here for anyone.

(I’m also compelled to point out that it’s October 1st, which means the FAFSA and CSS Profile are open for current seniors.)

You don’t know what any individual college will cost until your student applies and is accepted. You can get estimates. But how much your student gets depends on how much the other accepted students get, among other factors. So the price is different for everyone, and it’s not settled until aid offers are made to all the accepted students.

Talk to your student about the financial expectations. Be specific. Use numbers. The calmest students I work with are the ones who know what their budget is. Lots of parents don’t want to share too much about their financial situation. It’s common and understandable, but not practical. Be as upfront as possible about your financial goals and limits.

Chances are that nobody wants to pay for your student to go to college more than you do. Colleges usually do help with the cost, but it helps to understand their motives and limits. I sometimes hear parents say “If the college really wants my child to go there, they can offer more aid.” The amount of aid they offer is part of their business model and complicated formulations—not how much they like your kid.

Most parents I talk to say that they fall into that slice of people who make too much money to qualify for financial aid but don’t make enough money to pay for college. All those parents send their kids to college. I’ve yet to meet the person who didn’t go to college because their parents made too much money. Those families end up making choices they didn’t want to make, by choosing a more affordable school over the “dream school,” taking on more debt than they hoped to, and/or selling assets they wanted to keep. But they always choose college.

There are thousands of colleges in the US. Each is unique. But you can break them down into three broad categories: in-state public, out-of-state public, private. Each has a different price range, and each is going to have a different approach to aid.

Roughly 85% of students receive some kind of financial aid. Around 15% pay the “sticker price.” Only about 2% receive a “full ride.” Full athletic scholarships are actually very rare.

Most or all of your aid will come from the college. Start there. Lots of financial aid actually comes from the federal government, in the form of Pell grants and subsidized student loans. Many states also have grants for college affordability. But it’s the financial aid office at the school you attend who coordinates all those awards and loans. The money, even when it isn’t the school’s money, usually makes its way to you through the school.

Merit aid probably doesn’t mean what you think it does. There are several different flavors of merit aid, and it’s often unpredictable. It rarely has anything to do with what a student “deserves.” Again, nobody really wants to pay for your kid to go to college more than you do.

There are two forms you may be asked to fill out. Neither are fun or easy. The FAFSA is administered by the US Department of Education and relies on tax forms. Almost everyone uses this. The CSS Profile is administered by the College Board and tries to understand your assets, not just your income. Many private universities ask for this on top of the FAFSA.

Future earnings correlate to your major more than they do to your college.

Some debt is normal. And debt counts as “aid.” College students having around $30,000 total debt upon graduation is average. For most college grads, that’s manageable. You can get into real debt trouble if you take out much more than that, and you can get into real debt trouble if you borrow money but don’t finish your degree.

Thanks for reading! If you enjoyed this post, here are three easy things you can do:

1. Share it on your social media feeds so your friends and colleagues can see it too.

2. Read these related posts:

   Thinking about Return on Investment

   Thinking about debt

   Three things parents should stop saying to their children

   Paying for college: some basic principles

   Not all merit aid is the same

3. Ask a question—or share other resources—in the comments section.

Apply with Sanity doesn’t have ads or annoying pop-ups. It doesn’t share user data, sell user data, or even track personal data. It doesn’t do anything to “monetize” you. You’re nothing but a reader to me, and that means everything to me.

Photo by Angela Elisabeth.

Apply with Sanity is a registered trademark of Apply with Sanity, LLC. All rights reserved.

Paying for college: some basic principles

It’s really hard to talk about paying for college with a broad audience, because every individual’s circumstances are different. And individual circumstances are really important to college affordability, since the price of college depends to a huge degree on your individual circumstances. One of the great things about college education—but also one of the complicated things—is that most students pay different amounts for the same education. The pricing for college is some of the most complex and opaque pricing out there. Still, there are some basic principles that can help make the process a little easier and more rational in the long run.

1. You don’t know what any individual college will cost you until you apply and are accepted.

You can look at the published full cost of a university, but remember that only about 13% of college students pay full price. On the end, about 2% of college get a “full ride” scholarship that pays for everything. Everyone else gets at least some financial aid, probably including you. How much financial aid? Well, that depends on how much you need. And it also depends on how much the other accepted students need. And, of course, it depends on how much money the school has to give out for financial aid. If a college accepts a lot of wealthy students who can afford the full price, then they have more to give as aid to less wealthy students. But it also means they have a lot more wealthy students and a lot fewer others. Colleges balance these things—the desire for a diverse student body and the money to provide financial aid—on a yearly basis. So your aid package is unknown until you’re part of that year’s calculations. There’s just no way of knowing until then.

There are ways to get an idea of how much financial aid you may get, but it’s only an idea. Each college provides a net price calculator. You enter in some financial information, and the calculator will tell you how much aid to expect based on estimates and averages from the past. But again, you don’t know for sure until you are accepted and get an actual offer.

You can also look up the school’s average percent of need met. The higher that number the better. A school that is able to meet 100% of their student's’ financial need is probably going to be more affordable than a school that can only meet, on average, about 70% of their students’ need. Knowing the average for last year doesn’t tell you how much you’ll be offered this year, but it gives you some clues about what the school is able to do.

You can also look up a college’s average indebtedness. It’s the average amount of school debt that students have when they graduate. For most universities, that number is between $20,000 and $30,000. Be careful for schools where the average debt is higher than that.

The main thing I want you to remember is to never decide not to apply to a school simply because you think you can’t afford it. You may be right, but make them tell you so. Surprises happen all the time. On the other hand, always make sure you keep schools on your list that you’re more confident you can afford.

2. Talk to your family about money. Soon.

There’s a line, or at least a range, between your family saying “yes, we can afford that” and “no, we can’t afford that.” There’s a line, or at least a range, between “yes, that’s an acceptable amount of debt” and “no, that’s too much to borrow.” There’s a line, or at least a range, between “I can work after school to cover that cost” and “I can’t make that much money on top of full-time school.”

We may not want to think about those lines, and we may not want to talk about them, but they’re there. The sooner you talk about where those lines are, the better. It’s not always an easy talk. It’s almost never an easy talk. But it’s a talk you must have with your family. It’s better to have it now, before you have your mind set on a school, than after you think you’re going to a school and are then told “no, we can’t do that.”

3. Most or all of your financial aid will come from the college.

Think like a donor. If you want to donate $100 to help a student afford college, how are you going to go about that? By spending hours and thousands of dollars setting up a scholarship fund? Nope. You’re probably going to donate your hundred bucks to a specific college for their scholarship fund. Even if you have $1,000 to donate for scholarships, it’s much simpler to give it to a college for their funds. Even Michael Bloomberg, who donated almost two billion dollars to help with college affordability, gave it to a single school for their financial aid funds. That’s why your biggest financial aid awards are going to come through the college.

Lots of financial aid actually comes from the federal government, in the form of Pell grants and subsidized student loans. Many states also have grants for college affordability. But it’s the financial aid office at the school you attend who coordinates all those awards and loans. The money, even when it isn’t the school’s money, usually makes its way to you through the school.

There are some big private scholarships out there that you apply to directly, not through the college. The Coca-Cola Scholarship is a well-known example. So yes, there are other sources of funding outside the school. But it’s a very small portion of overall funds, and those national scholarships are fiercely competitive.

There are also tons of smaller—$100 to $1,000—scholarships out there. A lot of students find, though, that these simply aren’t worth the time it takes to find and apply to a bunch of them.

4. There’s paperwork to complete.

It’s not simple or easy. It requires your family’s tax forms and sometimes other financial statements.

Luckily, it’s consolidated. Everybody should fill out the FAFSA. Do it as soon as you can. It opens up October 1. Don’t wait any longer than you have to, even if you haven’t decided where you’re going to apply. It’s a federal, standard form that all the schools will ask for, so just go ahead and do it. Even if you’re not expecting to get any financial aid, fill out the FAFSA. Surprises happen all the time. Plus, plenty of places won’t even consider you for merit aid if you haven’t filled out a FAFSA.

Some colleges, mostly private schools, will also ask you to complete the CSS Profile. It’s similar to the FAFSA, but administered by the College Board. It’s more detailed and broad than the FAFSA.

5 There are some terms to understand.

I’ve already covered the basics. Click the links below for a longer explanation of:

Expected Family Contribution

Gapping

Need Aid vs. Merit Aid

Need Blind

Thanks for reading! If you enjoyed this post, here are three easy things you can do:

1. Share it on your social media feeds so your friends and colleagues can see it too.

2. Read these related posts:

   Schools can, and should, teach college affordability

   Three things parents should stop saying to their children

   Don’t pass up a full ride

   Asking for more financial aid

3. Ask a question—or share other resources—in the comments section.

Apply with Sanity doesn’t have ads or annoying pop-ups. It doesn’t share user data, sell user data, or even track personal data. It doesn’t do anything to “monetize” you. You’re nothing but a reader to me, and that means everything to me.

Photo by Angela Elisabeth.

Apply with Sanity is a registered trademark of Apply with Sanity, LLC. All rights reserved.