Never overpay for college

Free Money vs. Loans: Am I Being Tricked?

On a frigid winter day with streets covered in snow and slush, a career as an auto mechanic might not sound appealing. Of course given the specific skill set needed to be an auto mechanic, this career may not appeal to many people even on a 95 degree island. One advantage however to being a mechanic is an advanced knowledge of cars, a subject matter that the majority of car owners do not know very much about.

Therefore, and this is not meant to condemn all mechanics, it is conceivable for the mechanic to overcharge and suggest products that are not necessary for an additional profit. This example parallels colleges and their financial aid offices. They understand the financial aid process in a way that very few people do and they decide what to give families and how to structure their packages.

Herein lies the problem for the high percentage of families, how can a family determine what a school will actually provide and whether the package that they receive is a fair one? Schools that promise excellent financial aid packages could in theory be offering a lot of aid but what exactly does aid actually entail? The first step to avoid being tricked is to understand exactly what constitutes financial aid.

In its most basic sense, financial aid is broken down into two categories: Gift aid and self-help aid. Gift aid is made up of grants and scholarships that do not have to be paid back to the school.

It is very important not to let schools generalize financial aid because self-help aid is still money and/or time that is owed. Loans and work study programs make up self-help aid. Loan packages are first made up of student loans (typically Stafford and sometimes Perkins loans) and then federal parent plus loans (which have a much higher interest rate than student loans).

Work study programs allow the student to work off all or part of a loan (while also being paid for hours worked) and the amount of money awarded corresponds to a number of hours required. It is important to note however that work study programs are limited so a student that waits to accept the work study program may have difficulty finding a job and thus could have to pay the full amount or a portion of the loaned money back.

Obviously students and families want as much gift aid (or free money) as possible to lower the burden of paying for college. It is critical when looking at colleges to understand what the school provides on average in gift aid and self-help aid. If a school meets 100% of a families need* but 50% of that money is self-help aid, is that school really generous or is it just offering a boatload of loans?

If a school meets 75% of need and 90% of it is grants, is this school not providing a better overall package? Looking at what these numbers actually mean is critical not only before applying but also when a student is already accepted into a school.

Understanding the numbers and how to best leverage financial aid offers for the best chance to negotiate the best package is the kind of combination that makes seeking out a professional in the field a worthy investment.**

*Taking a families Expected Family Contribution (EFC) minus the schools Cost of Attendance (COA) equals a family’s financial need. The EFC is determined utilizing a federal formula (FAFSA), although many private colleges use another formula called the CSS Profile or their own metrics to determine the EFC.

**By investment we do not mean financial, though a financial investment with a trustworthy company that provides considerable value for your money can be helpful for some families. We define investment in this context as an investment in time to seek out a professional for a free analysis to better understand your picture. We encourage families considering a financial investment to exercise due diligence and caution before paying for any service or organization.