Financial Aid Myths and Realities

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Financial Aid Myths and Realities

• Daniel T. Barkowitz
• Director, Student Financial Aid, MITMITE2S
  Presentation, 2006

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The top 10 myths

• You can only afford low-cost colleges.
• Need-blind and full-need mean the same thing.
• If you have academic / musical / athletic talent,
  you can get a free ride.
• All financial aid is money that does not have to
  be paid back.
• Your parents earn too much to qualify for aid.
• Applying for financial aid is a long and
  difficult process.

• You cant start applying for aid until you do
  your taxes.
• Your parents have to sell their home / choose
  between retirement and paying for college.
• Savings in your name is treated the same as
  savings in your parents name.
• All loans are the same / All debt is bad debt.

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10. You can only afford low-cost colleges

• Your EFC should be the same (or nearly the same)
  across colleges so
• Your net amount should be about the same
• Higher cost colleges tend to have more resources
  available for grants/scholarships

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Some Vocabulary

• COA Cost of Attendance - Includes tuition,
  room, board, fees, books, supplies,
  transportation, personal expenses
• EFC Expected family contribution - Measure of
  what a family is expected to contribute over a
  year
• Financial Need Difference between COA and EFC

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How this Formula Works
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The Financial Aid Barrel
Remember COA - EFC Need 45,000
- 8,000 32,000

• Cost of Attendance 45,000
• Unmet Need 1,900
• Work 1,500 Work Study
• Loan 2,600 Stafford Loan
• Gift Aid 16,000 Grant 15,000 Scholarship
• EFC 8,000

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9. Need-blind and full-need mean the same thing

• First, understand the definitions
• Need-blind Does not use need in determination
  of Admissions decisions
• Need-based financial aid Used Financial need
  (no merit) to award financial aid
• Full-need financial aid Awards the entire need
  of the each student with financial aid

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The Step Approach to Awarding Financial Aid
For Institutional Grants, Admissions Ranking can
determine Financial Aid Awarded
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8. If you have academic / musical / athletic
talent, you can get a free ride

• There is money, but it usually doesnt cover it
  all!
• You have to apply for this money separately
  (Sept. Oct. of Senior Year)
• Best source(s)
• www.fastweb.com
• www.finaid.com/scholarships/other.phtml
• Understand the implications on other aid

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7. All financial aid is money that does not have
to be paid back

• There is a lot of money out there
• In 2004-05 over 142 Billion given out for
  college aid
• But the majority of this money is loans
• 53 Loans
• 40 Grants
• 6 Tax Credits
• 1 Work
• The loan/grant ge varies greatly by institution
  type

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6. Your parents earn too much to qualify for
financial aid

• There is so magic cut-off for financial aid.
• There are two main formulae used to determine
  your EFC and each uses a large number of
  variables (income, assets, in family, in
  college).
• FM Federal Methodology used for all federal
  funds
• IM Institutional Methodology used by
  primarily private colleges and scholarship
  programs for their funds
• Good estimator at http//finaid.com/calculators/fi
  naidestimate.phtml.

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Federal Methodology(The method behind the
madness)
in family
in college
Assets

• Used to award all federal aid
• Must file FAFSA
• Uses both parent and student information (for
  dependent students)

Income
Taxes
The Financial Aid Funnel
EFC
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Federal Methodology(continued)

• Student income - 50 after taxes
• Student assets - 35
• Divided by number in college
• Result is EFC

• Parent income - 22-44 after allowances
• Parent assets -3-6 afterprotectionfor
  retirement
• Home equity excluded
• Looks at number in family and number in college

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Institutional Methodology

• Some schools will use the Profile and/or their
  own application form
• Used by colleges to give out their own money
• Formula will vary school by school
• Often includes home equity
• Often has a minimum SC
• Generally more strict than Federal Methodology
• May include only birth parents in
  divorced/separated situations
• A word about Consensus Approach

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Lets take a Quick Break from the Action...

• Everyone fold your arms
• Look down at which wrist is in front
• Left - Visual Learner
• Right - Oral Learner
• Doesnt work? - Kinesthetic Learner

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5. Applying for financial aid is a long and
difficult process

• FAFSA - Free Application for Federal Student Aid
• Required by all colleges
• Free form
• www.fafsa.ed.gov
• PROFILE
• Some colleges need this
• Electronic only
• Paid form
• www.collegeboard.org
• Institutional Application
• One per school
• Usually part of admissions packet

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4. You cant start applying for aid until you do
your taxes

• January (or earlier for Profile) Complete forms
  (BEST GUESS IS OK FOR INCOME)
• February (or earlier for Profile) Many schools
  deadlines for forms
• Late February - March Schools may call you with
  questions
• End of March - Early April Admissions and
  Financial Aid notification mailed

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The Financial Aid Calendar (continued)

• April Compare award letters from different
  schools
• May 1 DECISION DEADLINE - Tell all schools yes
  or no
• May Pay deposits (tuition, room and board) -
  about 500
• June Bill for the Fall semester, due by 8/1 or
  so
• November - December Bill for the Spring Semester

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3. Your parents have to sell their home / choose
between retirement and paying for college

• How should your family pay the EFC?
• Past Income
• Savings
• Present Income
• Salary
• Payment Plans
• Future Income
• Loan Programs

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2. Savings in your name is treated the same as
savings in your parents name

• Usually, no. Saving in your name is a BAAAAD
  idea (see the EFC formulae information above).
• However, Consensus Approach schools treat this
  differently

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1. All loans are the same / All debt is bad debt

• Time Value of Money!
• Ability to defer Stafford / Perkins
• Financial Aid Packaged Loans vs. Alternative
  Loans
• For Alternative Loans, you pay for the bells and
  whistles
• Student borrower vs. parent borrower
• Deferred payment vs. immediate repayment
• Interest rate locked vs. variable rate

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Questions?

• Thanks!
• Questions?
• Discussion?

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And your last source...(Let this be the
beginning of a beautiful friendship)

• CONTACT ME!
• E-Mailbarkowit_at_mit.edu
• Phone[phone]
• Snail MailDaniel T. BarkowitzDirector, Student
  Financial AidMassachusetts Institute of
  Technology77 Massachusetts AvenueBuilding
  11-320Cambridge, MA 02139