Making sense of college aid awards
One of the many challenges of sending a child through school now sits in a pile on Joseph Han’s desk.
Han, a Garden Grove legal assistant, is the father of an honors student at Pacifica High School in Orange County who was accepted at a litany of great universities -- Berkeley, UCLA, Pomona College and UC San Diego, to name a few.
Because he applied for financial aid, each university sent Han a page-long “financial aid notification” that explains how much it would cost for his daughter, Stephanie, to attend the school. Each also explains how the campus and government might help defray that cost, and the amount they expect the Hans -- both parents and student -- to pay on their own.
But when the Hans sat down to examine the letters for a side-by-side comparison, they were stumped. Each one seemed to use different terms, making it hard to compare costs from one school to the next.
“There is no uniform financial aid letter,” said Lynn O’Shaughnessy, San Diego-based author of “The College Solution: A Guide for Everyone Looking for the Right School at the Right Price.” “They can be confusing -- sometimes intentionally so -- to make the awards look better.”
Pomona College, which estimated its cost of attendance at nearly $50,000 a year, was willing to provide $43,195 in aid, Han said. That included a scholarship for $41,495 and “student employment” of $1,700.
UCLA, which listed a $26,000 cost of attendance, didn’t say anything about student employment or loans -- only scholarships and grants for about $18,000.
On first glance, Han said the awards appeared to make the cost of Pomona almost the same as that of UCLA. But on second glance, he realized that he shouldn’t count “student employment” as aid, and he didn’t know whether the $41,495 scholarship that Pomona offered could be renewed the following year.
UCLA, meanwhile, cobbled together a long list of scholarships for Stephanie. Each of those scholarships was renewable for four years, as long as Stephanie remained a full-time student and maintained certain grades (the specific grade-point average varies by scholarship). Other schools list loans among their aid but don’t note the interest rates or whether those loans must be paid while the child is in school or after he or she graduates.
“I clearly need to do more homework,” Han said.
What parents need to focus on when comparing one aid award with the next is the net cost of attendance, said Nancy Coolidge, coordinator of student financial support for the University of California. That’s the total cost of attendance minus the scholarship and grant aid.
Seems simple enough, she said, but it’s not.
The reason: The total cost of attendance should include tuition and fees, room and board, transportation, books, supplies and an estimated budget for personal expenses. Almost every school estimates those costs, but only some include these estimates on financial aid award letters, O’Shaughnessy said.
That’s simply because leaving some of those costs out can make a school seem cheaper than it is, giving it a competitive advantage over schools that are more candid.
Then, too, several of the expenses are estimated and could legitimately vary even among students at the same school. Food costs and miscellaneous personal expenses can vary widely, as can rent for students who live off campus.
The first challenge for parents like Han: Determine whether the cost of attendance listed on the financial aid letter is an accurate reflection of what their child will spend.
To do that, list the fixed costs such as tuition and fees separately from the discretionary costs, such as transportation, books and miscellaneous. (If the school hasn’t provided a break-out of the individual expenses on the award letter, you generally can find one at www.collegeboard.com. The website allows you to plug in the name of the school and get a profile, including a detailed estimate of the cost of attendance. If there’s no break-out for your school, look at a similar school to guesstimate it.)
Jot down the fixed costs. Then look at the discretionary costs and determine whether your child is likely to spend more or less than the estimate the school has provided.
Add the figures to determine the total cost of attendance.
To find your net cost, subtract the scholarship and grant aid -- this is the aid that does not need to be paid back -- from the total cost of attendance. The result is the amount that you need to finance out of your pocket -- or through loans -- each year, Coolidge said.
A caveat: Make sure that any free money you’re counting on is renewable. Some scholarship awards are essentially recruitment grants that will not be offered in following years, Coolidge said. Other grants and fellowships require specific things from your child, such as maintaining a set grade-point average or participating in a research project, to be renewed. If you’re not sure whether a scholarship will be renewed and what your child must do to renew it, call the financial aid office and ask, Coolidge suggested.
The rest of the aid listed on the award letter has strings attached, she said. Work-study awards are contingent on the student’s finding a job on campus and doing the requisite work to earn the money. They’re worthwhile, if the job the student finds on campus pays more -- or is more compatible with the student’s schedule -- than work the student could get on his or her own.
Loans, of course, must be paid back. And it’s worth noting that student loans are not all alike.
The federal government offers several loan programs. So-called Perkins loans are the best because they offer the lowest interest rates. They are a particularly good choice for people who go into public service fields such as teaching and social work. The reason: There are federal loan-forgiveness programs that can wipe away this debt if the student works in certain jobs after graduation.
The Department of Education also administers other loan programs, including so-called Stafford loans.
If you qualify for a subsidized Stafford loan, the government pays the interest while you are in school. With an unsubsidized Stafford student loan, the interest accrues while the student attends college. It must be paid back after graduation.
The federal government also offers loans to parents, known as PLUS loans. Rates on these loans are typically 2 or 3 percentage points higher than on loans directly to students.
“Private” or “signature” loans are the least attractive type of loan, O’Shaughnessy said. These student loans are not backed by the federal government, and their interest rates generally are not fixed.
The rate will depend on the student’s credit score -- which is often low because the student has yet to establish credit -- or on the credit score of his or her co-borrower, if there is one. Because the debt is unsecured, the interest rates are often similar to credit card rates. The interest also accrues during school.
“You should consider them a last resort,” O’Shaughnessy said.