At the beginning of the school year, when my son and I started the admissions process, I kind of felt like a schoolgirl thinking - is summer ever going to come? But, now it’s here - not summer, but the result of our application efforts. Many of you will have received most, if not all, of your college acceptance letters by now. (We won’t talk about the rejection letters.) For some, it’s a joyous occasion and the path forward is obvious, but I’m willing to wager that many of you are facing the uglier side of the “We’ll figure it out” financial strategy you employed on the front end of the college list decision. Who can blame you, without the right tools, it’s extremely difficult to figure out how much individual schools will cost you on the front end. But, here you are, wondering what to do now.
No matter if that applies to you or not, for most college bound seniors, the month of April is the culmination of the college application season and is the time when you get to do your final contrast and compare analysis, pros and cons list, or whatever method you prefer to weed out all the contenders but one.
While the cost of the school you choose shouldn’t be the only factor, it is super important with potentially long lasting repercussions. So, don’t skip this step. The fact that your award letters are likely to look different from one another doesn’t make it more likely that you’ll tackle the task of getting to the bottom line so that you can compare them apples to apples. But, again, it’s so important. Here’s what you need to know.
What is a Financial Aid Award Letter?
You may have gotten a financial aid letter earlier, but that is different than a financial award letter. The financial aid letter will address your need-based aid offer, but the award letter is meant to show you the whole picture - cost, need-based aid, merit aid, available loans and work study.
And - yes, these letters will all look different and be arranged in various ways. Colleges are run like a business and they aren’t in the business of helping you turn them down. I’m not saying that they are intentionally trying to keep you from making a good decision, but they ultimately want you to say “yes”.
This is likely one of the biggest decisions you’ll make in life, so you need to weed through the information, get all of your questions answered, and line up the details in the way that is most meaningful for you.
How to Compare Financial Aid Offers from Colleges
Wait for All of Your Financial Aid Offers and Financial Award Letters to Come In
It may be really tempting to accept your dream school when you get accepted, and you may feel pressured to do so by the school. Don’t worry - they aren’t going to rescind your offer if you make them wait for your decision. Getting accepted to another similar school that offers you more aid could give you a basis to appeal for a better aid package.
Determine All Costs Associated With Each College
Let’s get down to the numbers. The first step in comparing colleges is to figure out what each will cost you for all four years. Besides tuition and fees, don’t forget to include books, room and board, travel, special program fees, and anything else applicable to your situation. Also, assume that the tuition and room and board will increase each year. Some schools may be able to give you a close estimate as to how much of an increase you can expect.
Note What Type of Aid You Were Offered
Next, you can subtract any aid offered by the school. At this point, only subtract aid with no strings attached - like grants and scholarships. This should not include loans and work study. Also, make sure that you know whether this aid is renewable for all 4 years or if it is only available for one or two years.
Add up all of the aid you expect to receive for all four years of school.
Figure Out How Much You’ll Be Spending After Aid
Total costs minus the ‘no strings attached’ aid equals the amount you’re on the hook for. Figure out how much of this number you can cover with savings, ongoing cash flow, gifts from family and friends, etc. Subtract this amount from the portion that represents your responsibility to see the amount that you would have to cover with loans and/or outside scholarships.
Add up these sources:
Accumulated savings not needed for other financial goals
Ongoing savings during college years
Savings you’ll see in your cash flow once student is in college (this could be from a lower grocery bill, no more sports and extracurricular expenses, no more music lessons, etc)
Amount your student is willing to dedicate themselves to obtaining in outside scholarships
Amount your student can earn from a job
Make your scholarship commitment
Getting private scholarships is not a walk in the park, but it is possible. If you have a significant amount of gap to cover with scholarships, you should consider it your part-time job for all four years of college. Consider whether you’re willing to make the time commitment and get organized. If not, you shouldn’t count on scholarships to fill your gap.
Estimate How Much Total Debt You'll Have After You Graduate
What can’t be covered by scholarships would have to be covered by loans or creativity. If you can think outside the box, you may find a way to earn the money you need or reduce the total cost. Otherwise, you’ll likely be getting student loans.
Remember these two facts about debt:
The amount you pay back will be much higher than the amount you borrow because of interest
The loan payments will hinder your ability to reach other financial goals, and possibly hinder your ability to pay basic living expenses
Make Sure You Can Afford The Estimated Payments Based on Salary Data
Now is the time to plan to pay off those loan payments, even though they won’t come due for another 5 years or so. That’s because, if you can’t figure out how to pay them back now, it’s not going to be any easier then.
Find out the average starting salary from the school you’re attending for the major/career you’re going after. You can use that number to figure out how much your take home pay will likely be. Add up your total loans and calculate what your total loan payment will be. Use a budget calculator like this one to see if you think you’ll be ok living on that salary with the loan payment you’re expecting.
Here are a few loan levels you might try to stick to and why:
- Tier 1 - None - I’m not comfortable with debt
- Tier 2 - Up to the amount I can borrow from the Government, about $27,000 for 4 years - I want to stick to the most flexible debt I can access
- Tier 3 - Up to the amount I expect to earn my first year out of college - I’m ok with a decent sized, but manageable student loan payment for 10 years after school ends, and I’m ok with making some financial sacrifices to pay it off
Making that Final Decision
Now that you know how much each school will really cost you, require you to get in scholarships or take out in student loans, you can tell which is the most financially feasible and you can make a better decision.
You may ultimately decide to go to the most expensive school because you’re willing to make some sacrifices so that it works out financially. A student may be willing to work full time every summer to go to their dream school but not for a school lower down on their list. They may be willing to spend hours every month applying for scholarships for that dream school as well, whereas that doesn't seem worth it for other schools.
If you ultimately decide you’re ok with loads of student loans, at least you’ll be going into it with your eyes wide open.
What if it’s just not enough
I expect this may be the case for many students, and it’s not the end of the world. This is a time to start brainstorming and applying that out of the box thinking we talk so fondly about here in the United States.
It really comes down to - how bad do you want it, and what are you willing to do to get it. Working part-time during school and full-time during the summer, finding a job that pays more while you’re in school, dedicating yourself to applying for LOTS of scholarships, going to community college for some classes, taking a gap year and working full time to save up more money. I’ve heard students who really want to go to college come up with some very good plans to make it possible.
I’m here to help, so you don’t have to figure this out on your own. If you need guidance to figure out what to do next now that your application results are in - just comment below and I’ll be in touch.
The Bottom Line
You want to have a good, healthy, fulfilling, exciting future. That’s partly why kids go to college - to open up doors for their future. Sticking yourself with a lot of student loans may not be the future you are looking for, so make sure you find out what your school is going to cost and compare all of your options before you make that final decision.