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Figuring College Cost: The Package Deal

By Roxana Hadad and Kay Peterson

September 04, 2008

When you want to know what something costs you check the price tag, right?

But sometimes it’s not so simple. Compare going to a big-ticket school with attending a college with less expensive tuition. You might think it’s easy to figure out which will cost you more. But in fact, every school figures out your financial aid package differently. And that can make a big difference in the out-of-pocket cost of going to college.

Filling Out the FAFSA

Tuition is only the first step in determining college cost. Unless you and your parents are going to write out a check for full tuition, you’ll be applying for financial aid. That means filling out the Free Application for Federal Student Aid (FAFSA).

The federal government uses the data you supply on the FAFSA to determine your Estimated Family Contribution (EFC) – an amount your family can afford to pay for you to go to college. The EFC serves as a baseline to help your school figure out how much you can pay, how much more you’ll need and how much financial aid you’re eligible to receive.

Your EFC and Your School

Once your FAFSA information goes to the school, things get more complicated. In many cases, schools do their own analysis above and beyond the FAFSA based on their own set of criteria – something that’s referred to as the “Institutional Methodology.”

This is important because an Institutional Methodology almost always increases your EFC. The Institutional Methodology tends to include additional assets like home equity that aren’t included on the FAFSA. If these “extra” assets are added in, your EFC – the amount of money you have to pay for college – will increase.

The school then takes this new EFC, subtracts it from the “Cost of Attendance” (COA) to figure out how much assistance you need. So if your Institutional EFC is higher, the amount of assistance is lower – and you end up owing more.

More Pieces of the Financial Aid Puzzle

Once your EFC is calculated, the institution begins assembling your aid package. Your aid package is made up of a number of elements: federal aid (grants, loans, work-study), state aid (varies from state to state) and school-based aid (grants and scholarships, school-based work-study). The goal is to allot these different elements to make college affordable for the student.

But how these pieces fit together can vary widely. For example, let’s say a school adds loans to the mix before they consider whether you’re eligible for a need-based grant. The result? The amount of “need” that determines if you’re eligible for a grant is lower because the amount of the loan has already been deducted from your costs.

Schools also differ in terms of the kind of funding they can offer. Some schools have a lot of money available for merit- and need-based awards while others have limited funds. These “extra” awards can supplement federal aid or even take the place of loans, thus bringing down your out-of-pocket costs.

Another factor that can affect your out-of-pocket cost is the school’s policy regarding external scholarships. Some schools add the amount of the scholarship to your financial aid package, increasing the total amount of your gift aid. This means fewer loans, and less out-of-pocket cost for you. Others reduce how much you get from any school scholarships by some or all of the amount of the outside scholarship. That means that your scholarship might not increase the amount of gift aid in your financial aid package.

Adding It Up

So what’s the final answer? Although a school’s tuition can give you a good idea of how much a school will cost, the full price of education can vary widely. Don’t discount a school immediately because tuition seems out of range. Apply to a number of different schools with different “sticker prices” and don’t make your choice until you unwrap your financial aid package.


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