Posts

College Financial Aid and Why There’s No Such Thing As a Free Lunch

We’ve all heard the old adage —there’s no such thing as a free lunch.  In other words, we can’t expect to get something for nothing.  Unfortunately, popular media can lead families to believe that college financial aid is a way to get an education for free if they can just figure out the system.  Thousands of families are shocked to receive their financial aid letters and see the most popular form of financial aid – student loans.

Before I explain more about financial aid, let me make an important clarification – merit scholarships are NOT financial aid.  When I’m referring to aid, I mean the money a college allocates to cover the gap between what a family is expected to pay and the cost of attending a particular school.  I know some colleges offer “scholarships” as part of a college financial aid package, but these are really a method for the school to discount the cost.

Merit scholarships can help with the cost of a college education, but shouldn’t be considered financial aid because these scholarships are given based on a student’s talent – not financial need.  Athletes may receive merit scholarships that cover part or all the cost of their education.  I have a number of students who have been offered academic scholarships because their grades and SAT scores make them desirable candidates for a particular university.  Then there are countless other programs offering large and small scholarships for any number of talents or circumstances – making a prom dress out of duct tape, tall Texans, students with asthma, etc.

Financial aid is based on numbers not ability.  With the rising cost of a four-year education aid is not limited to low-income families.  Many middle class families qualify for some type of assistance. Financial aid is intended to cover demonstrated financial need—the difference between what it costs to attend a particular school and the amount it has been determined that the student and his or her family can afford to pay.

Too many people hear the words “financial aid” and think “free money.”  In some cases, college financial aid packages may include funds that do not need to be repaid. But if your family qualifies for financial aid, you have not just won the lottery; you should expect to see work-study and some loans as part of your award.  Yes, colleges are trying to make a four-year education accessible and they are sensitive to the growing debt-load many graduates face, but financial aid doesn’t mean free.

As my dad liked to say, “Ed McMahon isn’t coming!”  (I guess this dates those of us who remember Ed McMahon on TV delivering giant checks to the doors of Publisher’s Clearinghouse winners.)  So start thinking about how your family will pay for the cost of a college education.  Your plan may include savings, selecting a less expensive college, working summers, and maybe financial aid.  But you won’t be mislead into thinking that if you can only get the right financial plan, or hide your assets, or discover the secret system you will get four-years for free.

 

How To Prioritize Saving For College

Guest post by Andrea Travillian

As parents we want the best for our kids.  We want to give them what we did not have growing up, set them up for success and basically give them the world.  Including letting them go to the best college they can get into.  It’s just part of being a parent that you want the best for them.

Yet when we give too much and do not focus on the right things we end up not only hurting our kids, but ourselves.

How can we be hurting our kids by giving them all we can?  When we don’t prioritize our savings and financial health over the things we think our children need we are not setting a good example on how to manage money.  Additionally when not taking care of our finances we hamper our ability to help them with extra money when they actually reach college.

How are we hurting ourselves?  By making sure that our kids have all the money and resources they need, we forget to take care of our own finances.  We end up with not enough money to retire, too much debt to manage and limited options to achieve our financial goals.

When it comes to saving for your child’s education you want to make sure you are doing things in the proper order to ensure that you and your kids are taken care of.  Following is the order that best takes care of you so that you can take care of your kids.

Live On Less than You Make

This is the number one most important thing you need to do with your money, even if you are not planning on paying for your child’s college tuition.  If you are not spending less than you make then you are creating debt continually.  When you constantly create debt it becomes harder and harder to live on less, because those credit card payments keep getting bigger.  Eventually the equation ends in bankruptcy.  So before you can do any type of saving you need to make sure you are not spending everything that you have.  It is not possible to be financially stable without this happening.

Clear up Credit Card Debt

Debt eats up your cash that you should be using to save money. By reducing debt you can redirect those funds to begin investing.  I mainly point out credit card debt as this is one of the most detrimental types of debt.  This is because it is typically a sign that we are overspending on things we cannot pay for today!  Plus the rates are typically really bad, and they do not make sense to carry a balance.  When you have learned to live on a budget and can pay your credit card every month in full, then it is not a drain.

Once you have eliminated the credit card debt, then you can begin to tackle car debt, and all the other debts.  Look at debt as a monster eating your investing money.  If you eliminate the monster, finding the money to achieve your goals becomes easier.

Save for Retirement

The most important part of saving for retirement is to start and start as early as you can.  You may be thinking that you will begin saving after the kids are gone, but you will have to save much more money if you start later than if you had started to save early.  Plus, kids can always borrow, get scholarships or work their way through college, you cannot do that same with retirement.  No one is going to loan you money to retire, it would be a bad loan.

Save for College

Once you have cleaned up your expenses, reduced debt and started your retirement savings you can now begin to save for your child’s education! This is the right time to put aside money for your kids to use in college, anything before this will put a damper on your ability to lead a financially healthy life.

Work the Steps at the Same Time?

Can you do all this at one time: save for retirement, pay off debt and save for college?  Well that all depends on your budget and extra cash.

If you only have $30 extra a month then it does not make sense to put $10 on debt, $10 in retirement and $10 in college savings.  Instead it is better to work on reducing the debt.  Remember that eliminating the debt creates more cash that you can then either put towards savings or even paying cash for college.  If you have $600 extra a month, then it might make sense to do debt and retirement at the same time, because you can make progress on each with $300 a month.  Take the time to create a budget and a plan that works for you and your money.

Ultimately the thing you have to do the entire time is spend less than you make.  I would recommend doing both the retirement and debt payment at the same time, and add college to the mix only when you have eliminated the debt.

Remember by cleaning up your finances now you have placed yourself in a position to teach your kids about money management today, help them later in life by having extra cash and to not be a hindrance on your kids later in life when you don’t have retirement money.  It turns into a win-win for all when you put your finances first.

 

Andrea Travillian has her MBA and BBA in finance and works to help people understand their money and how to achieve more with it!  Andrea is the author of “Healthy Money Healthy You” and “Little Kids Big Money: Tools for Kid Friendly Finance”.  For additional information on personal finance and investing visit Andrea’s Site http://www.takeasmartstep.com

Common Financial Aid Errors

 

What are the most common mistakes students make on the financial aid application?

I think we can all agree; higher education is expensive.  The cost of a four year degree is as much as the cost of a home in many areas.  Financial aid is intended to cover the gap between what a family can afford to pay and the total cost.  However, every year students fail to receive aid, often due to application errors.  Here are the most common errors to avoid:

1.  Failing to apply. 

Some families knowingly don’t apply under the mistaken belief that they make too much to receive aid.  Before you decide not to apply, you may want to determine the amount your family would be expected to pay before receiving aid.  There is no application fee to submit the FAFSA; it will cost you a little time.  You can also try some of the FAFSA estimators online.  If your family contribution far exceeds the cost of college, you won’t qualify for aid.  However, many families find they can qualify for aid.

2.  Failing to complete the application.

Some universities require a school specific forms or the CSS profile while others don’t.  Applying for the FAFSA doesn’t mean you have completed the financial aid process for each university.  Check the requirements and deadlines for each school. Some students complete the application but submit incomplete or incorrect information, thus delaying the process.

3.  Waiting too long to apply. 

Financial aid can be like going through a buffet – the people in the front of the line get their choice of the best offerings while those at the end may be left with table scraps.  Universities have a limited amount of grant and scholarship funding, so those who apply late are likely to receive only loans.

To ensure you receive the best possible offer, apply on time and make sure your application is complete and accurate.