4 Tips When Choosing a College
Tip 1: Fill out the FAFSA
One of the most common mistakes students make is not filling out the FAFSA – Free Application for Federal Student Aid. They may think their parents make too much money and won’t qualify for aid, but this is a huge and costly mistake.
Everyone is eligible for some form of financial aid regardless of their financial success. Financial aid is awarded by both the government and the university. If you don’t fill out the FAFSA, you usually can’t qualify for either type of aid.
Tip 2: Keep Assets in Parents Names or 529's
Families must report assets owned by both the parents and the student in their FAFSA. Who owns the assets makes a huge difference. Colleges and Universities expect families to use up to 20% of a dependent child’s assets to pay for college. It doesn’t matter if a parent, relative, or friend gifted assets to the child. If it is in the child’s name, the college expects up to 20% to be used for tuition. Fortunately, this does not include 529s in a child’s name – this counts as a parent’s asset.
Parents' assets count far less. Colleges and Universities expect parents to use up to 5.64% of their assets towards college. However, retirement accounts and primary residences are not factored into the calculation. Anything over that amount may be eligible for student loans and grants.
Tip 3: You May Not Have to Pay Full Price
The government determines what your family “should” pay for the college or university. They call it your “Expected Family Contribution” or EFC for short. It is based on the information provided in the FAFSA – again why tip #1 is so important. Unfortunately, most colleges don’t have the financial resources to fully meet the need of every student. However, some colleges are better than others.
Do your research and compare the Net Price (true out-of-pocket cost) you will actually pay instead of the Sticker Price. The best way to do this research is to type the school you are interested in and the phrase “net price calculator.” For example, if you were interested in Emory University (the school I attended), you would type the following into Google, “net price calculator Emory University.”
Tip 4: Look Beyond U.S. News Rankings
Although U.S. News Rankings for colleges and universities has great brand and name recognition, it is not the be-all and end-all resource. There are so many other factors that should be considered.
The first is taking a look at the percentage of students that actually complete a 4-year degree in 4 years. It sounds silly, but only 1/3 of freshmen at public universities finish in 4 years. The percentage doesn’t increase much for private universities – it is still only 50%. When researching schools, check out the college completion rates here. It is an invaluable resource both in helping chose a school for your child, but also from a financial planning standpoint.
Another item worth looking into is the average salary that can be expected upon graduation. You can view that here. At the end of the day, it is important to think of college as an investment. You want to make sure you get more out of it than you put in. So take a look at what the average alumni compensation is and compare that to what you and your child pay in tuition.
If you have any questions, please don’t hesitate to contact me! You can view my details here.
Added 12/10/2018 by Jason Siperstein, CFA, CFP®