College Finances: Words of Confusion!

Have you ever watched the Presidential Press Secretary giving a press briefing?  It is quite amazing.  No matter your political affiliation or lack of affiliation, if you watch the press secretary during a briefing, you can see that there is as much not being said as there is being said.  There is a delicate dance of words happening.  Of course there are many things that they can’t say, there are some things they need to say, and there is the delicate ground in between that often leads to confusion.  This delicate dance of words is found in many areas of life.   So it should not surprise you if it is found in college finances.  Here are a few of those college “Words of confusion” that need greater clarification.

Words of Confusion: Cost of Attendance (COA)

The COA is one of the most important figures to know with planning for college.  You can research online to find the expected COA of any college.   You will also find the COA in your financial award letter.  The confusing part of the COA is just what is included in this calculation.  For instance, there may be travel costs that can vary from location to location, and there are book costs can vary greatly depending upon the vendor one uses.   Even simple things such as living expenses and room set-up supplies all can make the COA a bit confusing.  It is important for you to have a great understanding of your specific COA in order to make proper financial decisions.

Words of Confusion: Expected Family Contribution (EFC)

Another common phrase that falls into the “Words of Confusion” category is the EFC.  There are many formularies available to figure out your family’s EFC.  What makes this confusing is that people believe that their EFC is the most they will have to pay for their yearly college expense.  This is not the case.  The EFC is actually the least you will have to pay for your yearly college expense.   A “need” may still exist between the COA and the EFC.  That leads to our final “Words of Confusion” phrase.

Words of Confusion: Financial Need

Let’s define the financial need.  Simply stated, the financial need is the COA minus the EFC.  Let’s say the college you want to attend has a COA of  $35,000.00, and your EFC is $17,000.00.  This would leave you with a financial need of $18,000.00.  Simple right!  Colleges want to make sure each student can attend their college,  so they strive to meet as much of this need as possible through scholarships, grants and loans .  The family and student will find this in their financial award letters.  But a growing trend in college is to say that they meet 100% of the financial need.  And herein lies the confusion.

In a recent US News and World Report article, Farran Powel, notes:

“Financial awards from colleges and universities use a combination of loans, scholarships, grants and work-study to cover the gap between the total cost of attendance and the amount a family is expected to pay. A school that claims to meet 100 percent covers the gap entirely.”

In fact they go on to list a number of colleges meeting the entire financial need in this way.  This may sound simple, but “meeting the need” by a loan is really confusing.  A loan will have to be paid by the student and/or parent.  This loan may be a federal loan, PLUS Loan, or even a state loan.  This is a delicate dance of words that you need to understand in order to craft a better financial plan for your college needs.

These words can be confusing, but they are important to understand before you make a financial plan.  The student and parent will need to look over each part of the financial award letter to see just how your financial need is being met.




College Conversations

There are many different times to have a college conversation with your student.  And as you can probably guess there are many different topics to discuss in these college conversations.  We want to help you facilitate the college conversations.  So we will start with one of the most difficult college conversations.

College Conversations: “Show me the money!”

This is one of the most important college conversations.  Although, we think financial training for each student should start as soon as the students start handling money, there is definitely a need to talk about money in preparation for the college years.  Here are a few talking points for your college conversations about money.

How much money comes from the family

Every parent must sit down with their student and talk about how much money the family will contribute toward college.  This number is different for every family.  This includes money that the parents have saved for their student’s college, money set aside as gifts from birth or through the child’s life, funds that the parents may be able to pay during the college years, even money from extended family members.  This information is invaluable, because it forms the foundation of financial planning for the college years.

How much money comes from the student

Once the conversation about family contribution has been started, the next step is to talk about how the student will be involved in college funding.  Student’s involvement includes many facets.  For instance, if a student excels in academics or athletics, they may be able to secure scholarships which will handle some of the financial load.  The student can also save as they work during the summer months leading up to their freshman year of college.  Some additional questions to help this conversation:  Is the student willing to apply for outside scholarships and grants?  Will the student have a job while attending college?   Will the student have a job during the summer months during the college years?

How will you handle college debt

Unfortunately for many, the college financial conversation now must include a conversation about debt.  In our last post we focused on the rising debt among college graduates.  The average debt for a 2016 college graduate is now $37,000.00.  Is the student willing to incur this debt?  For most students, this debt load will not be carried alone.  Are the parents willing and able to incur this amount of debt?

It may be helpful to use a debt repayment calculator such as the one provided by  Type in the amount the student plans to borrow and the expected interest rate and let the calculator do its work.  It will show you what the payments will be, how much interest will be incurred and how long it will take to pay the debt off.

This information becomes invaluable as you have your college conversation about money.  It may even become the most important piece of information regarding our final talking point.

Choosing a school with finances in mind

Choosing a college is one of the most important financial decisions a student will make.  That is why it is important to have a college conversation about money.  Finances may or may not be the most important issue when choosing a college, but it can play a role in the decision making process.  A private college will be more expensive than a public college.  Living on campus or commuting is another decision that may be discussed in one’s financial college conversations.

Using the talking points mentioned above you can choose a college with confidence.  Although conversation about money can be difficult, these conversations are essential to your financial planning for the college years.