You wouldn't describe Tamara Kupfer and Andy Sirulnik of Northampton, Massachusetts, as financially naive. They file their own taxes and Tamara's work as an independent grant writer necessitates a thorough understanding of small business deductions. In their spare time, they take great pleasure in researching stocks and mutual funds. Sirulnik, who earned a law degree (though he mainly works as a systems and database administrator now), doesn't shy away from reading the fine print on a prospectus.
But when it came to financial aid—a process they started in the fall before their oldest son, Ben, entered college—they acknowledge they actually didn't know how it worked and were puzzled by the process.
Like most parents of high school kids, Kupfer and Sirulnik, 50, knew that college would be expensive, and hoped that financial aid would be available. They also already learned one key term, Expected Family Contribution, or EFC—how much colleges believe you can pay per each year of college.
Colleges calculate the EFC by factoring in how much money you make, how much you have, how big your family is, and how many kids you have in college. Financial aid eligibility is the difference between the total cost of attending a school and your EFC.
Step 1 in the process was filling out the Free Application for Federal Student Aid or FAFSA, the form used to determine a student's eligibility for federal loans, grants, and work-study programs. Most schools also use the FAFSA for their own need-based financial aid determinations. But as Kupfer and Sirulnik found out, sometimes other applications are still required.
With a daughter in high school and another son in elementary school, the couple says they've learned a lot from the process with Ben, and they'll be better prepared the second and third time around.
These are the 3 lessons you can learn from the Kupfer/Sirulnik family:
1. Understand the full scope of the financial aid process
In addition to the FAFSA, all but one of the colleges that Ben considered required the submission of the CSS/Financial Aid PROFILE®, another financial aid application. The PROFILE asks more questions than the FAFSA and digs a bit deeper into family assets. Depending on the school, it may also ask for information from the non-custodial parent (in a divorced or separated parent situation), which the FAFSA does not do. Over 200 selective (mostly private) institutions use the PROFILE so they can get a fuller financial picture of families and determine eligibility for their own institutional grants and scholarships.1
"When counting assets for financial aid, there are 3 main differences between the FAFSA and the PROFILE," explains Keith Bernhardt, Fidelity's vice president of Retirement and College Products. "Unlike FAFSA, the PROFILE takes into account home equity, ownership in small businesses, and the value of family farms."
The PROFILE also asks you to list retirement assets, which the FAFSA does not do, though most colleges don't use that information to determine financial aid eligibility.
"The PROFILE counts all 529s that list a student as a beneficiary, and they even want to know about a 529 plan owned by a sibling who is under 18," explains Mark Kantrowitz, publisher of Cappex.com, a site that helps families maximize financial aid.
That could amount to a big difference in how much aid you get. With the FAFSA, schools expect families to contribute 5.6% of parent-owned 529s, and 20% of those owned by students. The PROFILE, however, expects a 25% contribution of student-owned 529s along with 5% of parent-owned 529s and other parent assets.
The PROFILE financial aid calculation assumes that parents can contribute up to 5% of their home equity for college each year, though many colleges cap home equity value at 1.2 to 3 times parent income to take into consideration fluctuations in the housing market.
For example, some colleges cap home equity at 2.5 times adjusted gross income. So if your family earns $150,000, but has $500,000 in home equity, only $375,000 of home equity is factored into the calculation. At 5%, the PROFILE would add $18,750 to your EFC.
The role of home equity within the financial aid process surprised Kupfer. After living in their farmhouse-style home for 14 years, the couple has made a significant dent in their mortgage, which they feel pretty good about. "Instead, it felt like we were being penalized for doing the responsible thing and paying down our mortgage," she says.
Tip: Find out the different financial aid applications that each school requires. Attending financial aid workshops at a few colleges helped Kupfer and Sirulnik realize early on that they would be required to submit more than one financial aid application.
2. Get a good estimate of what you'll likely pay
How much of your child's tuition are you expected to pay?
One of the key factors an estimated amount that you may expect to pay for college is called your Expected Family Contribution (EFC). Based on an analysis of your annual income and assets, your EFC helps determine the grants, loans, and work-study programs for which your child qualifies. The FAFSA4caster and the College Board's EFC Calculator can provide you an estimate of your EFC.
You can also get a good estimate of how much you're likely to pay for each college by using the Net Price Calculator which can be found on most college websites. However, the calculator only provides an estimate and parents should remember it is only one data point. "At one of the colleges, I asked [how some assets would be treated] and they wouldn't tell me," Kupfer recalls. "They said they look at it on a case-by-case basis."
The Net Price Calculator provides an estimate of the amount and kind of financial aid that your family could receive at that institution. It's a great idea to try out the Net Price Calculator for each potential school of interest—even several years before your child graduates high school. That estimated pricing information could help you narrow down the final set of target schools where you decide to apply.
The private midwestern liberal arts college that Ben ended up attending offered him $45,000 more over 4 years than the next closest school. "It wasn't his first choice when the acceptance letters arrived, but it became his first choice because of the offer," Kupfer says. "The aid package did influence his decision to attend."
If Ben had been adamant about attending the other schools, Kupfer and Sirulnik were prepared to make appeals for more financial aid, including sharing details on the more generous aid package from certain schools with those schools with less generous packages. However, they made it clear that if he was unable to secure more aid, the price difference would be his responsibility to shoulder.
5 things to ask a financial aid officer
Make sure you are aware of the filing deadlines for the different forms you need. "A missed deadline could mean less financial aid," says Tom Graf, Executive Director of MEFA . "Students and parents should use a spreadsheet that keeps track of the various required applications and deadlines."
2. Is there more aid available?
If your financial aid package isn't quite what you'd hoped for, there's no harm in asking for more. Point out any extenuating circumstances that the school may not be aware of, such as a job loss or an illness.
3. Is that the sticker price or the real price?
The price that colleges quote isn't what most families pay. According to the College Board, the average student pays about 42% of the sticker price of tuition and fees at a public college and 46% at a private one.2 "Therefore, most families that are eligible for financial aid may not need to save the fully loaded prices for college," says Fidelity's Keith Bernhardt. Net Price Calculators can give you a good idea of what you may need to cover.
4. How much debt will my child incur?
It can sometimes be difficult to parse out the difference between student loans and straight-up financial aid when you receive your award letter. The terminology used can make it confusing. But with the average college debt load being over $37,000,3 it pays to know the difference. Don't shy away from asking.
5. Can I expect a similar package all 4 years?
Most colleges try to give you a reasonable expectation that the aid package you receive the first year will continue throughout college unless there's a drastic change to your income or financial situation. Confirm what you can expect all 4 years, and whether any of the aid is contingent on maintaining a certain grade point average.
Tip: A thoughtful letter to the financial aid office with a financial plan provided by the family and a request for a modest amount of additional funds will typically be considered carefully by many schools.
Refusing to take no for an answer can pay off, says Bernhardt. "Giving a call to the financial aid office never hurts," he says. "You can always send additional documentation. It's not a totally computerized process. There's a human element to it too."
Remember, too, that a financial aid award is only good for that year.
"However, many schools provide students with a consistent amount of financial aid each year, provided family financial and household circumstances do not change," explains Tom Graf, Executive Director of the Massachusetts Educational Financing Authority (MEFA). Nonetheless, Graf encourages "families to talk with the financial aid office to gain an understanding of what will be available in the future."
Tip: Find out the financial aid officer assigned to your student's file and then establish an email or telephone relationship directly with that person.
3. Be aware of key filing deadlines
A financial aid application is a snapshot in time. If your income is unusually high one year, perhaps as a result of selling a business or a receiving a large bonus, it could result in a higher Expected Family Contribution, which will likely hurt your chances for aid. It's helpful to reach out to the financial aid office if you have fluctuations in your income from year to year.
The FAFSA and the PROFILE ask for income information from 2 years prior. So, for example, for a student applying for 2017–18 academic year financial aid, the FAFSA asks for family income going back to 2015. If a family had much higher income in 2015 than in 2016, it would behoove the family to let the financial aid office know. Some schools can take that income change into consideration when calculating how much financial aid to offer.
Because the financial aid applications use income from 2 years prior, families can implement a strategy for grandparent-owned 529 accounts. 529s owned by grandparents don't count as either a student or a parent asset. However, distributions from these accounts are considered student income, which could reduce financial aid awards.
"A withdrawal from a non-parental 529, such as a grandparent 529, can really impact your financial aid if you are not careful," says Bernhardt. "Depending on the size of the withdrawal, part of it could be counted in the Expected Family Contribution for a subsequent year."
To avoid impacting a student's eligibility for financial aid, grandparents should wait to make distributions from 529s until the spring of the student's sophomore year, which is right after the last tax year that will show up on the student's last undergraduate FAFSA. This assumes the student finishes college within 4 years. You'll need to wait until the following spring to employ this strategy if your child will take 5 years to graduate.
Tip: Stay organized and make sure to meet all application deadlines. It's extremely important to submit financial aid applications on time. A spreadsheet can help you keep track of all filing dates and documentation needed. If you are about to receive a bonus at work or plan to sell a business, consider how those actions might artificially inflate your average yearly income and affect future financial aid eligibility.
Prior to the college application process, Kupfer and Sirulnik thought that getting into a college would be the biggest hurdle they faced with a high school senior. Now that they've gone through the process, they realize that the financial aid process was just as challenging.
"Thinking back on it, I'm not sure we would have done anything differently; I just wish I had been more aware of what was involved," Kupfer says.