College Financial Aid: Understanding the System
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What are the high-level stakes of the college financial aid process?
This is Your Money Matters from The Wall Street Journal. Welcome to Your Money Matters. I'm J.R. Whalen in New York. For many U.S. families, the college application process is stressful. Selecting the right range of schools is important, but a student's future can hinge on a family's ability to navigate the financial aid landscape. Wall Street Journal contributor Cheryl Winokur Monk joins us to lay out a few key tips on for understanding terminology, comparing financial aid packages, and knowing how to accept or decline all or part of a package. So Cheryl, College Decision Day is May 1st, and that's going to sneak up on families pretty quickly. You point out in your story in the Wall Street Journal the importance of students and families doing their homework and understanding key terms, especially there's a lot of alphabet soup out there.
Yes, there is, JR. I did some research looking at various letters, the acceptance letters that families receive, and they're all over the board. Some of them are just so hard to read. It would be so much easier if there were one standard that everybody had, but that just doesn't exist nowadays, or at least it doesn't exist yet. It may at some point. Students and families really need to be familiar with the basic financial lingo. One term is cost of attendance. which is an estimate of what the school will cost. But not all schools include the same things in this cost of attendance, so it's really important to know what you're looking at. Another term that people might come across is EFC, expected family contribution.
It's a figure that's calculated using the financial information families provide in what's called the FAFSA, the Free Application for Financial Student Aid, which is the long way of saying it. And some families think that this EFC is going to be what they're actually going to pay, but it really could be more or less, and in some cases significantly so. It just, it really depends. And again, that's why you need to understand the terms that you're looking at.
Okay, and a lot of this is spelled out in your story in the Wall Street Journal. And, you know, not all financial aid packages are the same. It's important for recipients to understand what percentage of aid is, for example, a loan and what is a gift. So that means some of that money might not have to be paid back.
That's correct. If you get a scholarship or a grant, you're not expected to pay that back. But a loan, you do need to pay back. And the loan terms can be very different depending on the kind of loan. You really want to look, just because you have what looks like a very large package, If it's mostly loans, it might not be as good as a different school's package. Students need to take care when they look at the price of a school or the cost of a school. A more expensive school could actually end up being less expensive if the school offers a better package. especially if there's more grants and scholarship money involved.
And there's another category of aid available, and that has to do with work studies, a student being able to work on campus. And that's another category that families really do need to be aware of.
Students really have to think long and hard about whether they'll be able to fulfill the duties of the job. Freshmen especially want to consider this because when they're going into a new situation, there's a lot of factors. It may be a new place they're living. It's a whole new life or way of life. And then that can play into whether a student can handle the job responsibilities.
All right. We're speaking with Cheryl Winokur-Monk via Skype, and you're listening to your Money Matters from The Wall Street Journal. Welcome back, everybody. So Cheryl, just to make things nice and confusing, many schools offer financial aid packages that look very different from each other, and that can result in errors and misunderstandings. The College Board actually has some tools that can help families and students connect the dots between plans.
Yes, you can go do it right online, and you can plug in the name of the school and all the different options that they give you, and you can kind of sink it in apples-to-apples comparison over what the schools are offering.
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