No matter how you cut it, the cost of college these days is pretty crushing.
How can parents and families afford college (potentially for multiple kids) without ravaging their retirement savings?
This week, I invited my friend Ann Garcia, aka the “College Financial Lady,” back to the podcast to explain the intricacies of how college financial aid works. She shares insights and wisdom on how to plan for the cost of college, the different types of aid available, and strategies for maximizing financial aid.
- A big picture framework thinking about college financial aid
- The overall financial aid process, timeline, and key dates
- The role each type of aid (need-based, merit, government, and college aid) plays in a family’s financial aid strategy
- How FAFSA works, the 4 buckets of money that must be reported, what money can be excluded
- What federal EFC is, how it’s calculated, and how it’s used
- What the CSS Profile is, key differences vs. FAFSA, and what money must be reported on it
- How CSS Profile schools calculate EFC and differences vs. FAFSA methodology
- When it might be useful to leverage a grandparent-funded 529 plan + tradeoffs
- Student loan options and key types of loans available to students
- Tips for negotiating / appealing your financial aid package
- Financial strategies related to the “prior-prior” year once January of sophomore year arrives
- Financial strategies in the years BEFORE your child applies for college financial aid to maximize aid
Has your child (or children) attended college with financial aid? What surprised you about the financial aid process? What do you wish you had known that you know now? What other questions do you have about financial aid? Let me know by leaving a comment when you’re done.
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Links mentioned in this episode:
- The College Financial Lady
- College Data
- Federal housing multiplier index for financial aid
- 529 college savings plans: rules, tax benefits, & qualified expenses (HYW026)
- College financial aid strategies to optimize your assets, income & EFC (HYW025)
- HYW private Facebook community
Read this episode as a post:
Andrew Chen 01:23
My guest today is Ann Garcia.
Ann is a Portland-based Certified Financial Planner who specializes in advising on college financial planning and financial aid.
She advises parents on how to navigate college funding and financial aid, and she writes frequently on these topics on her blog: thecollegefinanciallady.com.
I previously had Ann on the podcast to talk about 529 college savings plans.
And I invited her to chat with us today about tips and strategies for applying for college financial aid.
Ann, thanks so much for joining us! I’m looking forward to this discussion because I think it will provide a lot of actionable advice for both parents and students on college money matters!
Ann Garcia 01:57
My pleasure. I’m happy to be here.
Andrew Chen 01:59
I’d love to just get started for folks who didn’t happen to catch the other episode we did. Just give us a sense of how did you get into becoming an expert of college financial planning and financial aid?
Ann Garcia 02:12
As a financial adviser, I felt like this was a topic that really wasn’t being addressed in the financial advisory community, so I decided to learn as much about it as I could because I had clients who had questions and weren’t finding good sources for answers.
If you think of it from an adviser perspective, this is, for many families, the second biggest expense that they’re saving for besides retirement, so to say that we weren’t going to help them on that just seemed like poor client service, to say the minimum.
And then at the same time, I have two children who are just about to start their second year in college. When I started doing this, they were younger and I was dealing with these same questions myself, so I had both a professional and a personal interest in learning more.
Andrew Chen 02:59
Financial aid can be overwhelming, obviously.
There’s need-based aid. There’s merit aid. There’s aid from federal and state government, direct aid from colleges, scholarships from private organizations.
There’s just a lot of these different things that parents will need to be knowledgeable about to do this effectively.
Can you help our listeners understand the big picture framework for how to think about college financial aid and all these various sources of aid and the role that each of these types of aid should play in a family’s financial aid strategy? Where they’ll get the most bang for buck, that sort of thing.
Ann Garcia 03:33
That’s a great way of starting it. Financial aid is a big puzzle with a lot of pieces to it.
Taking a step back, I would say that financial aid is also just one piece of the whole college affordability puzzle.
Lots of people tend to take the FAFSA and the financial aid process as their starting point, assuming that if they can get a good EFC on their FAFSA, that that’s what schools are going to cost them.
I like to suggest an alternative. Your starting point should be “What can we afford to spend on college?”
Most families pay for college out of a combination of savings, cash flow, loans, and scholarships.
You need to use that “What can we afford?” as the starting point for your decisions. Use that rather than expectations about financial aid.
As I’ve told my own kids, you can use financial aid to the extent of “Here’s what we’re going to commit financially to college.”
“And if you can get scholarships to cover the rest and to make your first choice college’s cost come within that range, then we’ll go for it. And if not, then not.”
But really start with “Here’s what we can afford.”
As you mentioned, there are multiple buckets of financial aid. The two biggest ones are need-based aid and merit aid. Not all schools offer both.
So it’s really important when you’re looking at colleges to do your homework. Don’t just research how the FAFSA works or how the profile works, but research what does the school do with that information?
There are websites like College Data that show, by school, what percent of need is met, what kind of merit awards are available to students who don’t have financial need.
There’s lots of ways to look at it beyond just filling out the financial aid forms, which are important themselves as well.
Andrew Chen 05:41
You mentioned that it’s important to figure out what the colleges actually do with that data. Just very briefly, how can students tactically do that? How can they discover what colleges do with that data?
Ann Garcia 05:54
The best advice that I have for students and their families is any school that you’re interested in, do their net price calculator.
Every school is required to have a net price calculator on their website. You can enter all of your data, both financial and academic, if the school offers merit aid, and the school will take that information and give you an estimate of what your actual net costs will be.
The really good thing with net price calculators is they can only show grant aid that you are guaranteed to receive based on the input that you provided.
In your typical financial aid package, when it’s need-based aid, that package may include grants, but it almost always includes loans and work study as well. Those pieces are not included in a net price calculator.
To give you an example of the different results that can come up, for my daughter, when she was looking at colleges, we got results back from net price calculators that ranged from $14,000-$82,000 a year, with the same set of data.
Andrew Chen 07:07
That’s the fully all-in cost or the amount of aid you would have gotten?
Ann Garcia 07:13
That’s for net cost: $14,000 on the low end, $82,000 on the high end, and pretty much everything in between.
So net price calculators are a great tool for that.
Families should also look at their own budgets and figure out, “If we have this much in savings and we can afford this much out of pocket every year, and are we willing to borrow, that means our total dollars available on an annual basis are x.”
Andrew Chen 07:49
When you say that folks should really think about what they can afford, just for clarity, does that mean they should figure out what they can afford assuming no aid and then go from there? Is that how you advise folks to think about it?
Ann Garcia 08:05
Yes, absolutely. That should really be your starting point.
You can say, “Hey, son/daughter. As long as we’ve got $20,000 a year, you can take out a direct student loan and that will get you the cost of an in-state public school.”
“If you can get additional scholarships at your school of choice that would cover the difference between that, that’s fine. Absolutely, go for that.”
And net price calculators can be very helpful in figuring out the likelihood that you will get that aid.
There are some schools that do guaranteed merit aid if you have x GPA plus y test score equals z scholarship. And other schools have scholarships that are available to students who meet certain criteria.
For my daughter, one of the schools that she was interested in, she did exactly that exercise.
She said, “They have this scholarship that’s $20,000 a year that looks like I’m eligible for. I know that if I got that, I could attend that school.”
We were upfront about that, so when she got $12,000 instead of $20,000 on that scholarship, she knew that that one was not on her list.
Andrew Chen 09:30
Can you walk us through a high level of what the college financial aid process looks like in terms of what month does it “begin” and what are the steps involved throughout the calendar year?
And the key dates that parents and students should really be aware of when it comes to things like FAFSA, the CSS Profile, college specific aid.
We’ll get into the details of what each of those forms and types actually are later. But just to help orient folks, if you could comment on the overall big picture process, that would help frame the discussion.
Ann Garcia 10:01
On October 1, the FAFSA and the CSS Profile become available. Those are the two most common aid forms that families need to fill out.
You can fill those out at any time, and there are various deadlines for each of those.
Schools have their own deadlines. States, for state-based financial aid, have their own deadlines.
And then oftentimes there are aid programs that are available on a first come, first serve basis. And those will depend on every student’s own circumstances.
Your best bet is to look at your state’s financial aid website to see if there are first come, first serve programs you’re eligible for. If that is the case, you want to fill out the FAFSA as quickly as possible.
The deadline for the FAFSA every year is June 30.
The only reason that that June 30 date matters is if the only thing you’re really looking to do with your FAFSA is take out a federal student loan. Otherwise, schools all have earlier deadlines than that.
Those deadlines do not coincide with application deadlines, and they’re not standardized at all.
For example, here in Oregon, University of Oregon’s deadline is March 1 and Oregon State University’s deadline is February 28. You really have to look at it on a school by school basis.
The thing with the FAFSA is you’ll fill it out one time and then list the schools that you want your data sent to. So really it’s whatever your earliest deadline is, that’s what’s going to drive the dates for that.
It used to be that the FAFSA became available in January. The problem with that was that students will get acceptances without getting financial aid offers because they were still waiting for the data to come in.
The thing that’s nice about the current FAFSA is you can do all of your information at once because they’ve moved the income tax year back to the last filed tax return as of the date that the FAFSA comes out. So when you’re filling out the FAFSA this fall, it’s going to be using your 2019 income.
You can probably guess what the problem with that is in the current world. Many people’s income has changed quite a bit, so that’s going to create some extra legwork if that is your case.
But key date is October 1, the FAFSA is available. And then your situation will dictate what other deadlines apply.
Andrew Chen 12:47
Are there any other major milestones or deadlines that folks commonly should be aware of?
Ann Garcia 12:58
With respect to financial aid, not so much. The deadlines that are imposed, no.
But it does matter when you file the FAFSA because, for example, the amount of assets that you have to report is on the day that you file the FAFSA. So doing it before or after your mortgage or rent is paid can make a difference in what your expected family contribution is.
Andrew Chen 13:29
On FAFSA, if we could just drill down a little bit deeper, can you help us understand, how does FAFSA work?
What is the purpose? It may seem obvious for some, but maybe for others, an orientation is helpful.
And whether it needs to be filled out every year.
Ann Garcia 13:48
First of all, I think it’s helpful to understand what the acronym FAFSA is. It’s the Free Application for Federal Student Aid.
The best way to think of it is it’s a tool with two purposes.
Number one, it allows schools to evaluate all students’ financial strength on the same set of metrics.
And number two is it gives students access to federal student aid programs, including direct student loans, parent PLUS loans, and Cal Grants.
You do fill out the FAFSA every year for every college student in your family.
A lot of families think if you don’t get aid for the first year for the first student, you can skip it. But when you get multiple children in college, that can really change things. So I do encourage people to fill it out every year.
What the FAFSA does is calculate what’s called your expected family contribution. And they have a very specific formula that they can use to do it. I posted a link to it yesterday on my blog, thecollegefinanciallady.com.
The important thing to remember is that having a low expected family contribution is not a guarantee of aid. As we’ve said before, it’s up to the schools what they do with your expected family contribution.
Loans and work study can be part of a financial aid package. Or many schools don’t meet all financial needs.
Something I would also like to point out, because a lot of families say, “We’re not going to get any financial aid. Why should we fill out the FAFSA?”
I especially encourage those families to fill out the FAFSA. The reason for that is (and I think this is going to be particularly pertinent in the coming years as school budgets are under a lot of strain) having students who can pay full tuition is going to be a very desirable thing for colleges.
If that’s you, if you can afford full tuition, that could give your student a leg up in the admissions process because, as we’ve said before, very few schools are “need-blind” and very few schools meet 100% of need, and very many schools are feeling a lot of pressure on their budgets right now.
Andrew Chen 16:03
Got it. You talked about the expected family contribution, the EFC.
Can you say a little bit more about what is included in the calculation of EFC, how it’s used, and who exactly is using your FAFSA data and EFC number to make these financial aid decisions? Who is this mysterious person?
Ann Garcia 16:25
It goes into the black hole. No.
I think an easier way to think of it is more is included than excluded. Chances are if you have it, it’s going to show up on your FAFSA somewhere.
But really, a simple way to think of it is there’s four buckets in the FAFSA: parent income, parent assets, student income, student assets. Every dollar you have that could go to pay for college is going to end up in one of those buckets.
The biggest piece for most families is parent income. And the FAFSA uses income from the most recent tax return that’s available by the time the FAFSA is released.
For this year, for 2020, when you’re filling out the FAFSA for the 2021 school year, it’s using 2019’s data. This is what’s referred to as prior-prior year.
And it’s confusing to a lot of people who have heard prior-prior year and they’re in 2020 using 2019’s data, but that’s how it is.
Parent income is assessed in brackets, just like your taxes. There’s a portion that’s excluded, and then different portions are assessed at different rates.
The highest rate of assessment, which kicks in at available income of about $33,000, is 47%. That means that every incremental dollar of income is going to increase your expected family contribution by 47 cents.
A lot of people go, “Oh, well, I’ll just put a lot of money into my 401(k) and bring my income down.”
But unfortunately, in addition to taxable income, you have to add back untaxed income. Pre-tax retirement contributions, anything like child support that you’re receiving all get added back to your income for purposes of the formula.
The FAFSA has a nominal income protection allowance. It’s basically the federal poverty level for a family of your size. And then you subtract actual federal taxes paid and an allowance for state taxes.
One of the things that that means is, for example, if you do Roth contributions into your IRA or 401(k), in FAFSA years, that can be really advantageous because it actually increases your tax bill in that year. You subtract those actual taxes paid from your income.
Likewise, reducing itemized deductions like charitable contributions or shifting mortgage interests out of a FAFSA year can lower your expected family contribution if you’re an itemizer.
So that’s parent income. The next piece of student income.
Generally, this is a lesser factor since dependent students get an income protection allowance of almost $7000 on this year’s FAFSA, and not very many high school students make $7000 a year.
However, students do report as income any distribution they receive from a non parent-owned 529 or any contribution to college costs from anyone other than their custodial parent.
This really comes into play for kids whose parents are divorced. The custodial parent fills out the FAFSA. If the non-custodial parent pays for college, that is reported as student income.
So it’s just an important planning piece if you fall into that situation or if you’re a student with high need who has a grandparent who is helping to pay.
Because of the prior-prior year setup of the FAFSA, really that means you want to push that type of income or contribution to your college out to January or later of your sophomore year in college.
The next bucket is parent assets. This is the one that gets the most attention from parents, and it’s the least impactful.
The way parent assets works is first you get an asset protection allowance. If you’re a married parent, that’s going to be typically somewhere between $6000 and $8000. It depends on the age of the oldest parent.
Single parents, unfortunately, get less than half of that.
Then any assets that you have above that asset protection allowance level are assessed at 5.64% of their actual value.
That means, for example, if you’re a parent with a $6500 asset protection allowance and $10,000 in assets, that $10,000 is only going to increase your EFC by $197.
Retirement assets don’t count. But everything in your checking account, your savings account, any non-retirement investment accounts, all of your 529s.
A family with multiple children would report all of the 529 accounts on the day that you filed.
So your best bet is to pick a date that’s after you’ve paid your mortgage, rent, credit card bill to file the FAFSA.
Student assets are the final bucket. And those penalize you far more in the formula than parent assets do.
Students don’t get any kind of an asset protection allowance. It’s understood that they have no other obligations than their education.
And their assets are assessed at 20% of their value. That means $1000 in a student’s bank account is going to increase their EFC by $200, in the same way that $1000 in the parent’s account would do.
Students who are going to be contributing to their own college costs from their savings can do things like put that money into their 529 where it suddenly becomes a parent asset.
And oftentimes they’ll get a state tax benefit for doing so. In Oregon, we have a refundable tax credit for 529 contributions. Students who put their own money into the Oregon College Savings Plan can actually get a tax credit for doing so.
What tends to hurt students the most in the FAFSA formula are UTMA accounts. There are a lot of students who still have these from back in the days when 529s didn’t have the same advantages that they do now.
Families can transfer UTMAs into custodial 529 accounts. When they do that, that then counts as a parent asset.
Unfortunately, you have to sell the assets in the UTMA account to realize the capital gain, to realize any income there and do it. So it’s something that you want to do. If you’re a few years out from college, now is a great time to move your UTMA assets.
Andrew Chen 23:10
What is UTMA?
Ann Garcia 23:12
UTMA is a custodial account for a minor. It’s the Uniform Transfer to Minors Act.
They used to be very popular before 529s had all the tax benefits that they do now.
Andrew Chen 23:28
Ann Garcia 23:29
That was a really weedy explanation, I know. But think of it this way: parent income, parent assets, student income, student assets. Really, it’s all about the parent income, though.
Andrew Chen 23:40
Are there any other assets or income that parents and students should be aware of that might be excludable? I’m thinking here if you have a bunch of life insurance or stuff like that.
Ann Garcia 23:53
Yeah. Cash value life insurance is excluded in the FAFSA. It’s included in the profile.
The thing about cash value life insurance, because there’s a lot of people out there who pitch this idea to parents that they should cash out their 529 and put it in a life insurance policy. If you do that, first of all, you no longer have a 529 that’s eligible to pay for college.
Secondly, you’re going to pay taxes and penalties on all the growth that you’ve taken in the account.
And thirdly, unless you have millions of dollars in your 529, most families’ 529 balances are not sufficient to really tip the scales on financial aid because they’re assessed at 5.64%. That means every $1000 in your 529 is only going to increase your expected family contribution by $56.
Andrew Chen 24:52
You mentioned a couple of times the prior-prior year. Is that the same thing as the base year for FAFSA?
Is there a significance beyond just the fact that your income and assets may be different in the prior-prior year versus the current year?
Ann Garcia 25:10
The base year is your first FAFSA year. And you can talk about base year a couple of ways.
One is that’s the first FAFSA that you filed, so whatever college you choose is going to anticipate that your life progresses very linearly from there and that things won’t change dramatically.
Within that base year, of course, there’s the base income year. If your 2021 FAFSA that you’re filling out in the fall of 2020 is based on your 2019 income, 2019 is your base year income. 2021 is your base year for FAFSA.
So really the thing that the base year does is it sets the tone with your school’s financial aid office.
Andrew Chen 26:03
Great. So that’s a little bit about FAFSA.
I would love to pivot over to the CSS Profile. What is the College Scholarship Service Profile?
Help us understand, what are key differences between it versus FAFSA? Does it need to be filled out every year, etc.?
Ann Garcia 26:22
The profile is just a different financial aid form that is used primarily by private schools. Of course, if I said it’s all private schools, somebody would find out that University of Michigan, for example, does use the profile.
There’s a couple of key differences. One is that the profile considers a broader range of assets.
That insurance policy that we mentioned, somebody cashing out their 529 and lying, that would actually be counted in the profile. Super not helpful.
The really big one for most families is that the profile considers home equity, although a number of schools have opted out of it or limited how it can be counted.
With the profile, you’re also required to report all 529 accounts for which you are the beneficiary. So if your grandparents have a 529 account for you, you’re going to have to report it on the profile.
They also look at a wider range of small businesses. On the FAFSA, if you employ less than 100 people in your small business, you don’t have to report it.
On the profile, you report any small business and you typically have to include your business tax returns in the IRS data that you provide.
Andrew Chen 27:41
When you talk about small businesses, are you reporting business revenue or business assets or some kind of valuation of the business? Equity interest?
Ann Garcia 27:51
Yeah. It’s a valuation of the business. Obviously, for most small businesses, this is a highly subjective number.
I know when I did it for my business, I took the money in my checking account, subtracted all my liabilities. I did not include any goodwill, any marketing value of my company.
And then I discounted it based on the fact that if I was trying to sell it to come up with money for college, I would need to take whatever offer came.
So there is a lot of gray area there, although with the FAFSA, they will take your personal tax return data from the IRS. With the profile, they will request your business tax return as well.
One of the things about home equity, if people are like, “Oh my gosh. Are they going to look on Zillow and find out what my house is worth?”
And I know this is very frightening, particularly for people in places like California, New York, Seattle.
No. They use a system called a federal housing multiplier index. You can Google that and see how it works.
But basically, they ask you, “When did you buy your house? What did you pay for it?” and then they use that number to calculate your house’s current value.
So that’s one difference is those assets.
The profile also includes a mandatory student contribution from income. They’re assuming that the student has a summer job, and that typically can range from $3000-$6000, which are good-sized numbers.
Another big difference, if your parents are divorced, the FAFSA only requires the custodial parent to report. The profile requires both parents to report it.
The profile also has slightly different assessments of income than assets. Parents are given a wider range of allowances against their assets: things like emergency savings, private school tuition, if there are siblings who are still in K12.
And assets are assessed slightly lower: 5% versus 5.6%.
All that being said, your EFC from the profile will be higher than from the FAFSA.
The other thing about the profile, the FAFSA has one set formula, one set of data they collect, and one means of assessing it. The profile offers institutions a lot of leeway.
For example, they can include their own set of questions. And the profile comes up with a suite of questions that they can ask, and then they can add whatever else they want.
On our college applications, we have questions about our family cars, how students got their summer job. Did we actually spend money on them? It’s like, “How much gas did you use driving to Baskin-Robbins every day?”
Whether the parents are receiving any kind of financial gifts from outside sources. All kinds of stuff like that.
The other thing is with the calculation itself. The FAFSA’s calculation is called federal methodology. The profile’s calculation is referred to as institutional methodology.
But it’s a little bit misleading to call it a methodology because the institutions have a lot of leeway in terms of how they interpret the data.
Some cap home equity in a multiple of parent income. Some fully exclude home equity.
Some factor in regional differences in cost of living. Someone who makes $100,000 in California has a very different lifestyle from someone who makes $100,000 in Kansas.
Really the primary requirement is that the institution’s methodology is applied consistently across all students.
There’s also a small group of profile schools who use what’s called consensus methodology. It’s the Ivy Leagues and a few others who participate in this. It’s called the 568 group.
Their goal was just to standardize financial aid calculations between themselves so that students were choosing schools based on which school was the best fit, not that the schools got into a bidding war over financial aid.
Some of the key features of consensus methodology are that home equity is capped at 1.2 times parent income, and then student assets are assessed the same as parent assets.
There’s another really big difference between the FAFSA and the profile, and that’s the first letter.
FAFSA is F. That stands for free.
The first letter of profile is P. With the profile, you pay $25 for the first one and then $16 for each additional school.
So families who are considering applying to a lot of private schools should include a profile budget in their application process.
Both the FAFSA and the profile have estimators. The FAFSA has the FAFSA forecaster, and the profile has what’s called an EFC estimator. You can find that on the College Board’s website.
Given the differences in questions and calculations from school to school, though, you’re really better off using individual schools’ net price calculators to get a more accurate estimate of your cost than using the EFC estimator.
As to whether you file it every year or not, if you’re applying to private colleges, you are very likely to have to fill out the profile your first year.
However, going forward, it really depends on whether you’re at a school that requires the profile to be filed year after year.
My son only applied to schools that were FAFSA schools. My daughter applied to some that were profile and some that were FAFSA.
She is attending a private school, but it’s a private school that takes the FAFSA. We did one profile and that was it.
The profile is thought of as the private school version of the FAFSA, but there’s really only about 200 schools that use it. So it’s entirely possible that you will never come across it in your college search.
Andrew Chen 34:28
If I’m synthesizing correctly, it sounds like the FAFSA is uniform in what you report and how it cranks out what your EFC is. And FAFSA, you file every year.
The CSS Profile form is uniform in what data it collects, but thereafter, it differs by school. Some schools will require to be filed every year. Others won’t.
Some schools will use certain parts of the data that’s reported. Others won’t.
And different schools may have different ways of calculating your profile EFC.
Is that all accurate?
Ann Garcia 35:10
With the profile, if you’re on a profile school and you get financial aid, you will need to continue filing the profile every year.
The reason why we don’t have to file the profile is that my daughter’s school is not a profile school. It’s not one of those 200 schools.
So it’s worth looking at because there are big private schools that don’t take the profile. The University of Chicago, for example.
If you’re at a profile school, you will file it out every year.
The data that’s collected is not consistent from school to school. There is a body of data that’s consistent, and then schools can add these supplemental questions about cars, vacations, who knows what else.
“Is anyone else saving for college on your behalf?” is another good one.
And then again, they can apply their own methodology as long as they’re using that information consistently.
One thing to remember is that even if you’re at a profile school, you will still have to fill out the FAFSA. You’ll be doing both if you’re at a school that takes the profile.
The reason for that is the FAFSA is required by the Department of Education to disperse federal financial aid.
Typically, aid packages include loans, work study, things like that. Families, if they’re not part of the aid package, may still want access to federal student loans, and those can only come from the FAFSA.
Andrew Chen 36:43
I see. Will profile schools typically wait to see what the FAFSA loan amount is before then they decide what to add on top so they save more on their side?
Ann Garcia 36:57
No. There’s actually a cap on the amount of direct student loans that a person can take out.
The federal cap on direct student loans is $5500 your first year, $6500 your second year, and then $7500 the last two years in college. That’s the amount of student loan that can be offered.
There’s also a portion of that that can be subsidized on a need basis. All that means is interest doesn’t accrue while the student is in college.
Schools have their own what’s called financial aid packaging rules.
Some schools say, “We meet all need with grants.”
Other schools say, “The first piece of our package is a student loan. The second piece is work study. And if need remains, then we have scholarships to meet it.”
And others say, “We don’t meet all of aid. Everyone can take out a loan. You might also get work study, and we have a small pool of grants available to us.”
And that’s where the net price calculators are really helpful because they will show you what grant aids you’re eligible for.
The challenge for a lot of students when a student loan and work study are included in their aid package is that doesn’t leave them a lot of room to come up with the money that their expected family contribution said that they can afford.
A student, for example, who has very high need and gets all of their tuition covered, but $5500 of that is covered by a federal student loan and $3000 of that is covered by work study, because they don’t have savings and don’t have a lot of family cash flow to pay for housing, they still need to come up with money for housing.
They’ve already maxed out their federal student loan and their work study, and their summer job is probably not going to earn them enough money to pay for room and board.
Andrew Chen 39:06
Do CSS Profile schools even use the FAFSA EFC for anything, given that they already have their own version? If so, what do they use it for?
Ann Garcia 39:16
I don’t think they do. It’s just a different means of calculating it.
There is one exception. The thing that they can use the FAFSA EFC for and that they have to use the FAFSA EFC for is Cal Grants. Your eligibility for Cal Grants is strictly based on the FAFSA, not the profile.
Any student that’s eligible for a Cal Grant, that’s going to come from the FAFSA, not the profile.
Andrew Chen 39:51
I’m trying to think of a hypothetical parent-student applicant, and I just want to run this scenario by you and get your thoughts.
It seems like, based on what we’ve learned here, that under the FAFSA form, pardon for a little bit of the cynicism here, but if the parents divorce and one of them is a stay-at-home parent and becomes the custodial parent…
And the parents somehow coordinate to pack their retirement accounts as much as possible to pay off their entire home, so that it’s all home equity, to buy a bunch of cash value life insurance. (This is very hypothetical.)
This would actually get them a lot of traction on the FAFSA side because all of those things are essentially excluded and you can coordinate on who the custodial parent is based on lower income, etc. But the CSS Profile form will essentially unwind all of that.
Is that fair to say?
Ann Garcia 40:53
That is fair to say.
There are a lot of planning opportunities for students whose parents are divorced using the FAFSA because the FAFSA only asks for the custodial parent.
Things that families need to make sure they understand is that assumes that the two divorced parents are on good enough working terms to actually work together on all of this.
And I do not want to, in any way, discount that there are some bigger impacts on a student’s life of having their parents divorced than just eligibility for financial aid. But there are often students of divorced parents who do very well in the financial aid formulas despite having one very high-earning parent.
Things to remember, though, are in order for the lower-earning parent to claim them as the custodial parent, they have to make a reasonable case that they are the custodial parent.
In FAFSA terms, which is different from divorce terms and different from tax terms (so it does not matter what the divorce decree states or what’s on the tax return), the custodial parent for the FAFSA is the one that the student spent the most time with in the year leading up to the FAFSA.
Now, many divorced parents have equal custody, but there are 365 days in a year, so they had to have spent one more night in the custody of one parent.
Nobody is going to go in and audit your sleep logs of where your student was, but if your student attended high school in California and the lower-earning parent lives in Nevada, it would be very difficult to make the case that that was in fact the custodial parent.
The other thing that parents look at is that all this untaxed income, if you have untaxed child support, untaxed alimony, all of that also gets reported into the FAFSA. So that can often have a really equalizing effect on the family’s financial or on the lower-earning parent’s financial state.
And then too comes the issue of if they’re applying to profile schools as well, then all of that is going to be undone.
That’s why I tell people that the really important activity is figuring out what you can afford with or without financial aid and then doing net price calculators to make sure that you’re applying to schools that if you’re accepted, you can accept that acceptance.
Andrew Chen 43:42
I wanted to touch a little bit about 529 plans. I know we spoke about this in our other interview, which I’ll link to also in the show notes.
But you alluded to this earlier. One strategy that some parents use is where grandparents will open and fund the 529 for the grandkids.
That keeps the funds from being listed as an asset on FAFSA but the distributions then get counted as income to the students, which I think gets student income at that 50% rate.
All in all, is the grandparent 529 strategy, in your view, a good one? Or when might it be a good one?
Ann Garcia 44:28
If we’re looking at this from the perspective of strategies, the really tough thing about college financial aid strategies is at the time that you need to implement it, you don’t know what school you’re going to be attending and you don’t know whether you’re going to receive need-based aid or merit aid.
So it’s hard to say if, as a financial aid strategy, this is a good way to go.
However, having more money available for college will give you more choices. It might reduce your financial aid, but it will open up a range of schools that weren’t available to you without that money.
So if grandparents have the means to help with college funding and college planning, then opening a 529 is a great thing to do.
There are some caveats. As we said, any of those distributions get reported as student income.
Ideally, if the student is receiving need-based aid and that 529 wasn’t a reportable asset on their FAFSA, then they ideally will wait until January of their sophomore year in college to start taking distributions from that.
So spend down parent assets first, and then transition over to the grandparent assets.
One of the nice things with the recent change in the tax law is that you can also use a 529 to pay off up to $10,000 of student loans.
A student who was being really strategic about using grandparent 529s could take out student loans for the first year and a half of college with the intention of using some of that 529 money to pay those off upon graduation.
529s can have really good benefits for grandparents as well.
There’s tax deductions in many states for the contributions. They do get the tax-free growth.
And then those 529 assets are also removed from their estate for anyone who might be subject to estate tax, which in some states can be a big deal.
And like I said before, the CSS asks you to report all the 529s for which the student is the beneficiary.
Now, there is a planning opportunity to name someone else as the beneficiary of these accounts such that they don’t have to be reported.
If you really want to get into strategies, let’s say you’re in a family with six kids and Susie is going to graduate from college before Johnny ever starts. Johnny could be named as the beneficiary on Susie’s account. And when she graduates, then she can be named the beneficiary on Johnny’s accounts.
Andrew Chen 47:17
But can the distributions actually then go to the other child?
Ann Garcia 47:23
No. At the point that the distributions come out, Susie needs to be the beneficiary of her account.
This can also get complicated for people who want to use age-based portfolios because a lot of the states don’t give you a choice of which age-based portfolio you’re choosing. They only allow you to be in the age-based one for the age of the beneficiary.
Oftentimes, there are things you can do, but they may cause you more headaches than they actually solve.
Andrew Chen 47:52
Given the prior-prior year reporting rule, as an aside, does the profile also use the prior-prior rule?
Ann Garcia 48:02
Yeah. A few years ago, the FAFSA changed from being available in January and using just one year prior tax return. When they switched, the profile went along with that.
Andrew Chen 48:17
Got it. Assuming the student graduates in four years, it sounds like January the sophomore year is a turning point when some strategies may shift because any distributions or spending or income that occurs after that point won’t make it in the prior-prior year before the student graduates. I think that’s the gist.
Ann Garcia 48:36
That is correct.
Andrew Chen 48:37
And you just mentioned that maybe there’s some planning opportunities for having grandparent 529 money come out starting after January of the sophomore year.
What other types of shifts or planning opportunities might there be for parents to be aware of for how their behavior might change before versus after January of the sophomore year? Again, assuming a four-year graduation.
Ann Garcia 49:01
Again, because income is the biggest driver of all of this, a lot of it just depends on when you’re recognizing income.
If you have a W2 job, you just don’t have a lot of flexibility about when you recognize income.
Your employer pays you on the day they pay you. If you ask them to hold your last paycheck of the year until the following week, they’re probably going to just laugh at you. So there is definitely a limit to what you can do there.
But things like if you have taxable investments, FAFSA income years are not the years to sell them because they’re an asset until you sell them and create income for yourself.
Likewise, retirement savings. Doing Roth contributions in your FAFSA years and then switching to pre-tax contributions in your non-FAFSA years.
There’s a little bit of nuance to that too, which is that for families who are eligible for the “American opportunity tax credit,” which is AGI below $160,000, that is typically more beneficial than the EFC savings that you would get from doing a Roth contribution.
So maxing out your pre-tax savings in your college years to be able to claim the “American opportunity tax credit” can be a better strategy than any of the machinations that you might make with your expected family contribution.
Andrew Chen 50:37
Turning to loans for a moment, can you talk about some of the major student loan options that are available to students, ranging from federal to private, subsidized to unsubsidized?
First of all, what do all those terms mean? And what are the major types of loans available?
How should parents and students really be thinking about their loan options, if there are any best practices you can share?
Ann Garcia 51:01
The two big buckets, as you mentioned, are federal loans and private loans. And then there are people who use things like home equity loans, credit cards.
I’m not going to go into that because that’s not the super awesome way to pay for college.
Really, federal loans should be your starting point, and ideally your ending point as well. And there are a lot of reasons for that.
Taking a step back and looking at student loans big picture, on an annual basis, about a third of students and a fifth of parents borrow through the federal loan programs to pay for college.
About two-thirds of students come out of college owing loans. All that means is that not everyone borrows every year.
Typically, borrowing covers about 20% of the costs of college. Even if you think you might not be borrowing, I think it’s worth getting informed about loan programs.
There’s four types of federal loans.
There’s direct subsidized loans for undergraduates. That is the federal direct student loan.
The subsidy refers to the treatment of interest during the school year. No interest accrues on the loan while the student remains enrolled at least half the time and for the six-month grace period following graduation.
If you had a $3500 subsidized direct student loan your freshman year, your loan balance, when it went into repayment, would be $3500. If it were unsubsidized, you would have four and a half years’ worth of interest accrued.
There’s a cap on the subsidized amount every year: $3500 the first year, $4500 the second year, and $5500 for the third year and beyond.
In addition to the direct subsidized loan, there’s the direct unsubsidized loan. The subsidy portion is need-based. Everyone is available for the unsubsidized loans.
The big difference again is that interest accrues from the day the loan is disbursed.
Those loan limits ($5500 the first year, $6500 the second year, and $7500 the subsequent years), if you have the subsidized loan, that amount is subtracted. So your total annual loan, subsidized and unsubsidized, would be those limits.
If your parent is unable to qualify for a parent PLUS loan, then there’s a slightly higher amount that you can borrow under the direct student loan program.
So those are student loans.
There are also parent loans, and those are called parent PLUS loans or direct PLUS loans. Those are for parents or for graduate students.
The only cap on the parent PLUS loan borrowing amount is the total cost of attendance minus financial aid received.
If you attended a $75,000-a-year college with no financial aid, your parents could borrow $75,000 each year to pay for your college, even though you can only borrow $5500.
Grad students, there’s a cap. It’s a little over $20,000 a year that grad students can borrow under the federal programs.
And there’s a third type of federal loan that’s called a consolidation loan. Basically, consolidation loans are used for two purposes.
One is to get all of your loans consolidated into a single loan. The other is if you have loans that don’t qualify for income-based repayments, you can consolidate them to make them that way.
For the coming school year, the FAFSA that’s being filled out this fall of 2020, the direct subsidized and unsubsidized student loans always have the best interest rates, but this year, the rate is 2.75%.
That’s compared with 5.3% for parent PLUS loans. It’s 4% something for the grad PLUS loans.
There is no means of borrowing that’s going to be cheaper than the direct student loan, so we really encourage people to start borrowing no matter who is doing the borrowing.
Parents who are intending to take out a loan because they don’t want their student to end up with debt should have their student take out the loan and the parent assume responsibility for paying it.
There’s a lot of benefits to the federal student loan programs. That’s why we recommend that people really stay within those limits.
The interest rates are fixed for the life of the loan. Oftentimes, private loans are quoted with low interest rates. But those are teaser rates and they’re variable rates, so chances are that over the life of the loan, they’re going to go up.
The other really great thing with such federal student loans is no co-signers required. For a student to take out a private student loan, typically their parent is going to have to co-sign and that parent becomes equally responsible for paying off that loan.
Student loans are automatically deferred while the student is in school. Typically, private loans are as well. It’s assumed that the reason you’re borrowing is that you don’t have the money to pay for it.
The federal loan programs have a lot of options for financial hardship. Right now, the CARES Act has all student loan payments suspended with no interest accruing.
But once you graduate from college, within the federal loan program, you can apply for deferral or forbearance when you’re experiencing hardship and if you’re in an income-based plan. Even making no payments will still have you making what’s called qualifying payments.
And then finally, to that point, only federal loans are eligible for income-driven repayment programs or for Public Service Loan Forgiveness for people who end up in qualifying jobs.
The other thing that’s really important is if you take out federal student loans, once you’ve graduated and your income has become stable and whatnot, if there’s a private option with a better interest rate, you could refinance federal loans into private loans.
Once you take out a private loan, you only have a private loan. There’s no way to refinance that back into the federal loan programs which would then make it eligible for all of these other things.
We really encourage families, if at all possible, to stay within the federal direct student loan borrowing. Your budget for college should be what you can pay from savings, what you can pay from cash flow, and what the federal direct student loan is.
A student who takes out the federal direct loan every year for all four years, the maximum amount, will owe something like $27,000 when they graduate. Monthly payments of about $350 for 10 years will pay that all off.
So that’s a reasonable investment to make in college because the average and low and high income rates for college graduates are more than $350 a month after tax more than even the highest average incomes for those without college degrees. So that amount of debt is a reasonable amount to take out.
When you get into the private loans, you’re typically layering it on top of federal loans. That’s where you get these massive loan payments.
Something else that’s really important to remember about borrowing for college is that it used to be that student loans could not be discharged in bankruptcy. That has changed and they may now be discharged, but it’s extremely difficult to actually make that happen.
Andrew Chen 59:07
Is that for both the federal and private, or just the federal?
Ann Garcia 59:11
It’s for both.
And think of it this way. This is a no collateral loan being made to a person with no credit history, on the assumption that use of the loan will make this into a person with an ability to repay it.
Because they can’t repossess your degree or anything like that for you not paying your student loans the way they could your home or your car if you defaulted on those. That’s why they’re very difficult to discharge in bankruptcy.
It’s unfortunate that that onus is put on a 17-year-old decision maker and not on someone with some reasonable facility with finances to say, “No. Actually, you shouldn’t come here because you’re going to have to borrow more than you can afford to repay when you get back.”
For student loans to be discharged in bankruptcy, they need to actually go through an additional lawsuit beyond the bankruptcy filing to demonstrate that the loans present an undue hardship. And it’s so difficult to prove this that you typically have to hire an attorney to do so.
And doing that will cause you to fail the test that they use to determine forgiveness, which is called the Brunner Test, which basically says that you can’t afford anything other than the barest of bare necessities.
Andrew Chen 1:00:42
That’s pretty funny.
Ann Garcia 1:00:44
Yeah. As a financial adviser, I regularly meet people who are just struggling under extraordinary burden of student debt.
This is the one major purchase you can make that no one is going to stop you from doing something really stupid.
It’s very difficult to qualify for a mortgage that’s more than you can afford. It’s very difficult to qualify for a car loan that’s more than you can afford.
And yet a 17-year-old says, “I want to spend $60,000 a year of borrowed money on college.” “Here you go.”
So really, for parents, this is often one of your biggest parenting challenges is putting some guardrails around what you pay for college. And there’s so many things that come into it.
One is seeing your aspirational child and wanting to reward their hard work by giving them the college of their choice. There are all the issues of “Have I as a parent not done enough that I can’t afford to provide all these choices for my child?”
I really encourage parents to think not of those Ivy colored buildings and the lazy rivers going through the dorm areas because you can’t use those right now anyway.
Think of your child’s adult self. Do you want them to be able to buy a home? Do you want them to be able to move out of your basement?
All those kinds of things that are unfortunately very negative outcomes of over-borrowing to pay for college.
Andrew Chen 1:02:32
This is a really interesting point, and I’m just curious to get your thoughts.
When you’re advising clients, if you have a parent whose child got into Yale, I know that makes a little bit of a contrived example because Yale is very generous with their aid, as are many of the Ivy League colleges because they’re so wealthy.
But if there’s some very elite university that the child got into, but for whatever reason, the configuration of their finances means that the family will really have to stretch or the student will really have to stretch, maybe uncomfortably stretch, in terms of borrowings to actually be able to attend.
Are there situations where you would say, “I know you got into Yale, but you still shouldn’t go”?
Because a Yale degree should have, in theory, a higher expected payback over a lifetime because of that brand equity, etc.
Ann Garcia 1:03:25
That’s a great question. And to your point, the more elite schools are the most generous schools. And part of that gets back to the key admissions formulas: acceptance and yield.
The way that they keep their acceptance rates low is they keep their yield high. Yield is the percentage of admitted students who accept admission.
And it’s at schools like what’s called the Ivy Plus schools, yield rates are typically in excess of 75%. That means that to fill a freshman class of 1500 people, they only have to accept maybe 2000.
Part of the way they keep those yield rates high is by making sure nobody says no, least of all for financial reasons. So I encourage students, regardless of their need, to apply to elite schools if they are qualified to get in.
That does not mean the student with a 3.0 GPA and the 1200 SAT. That’s not your guide.
But good students should not be deterred from applying to elite schools because of the sticker price because chances are if they get accepted, they will get a very generous financial aid package.
For example, my daughter is at University of Chicago. That was her second cheapest option besides University of Oregon that gave her a full tuition scholarship, because they don’t want people to say no.
But let’s get back to your actual question, which was whether there are circumstances where a student should stretch for that.
I would say the general guideline is don’t borrow more than the federal direct student loan program.
You might take that one step further and say the other rule of thumb that you hear is don’t borrow more than your expected first year’s income.
If there’s a little bit of stretch that gets you there and you feel like, for some reason, the school is going to have a vastly better outcome for your student than their cheaper choice, do that.
But a better way to bridge that gap is to try to save more before they get to that point and to manage their expectations so that they’re really looking at schools that are affordable for them.
Because chances are that school that costs $70,000, there’s another place with similar attributes that will cost you less. It’s just a matter of finding schools that value your student.
That being said, one of the biggest ways to overspend on college is to transfer. And the reason for that is, first of all, it’s likely that not all of your credits will transfer or classes you took towards your major at the first school won’t transfer as major credits at the second school.
But also, if you transfer as something other than an incoming freshman, there’s a far smaller pool of financial aid that’s typically available.
So if you have reasonable basis to think that your student will not be successful at the less expensive school, that might be a reasonable reason to stretch a little bit for a better school because it’s entirely possible that you will come out ahead in the long run if your student is able to attend and graduate in four years with their financial aid intact.
Andrew Chen 1:07:13
You mentioned transferring, there’s just a smaller pool of dollars. Is that just for the transfer year or all ensuing years? That student somehow gets tainted?
Ann Garcia 1:07:22
That’s all ensuing years.
Typically, when a student is awarded a merit scholarship as an incoming freshman, that stays with them all four years as long as they meet certain criteria.
There are not a lot of schools that meet full need. The more generous scholarships, frankly, tend to be merit scholarships.
The pool of merit scholarships that’s available to transfer students is infinitely smaller than that available to freshmen.
And part of that is just the reason that schools offer merit scholarships is to attract students. And part of attracting students is increasing the academic rating of your student body.
Andrew Chen 1:08:09
What about for loans, grants, and work studies? Is that the same whether you transfer or start your freshman year? Or is there also a difference there?
Ann Garcia 1:08:18
That’s typically the same. Schools that award need-based aid on the basis of the FAFSA will award the same aid regardless of whether you’re a new or a transfer student.
But if you look at the public school landscape, there are not a lot of dollars for need-based aid.
There is merit aid for out-of-state students and merit aid for national merit scholars. But outside of Pell Grants, there’s very little need-based aid available at public schools.
And that is a trend that is likely to accelerate in the coming years based on what the pandemic has done to state finances.
Andrew Chen 1:09:00
Is financial aid negotiable?
Let’s say a student gets a much larger aid package from a school that’s not her first choice compared to a school that is her first choice. Can she negotiate to increase her aid package?
What are tips for doing that successfully?
Ann Garcia 1:09:16
Absolutely, you can negotiate aid. I would say if you’re doing it on a comparative basis, it’s important that you provide a competitive package from a comparable school.
Stanford doesn’t care what San Jose State offered you, but they do care what Harvard offered you.
A few things about that. One is you need to know what type of aid you have. Do you have need-based aid or do you have merit aid?
Merit aid tends to be far more negotiable than need-based aid. The reason for that is there aren’t any federal rules governing disbursement of merit aid.
If that’s the case, if you have offers from comparable schools that are better than at your first choice school, by all means, go to your first choice school and say, “I would love to come, but I’m $10,000 short here compared with School X, Y, or Z.”
If you have need-based aid, the main means of appealing a need-based aid award is through the process called professional judgment or PJ.
To appeal need-based aid, you really need to have a change in your circumstances. A lot of families this year will have a change in their circumstances and will be going back and going through the PJ process.
There’s never harm in negotiating your award. So even if it is need-based aid, there are oftentimes merit complements that can be added in.
For example, my daughter, one of the schools that she applied to, she was given need-based aid for a portion of her aid and that included a direct student loan. But then she got a scholarship in an amount equivalent to the direct student loan every year.
So that was a merit piece that overlaid the need piece of the loan.
So there’s lots of things that people can do.
Another thing to look at is a lot of schools will have specific matrices of GPA plus test score equals scholarship.
If you’re right below that threshold, for example, in GPA, but all of your classes were AP or IB, unfortunately, a lot of scholarships are on the basis of unweighted GPA.
That may be a reason to go back and say, “Hey, look, I could have taken easier classes and had a better GPA, but instead I chose to challenge myself. And as a result, I’m just below your threshold.”
Those are all perfectly valid things to do.
Andrew Chen 1:12:17
One last question I had is are there any other strategies that you commonly see that parents are able to implement in the years before their child is college bound to maximize financial aid or minimize their EFC?
If so, how many years in advance should they be planning before starting to execute these strategies?
I know we’ve talked a little bit about some of the income timing ones, but I’m just curious if there’s anything else.
Ann Garcia 1:12:42
Yeah, but let’s put it all in one place. A couple of things.
If you’re just doing the FAFSA now and thinking about it for the first time, a lot of the things that you can do are really just nibbling around the edges. You can pay your bills, put money into your retirement accounts to get it out of your checking account and whatnot before you file.
If you’re a few years out, there may be things you can do to adjust your income. Realizing capital losses, for example.
Or before you get to a FAFSA year, do some what we call “tax gain harvesting” where you realize income from assets that you might be selling to just not have that income piece come up in a FAFSA year.
Really the biggest impact that you could have on the FAFSA or the profile is having two children in school at the same time. Something to think about is if you have students who are interested in a gap year.
Your oldest student, you want to encourage them to take a gap year right out of high school. Your youngest student, you might encourage them to take a gap year in the middle of their college years.
Expected family contribution is for the family, not for the student. So your EFC gets divided between your two students.
It’s not fully halved. There’s some adjustments that go into it when you have multiple students in college. But that’s really going to be where you’re going to get the most bang for the buck.
If you have elderly parents who you are taking care of, who you might be able to claim as a dependent, that can add to your family size as well.
There are, of course, a whole host of other issues involved in that where that may be the best outcome for you on the financial side but the worst outcome for them on the financial side or have all sorts of other negative repercussions.
But really the big thing to do is think big picture about college affordability. Think about how you’re preparing for college as well.
For example, you have students who take a lot of AP or IB classes with the expectation that those are going to give them college credit. That is not universally the case.
If you are planning that you’re going to get college credit from your high school classes, that needs to be part of your screening process for college.
There’s three things that schools can do with your AP and IB credits.
Some will give you credit towards your major. Some will give you gen ed credit. And some will only give you placement and no credit.
So if you’re thinking, “I’m going to get through college in three years because I took all these AP classes in high school,” make sure you’re applying to colleges that are going to actually give you credit for those classes.
If you’re not necessarily a candidate for need-based aid or even if you are, if you’re a good student, you should look at what merit aid is awarded at your school.
The very top tier schools do not offer merit aid. You won’t get merit aid at Harvard or Stanford or any of those.
But once you get below that very top tier, there’s a lot of merit aid out there, and it tends to be far more generous than need-based aid.
Typically, merit aid goes to the top quartile or the top 20% of incoming students or students who have a specific distinguishing factor about them.
CollegeData is a great website to find out about 75th percentile GPAs and test scores, so you can see where you fit relative to the population of schools that you’re interested in.
The other thing I would say, there’s a lot of noise right now around test scores and schools going test-optional. Keep in mind test-optional is for admissions purposes, or no test is for admissions purposes.
Even the UC schools, which are not going to use test scores for admissions, are going to continue to use them for scholarships.
A lot of times, even if you’re test-optional for admissions, you are test required for some scholarships or test-considered for scholarships.
Once we once again have the opportunity to take the SAT and ACT, I would still encourage students to take those tests and do what they can on those.
Because unfortunately, for colleges, that’s one of the few distinguishing factors where a 1600 on the SAT is a 1600 on the SAT, which is different from having a 4.5 GPA at different schools.
The other thing that I would caution is we talk to a lot of parents who might have a student who is a junior in high school and they say, “Oh, we’re set. Our kid is a D1 soccer prospect.”
There is a lot of money for academic scholarships. There is a very small pool of money for athletic scholarships.
If your student is an athlete, I would encourage you to look at the NCAA website to see how many scholarships their sport actually offers.
For example, a D1 school can only offer, I think, 12 track and field scholarships. Think of how many track and field athletes a D1 program has. You are not likely to get a lot of money unless you are an Olympic caliber athlete in that regard.
So grades and test scores are important for every student.
Andrew Chen 1:18:30
Well, Ann, this has been really helpful and insightful.
Where can people find out more about you and your work and services?
Ann Garcia 1:18:37
It’s been my pleasure to talk about all this. Thanks so much for having me.
My firm is Independent Progressive Advisors. We’re a family registered investment advisor in Portland, Oregon.
I also blog and I’m on social media as The College Financial Lady. My blog is thecollegefinanciallady.com.
Andrew Chen 1:18:55
We’ll link to all that stuff in the show notes. Thank you so much again for taking the time to chat with us today.
Ann Garcia 1:18:59
My pleasure. Thank you.
Andrew Chen 1:19:01
Cheers. Take care.