Episode 52: Financial Aid Series, Pt. I: How to Pay for College

Episode 52

• Episode 52 Transcript

  EPISODE 52

  [INTRODUCTION]

  [00:00:06] BT: If you've begun your college search, then you know there are myriad types of schools. There’re public, private, liberal arts colleges, research-focused universities, religious institutions, vocational schools — the list goes on and on. But what's the one thing all of these options have in common? They all cost money to attend.

  [00:00:26] BHA: While higher education is one of the best investments you can make, figuring out how to fund that journey can also be one of the most daunting aspects of the college process. But it doesn't have to be. I'm Becca Haupt Aldredge from Bucknell University, and this is the first in a series of episodes designed to provide you with a comprehensive guide to paying for college.

  [00:00:47] BT: I'm Brooke Thames, also from Bucknell. Over the next three episodes of College Admissions Insider, we'll demystify the financial aid process, as we cover everything from financial aid options, to the steps required to qualify for assistance, to how to accept a financial aid award after you're admitted, and so much more. In today's episode, we're focusing on that first piece, getting a clearer sense of the options available to help you pay for college and how you can determine the kind of aid you need.

  [00:01:16] BHA: Here to peel back the curtain for us are the experts themselves: Erin Wolfe, the interim director of Bucknell financial aid office; and Jamie Lowthert, the associate director for financial aid. Erin has spent more than 15 years working in financial services at universities. Similarly, Jamie helps support and guide students and families throughout the financial aid process every day. Welcome to the podcast.

  [00:01:37] EW: Thank you for having us. Thanks.

  [00:01:39] JL: Thank you for having us.

  [00:01:39] BT: Yeah, we're so great to have you here for this really important series of discussions. So to start off, let's just start at ground zero. Erin, can you kick us off by explaining a bit about the role of a financial aid office on a college campus?

  [00:01:53] EW: That's a really great question, Brooke. I'm happy to take that one. And I will say that, on a college campus, the Office of Financial Aid truly wears many different hats. We really serve in four different ways.

  And I like to break it down, first, for students and families. We, as a financial aid administrator, we know what financial aid is available; we know who qualifies for aid; we know how it's distributed; and we know the renewal requirements for each subsequent year. We will help our students file applications accurately and help verify for eligibility of aid. We assist our students on a personal level by helping with financial literacy and debt management. And we advocate for streamlining and simplifying our application processes as much as we can really each year.

  Institutionally, we help enroll and retain our students. We facilitate the receipt of our financial aid to meet institutional costs. We help manage student employment on campus. And truly, the biggest thing we do is ensure compliance with the voluminous amounts of federal, state and local regulations that impact financial aid.

  On a community level, we will connect our students for community service opportunities with outside employers. We work with our high school counselors and community-based college access programs and initiatives. We will speak at financial aid nights at high schools, other community organizational offices to help advocate and provide information regarding financial aid. And we really serve as a resource for any other type of adults or anyone else who wants to attend college and has questions on the process.

  And last, we work with policymakers. We provide institutional perspective on students for legislative purposes. We provide financial aid success stories for our local and state representatives. We explain the financial needs and challenges of our students across the state to advocate for larger state grant dollars. And we really illustrate how compliance with certain existing and proposed statutes can hinder the success of our students on our campuses.

  [00:04:01] BHA: Wow, Erin. So, you were not kidding when you said that you all wear many hats. I imagine it takes quite a team to help you manage such an important aspect of the college process, especially all those elements about legislation and efficacy — which I, even as an admissions counselor, don't tend to think about in the day to day that are such big parts of your role. And so, when it comes to staff structure in an office like yours, what does that look like? Who's on your team?

  [00:04:27] JL: Our offices vary from school to school, depending on the size of the institution. Financial aid offices can have financial aid assistants, financial aid counselors, assistant directors, associate directors, directors and deans to get the job done. The size and makeup of individual colleges’ financial aid offices will depend on factors such as the size of the student body, the percentage of students receiving aid in the school's financial aid budget.

  Financial aid administrators — such as counselors, assistant directors and associate directors — are typically the staff members who work most directly with students, connecting them to aid opportunities, help them file their aid applications and address any issues that might arise. Typically, you'll find these are the staff members who are reviewing students financial aid application.

  Here at Bucknell, we have a staff size of nine — three financial aid assistants who are the student's first point of contact. They assist students with financial aid questions and ensure that students have submitted the necessary financial aid paperwork. We then have four staff members responsible for reviewing a student aid application and determining aid eligibility. These include Erin, our director, two associate directors and a financial aid counselor. Finally, to round out our team, we have a loan coordinator, who is an expert on all topics related to loans, and an associate director of technical operations, who maintains our data systems.

  [00:05:47] BT: Wow, that is quite the team. And I'm sure a really great look for our listeners inside an office to know that there are actual humans — so many humans, too — that are involved in this process and helping them through.

  So as we jump into talking about all the different avenues that students and families can explore as they're figuring out ways to finance their education, I imagine it can be overwhelming, right? With so many different financing options out there, where do you even start when figuring out how to pay for college? It seems like a first good step is getting a clearer picture of all the associated costs, because it's not just tuition students and families have to think about, right?

  [00:06:22] EW: Brooke, you are so right. Understanding cost of attendance is really the key and the starting place for so many families as they begin navigating this process. As you look at different institutions, too, families and students have to understand that — depending on the school, whether it's public or private, [or] community college — there could be different fees and charges associated with attending those schools.

  So, we're going to start from the very top with understanding the cost of attendance in itself. That includes the tuition, your room and board expenses, books, supplies, transportation, loan fees and other miscellaneous expenses. So, that is the overall. We call it the COA, the cost of attendance.

  We're going to break it down from there, though, to understand direct costs versus indirect costs. Those direct costs are those expenses that are going to be billed directly to a student by the particular school. So your tuition and fees are those, based on your enrollment. So if you're a full-time student, you're going to be charged the full-time tuition amount. If you are a part time student, you might be charged tuition by the per credit hour. So beginning to start at the tuition is the first key.

  Then moving into room and board expenses. The majority of schools will use “room” as the average cost of living in a dorm. “Board” is what we associate to meals on campus. So some schools may post an average room or board, or they could call it “rent” or “food” if you're living off campus.

  Indirect costs are those things that your school will not charge directly to you. But you should be prepared to pay for these things as you're on a college campus during that nine-month period of enrollment. So you're going to be thinking you're going to definitely need books and supplies for your coursework, and those expenses will vary depending on type of major that you're taking and also courses that you have for the term. There are transportation expenses. So if you're flying to college campus from the West Coast to the East Coast, you have to think about having those plane tickets throughout the year to get to your college. And then, last but not least, is personal and other living expenses. So those are things such as your laundry, having expenses to go get a haircut. It's not for additional travel and other things like that when you think about looking at cost of attendance.

  [00:08:50] BHA: And so, now that we're aware of the comprehensive cost and all that goes into it, what do you think the next step is? Is it wise for families to first assess what they're prepared to pay out of pocket before they start to look at price tags on various schools? Or maybe vice versa?

  [00:09:06] JL: Yes, Becca. Definitely. Families should be looking at cost when their students are developing their college list. What a family can pay out of pocket is such an important part of the college search process, and it's an important conversation that families need to have sooner rather than later with their student.

  I always encourage families to start having conversations regarding college affordability between the student’s junior and senior year. However, really, the ideal time would be when the student begins their college search. And sometimes, that could happen in a student's sophomore [or] even freshman year. Having conversations regarding cost and affordability will really help frame the search process for the student and the family. What we don't want to see happen is a student falls in love with a school and his family realizes they can't afford to send their student to the particular school, or the family is not willing to pay the price.

  There're really two important questions that families should be thinking about as they enter the search process: What can they realistically pay, and what are they willing to pay? And there's a lot of great tools available for families to calculate what they might be expected to pay at a particular school. The net price calculator is one that can be found on every college and universities website. Families can use the net price calculator to determine if a particular college is affordable for them prior to applying.

  One thing to keep in mind, though, is the calculator is only as accurate as the data entered. In order to get really good results from the net price calculator, the family should really read each question carefully and answer as accurately as possible. The net price calculator calculates the estimated price using only the numbers that are entered into the system. The more accurate the numbers, the closer the estimate will be provided to the family. Inaccurate numbers, on the other hand, can give a family a really false estimate of what they may be paying and could throw the family totally off track.

  [00:10:53] BT: Yeah, thank you for sharing that tool, Jamie. That sounds like a really great way for students and families to get a real sense of what the cost of college is going to be for the schools on their list.

  [00:11:03] BHA: So Jamie, you gave us a great idea about how cost of attendance might inform what schools end up on a student's short list in relationship to what a family is both capable of paying but also willing to pay for that cost of attendance. What financing options are then available for making up the difference?

  [00:11:21] JL: There are a lot of great financing options for families to help cover their student's educational expenses. College funding can come from various sources such as the federal government, state government, community-based organizations, colleges and universities. Free money for college can take the form of need-based grants, merit scholarships, athletic scholarships and talent scholarships.

  However, families really need to keep in mind that students typically do not receive enough free money to cover the student's direct and indirect expenses in full. So in many cases, families will need to explore other financing options, such as student employment, federal direct student loans, parent PLUS loans, and private alternative loans.

  [00:12:03] BT: That is a wealth of options there. Can we break it down a bit further, starting with federal and state aid? What are some of the common types? And how can students and families figure out what they qualify for?

  [00:12:16] EW: I'll be happy to take that question, Brooke. Families really need to start thinking about federal financial aid on the main federal website, studentaid.gov. This site is, I would say, the repository for all things related to federal financial aid. And even located on this site, for families first really diving into understanding what types of aid is available to them, is really going through the FAFSA4caster. It's a real quick, two-minute tool that will gather some basic information. It'll ask for parents’ income, student income, asset information, number of family members in the household and number of family members enrolling in college. It is very quick, as I said, and it's going to give you just a real quick snapshot of what your expected family contribution is. And then also provide some real basic information with eligibility, if you would be a student eligible for Federal Pell Grant and federal student loans.

  So, let's break down a little bit of the federal financial aid. First, we have the Federal Pell Grant program, which is based on that expected family contribution, that EFC, I earlier had referenced. For the Pell Grant, it's a sliding scale of eligibility. In all honesty, it's awarded to undergraduate students who will display the most exceptional financial needs. So not everyone who's enrolling in college will qualify for the Federal Pell Grant. It's going to be based also on the cost of attendance of the school you're enrolling in, as if you are full-time, part-time, less than half-time. Also, if you are going to be enrolled for a full academic year or less.

  Then moving forward to federal student loans, that is a form of self-help aid for college. I know not every family is going to want to borrow for college. But as a financial aid administrator, we are required to provide all information as to eligibility for these types of federal financial aid plans. So for federal student loans, again, we're going to look at your student's financial need and eligibility for a subsidized or unsubsidized federal loan. We don’t break down too much of those today, I believe. But the subsidized loan is a loan that will not accrue interest while the student’s in school, whereas the unsubsidized loan is a loan that will accrue interest while enrolled in an undergraduate program.

  The last form of federal financial aid, at least that we award to all students who are eligible, is the federal work study program. This is a great program for students who wish to participate in campus employment opportunities and also earn some money while being enrolled in school. On our campuses, we also receive some campus-based funding, and that's also in the form of a federal supplemental educational opportunity grant. For students who are Pell Grant recipients, depending on the amount of money we've received from the federal government, we may be able to provide some additional supplemental grants to those students with most exceptional financial need.

  Looking at state financial aid is going to vary depending on what state you are living in. And I would encourage students and families to review any eligibility within the particular state of which you live. Understand the reciprocity requirements, as some states will not allow students to take their money across the state line. But in states like Pennsylvania, we do have students who are able to take a small portion of state grants outside of Pennsylvania should they enroll at another state that does reciprocate with grant dollars coming back to Pennsylvania. So again, it will vary depending state to state, so we encourage you to review that on your state-related financial aid websites.

  [00:16:07] BHA: Wow. And so it sounds like between federal aid, state aid and university aid, the financial aid team is taking in so much data and information in order to determine eligibility.
  In the past we've talked on the podcast about FAFSA and the CSS Profile, two tools that Bucknell uses to determine a student's aid eligibility. Can you explain how those two things work together to help you calculate a student's financial aid amount?

  [00:16:35] JL: Sure, I'll be more than happy to do that. I'll give a broad overview of how the FAFSA works and then how the CSS Profile works, and how that develops a student's financial aid package.

  The FAFSA is used by the Department of Education to determine a student's eligibility for funding through the federal government. And as Erin indicated, it can include federal grants, work study and federal direct student loans. Also, many state agencies will use the FAFSA to determine a student's eligibility for state grant funding and state scholarship funding. Many schools rely solely on the FAFSA to determine eligibility for institutional need-based grant funding. So when a student fills out the FAFSA, the information is provided to the school. The school will review it, and then based on that information, we’ll determine eligibility for whether it be for federal, state or institutional funding.

  On the other hand, there's approximately 400 schools, such as Bucknell that, use the CSS Profile to determine a student's eligibility for institutional need-based grant funding. The CSS Profile will look more closely at a family's financial situation, which allows schools to more equitably award institutional funding to students with the greatest financial need.

  So each formula or form has their own way of determining a student's expected family contribution. So with the FAFSA, there's a federal methodology that the federal government uses to determine their federal EFC. And that federal EFC will determine if a student is eligible for a Federal Pell Grant.

  One misconception that we see and hear from families all the time is that their EFC that's assigned to them from the FAFSA is what they'll have to pay for college. Rather, that federal EFC is an index that the federal government will use to determine, like I said earlier, Pell Grant eligibility. And schools will use that to determine a student's eligibility for other federal grant money and eligibility for subsidized student loan.

  Colleges, though, such as Bucknell that uses CSS Profile, will calculate what's called an institutional EFC through a formula called institutional methodology. The institutional formula will likely arrive at a different EFC from the federal formula, which could be higher or lower than the FAFSA EFC because the CSS Profile takes in consideration more financial information. So the schools that use CSS Profile will use it to determine a student's eligibility for institutional need-based funding, while the FAFSA is used to determine eligibility for federal and state aid.

  At Bucknell, we require students to complete both the CSS Profile and FAFSA to be fully considered for institutional, federal and state funding.

  [00:19:21] BT: Awesome. That gave us a really great overview of federal and state aid, as well as how the FAFSA and CSS Profile really work together to give a school like a comprehensive view of a student's eligibility. But that's only one means of paying for college, right? There's also an option to take out a private loan. What are the considerations of taking that route?

  [00:19:42] EW: I mean, for students and families, I always say please consider your federal loan options first. And the reason I say that is because they tend to have lower interest rates. There's no interest if you have the subsidized loan accruing while you're in school. There is a six-month grace period after graduation. And that grace period really allows students to go out, find their position and get ready for those student loan repayments.

  When going down the road of a private loan, I do have a couple things for families to consider in looking at those type of loans. First, we as a school, because of federal regulation requirements related to private student loans, we are not able to provide a student or family member a particular loan that they should apply for. We can't tell you go to lender X, Y or Z, because we're bound by regulations requiring that we not specifically mentioned a lender.

  Now, that being said, we do have lender lists on our school sites. Most of our schools comply with some requirements that allow us to go through a process every year to break down the ins and outs of the loan programs, understanding the rate ranges, and repayment requirements based on the lender as they will vary, because every bank has their own process for which they review applicants, and then also what your repayment plans would look like.

  Be sure you've considered the following things: Choose your lender carefully. Avoid seeking advice from family and friends. And the reason I say this is because every family's financial situation is different. Families have different FICO scores. They have different debt-to-income ratios. And so student A versus student B may have very different experiences from lender to lender. Understand the cost of borrowing money. Know truly why you are borrowing this money. And think about a plan to repay back that money in the future. And why I say that is, depending on the type of loan you're taking, if you are planning to go to graduate school, or conversely, if you plan to have a job pretty immediately after graduation, those are things you want to be thinking about carefully when you're breaking down lenders, understanding the interest rates, and understanding the terms of repayment.

  [00:21:54] BHA: Erin, thanks. Those were some great insights and advice for anyone that might be considering a private loan as a way to fund their college education experience. I know that some schools also offer financial assistance that comes from a school's own funds. That might be need-based or merit-based. How can students and families find out about what schools on their list offer in that regard?

  [00:22:17] JL: Becca, the best place for students to research whether or not a school offers need-based or merit-based aid is the school's website. Schools will publish right on their website the scholarships and grants that they have to offer to first-year students. But also, students can find this information at college open houses and other recruitment events such as high school visits and college fairs.

  [00:22:41] BT: Yeah, those all sound like really great places to learn more about scholarships that schools offer. Also, students and families who are looking for more information on merit aid, and how that's calculated, and how it's awarded can check out Episode 37 of this podcast where we go into all of that.

  At this point, we've covered the many avenues that can be taken to pay for college, the considerations to take into account when figuring out what avenue is best for a student and their family. But I also wonder about strategies that maybe aren't such great options. Are there any ways of paying for college that students and families should avoid, if possible?

  [00:23:22] EW: Really great question, Brooke. These are the questions we hear a lot from families when they call us to ask about options for paying for college. They'll run them buy us, and we will certainly give them the pros and cons. And I'll provide those to you today.

  No. 1, 401(k) plans. That is probably one of the more frequent plans that I do have some families come to me and ask how that would work when paying for college. And I'm not here to tell a family what to do, for sure. But I want to just break down a very important question that you should ask yourself if you're going to use this method: No. 1, will I need the money for retirement?

  A pro of using your money is, of course, that it is your own money, so you can access those funds. You're not running a credit application. And inevitably, if you would take a loan or borrow from your 401(k), you would be required to pay it back and you're paying interest back to yourself. There are some cons though, and those can come in the form of early withdrawal penalties. If you're not 59 and a half, you're looking at least a 10% early withdrawal penalty just by touching those funds.

  I think the more prevalent thing that we see with 401(k) withdraws is the increase to a family's adjusted gross income. So when we see those fast applications and we receive those tax returns, for families who choose to take the money to pay for college from their 401(k), they've inadvertently hurt themselves in the next FAFSA submission. For families who choose to take money from their 401(k) plan, when we receive their FAFSA or tax returns, they've inadvertently increased their adjusted gross income. Therefore, penalizing themselves potentially for some access to financial aid. If you would take a 401(k) loan and end up leaving your job, you could be required to pay the loan in full regardless of what your arranged repayment plan would be. So, those are some of the pros and cons of looking just at your 401(k).

  The next I hear often that I've had some families call me about is a home equity line of credit. And again, a pro of that is easy access if there's equity on your home. And typically, traditionally, home equity interest rates have been a little lower than some of the private loan options. However, a con of using access to the equity in your home is certainly the change in the economy — thinking recession and just thinking the change in the housing market. A lot of us are not able to really forecast what that may look like. So as much as you may have equity right now, that could change pretty quickly if something does adjust in the overall economic situation. If you would need equity for any kind of future or home improvements or repairs to maintain your property, you have now just reduced access to that. And if you would sell your home, that would impact the ability that you would have on the money that you would earn on the sale of that home.

  And last is credit card options. Of course, I have a lot of families that would like to use their credit card because they get a lot of rewards or offers from their credit card company, and it might sound great. However, a lot of schools won't accept a credit card. There are fees associated with using that. So sometimes schools will assess the family right back and tack on a 3% or 4% charge by using that credit card. And also, if you don't make an immediate payment on that credit card bill, after charging tuition, you could be subject to rates as high as 18% to 21%. Again, they are options. We have some families who choose to use them. But again, just think wisely, if that's the path you plan to go down.

  [00:27:00] BHA: And so, it sounds like regardless of what kind of aid you're seeking, schools have all different types of processes for how aid can be applied to a student's cost of attendance. At Bucknell, students can stack aid until the full cost of their tuition is covered. But that's not necessarily the case everywhere, right?

  [00:27:17] JL: Yes, Becca, that is really correct. Many colleges have their own policies regarding how outside scholarships can impact need-based and institutional funding. Here at Bucknell, we allow students to receive outside scholarships in addition to their need-based funding up to the cost of attendance. However, not all schools do that. For an example, a school that meets 100% of need may reduce a student's institutional need-based aid dollar per dollar due to the outside scholarship.

  So we always encourage students to check with each college they're applying to and inquire about their policy regarding outside scholarships and its impact on institutionally-based funding. Many colleges will post their outside scholarship policy directly on their website. So, that's also a great place for students to look to see what the outside scholarship policy is.

  Additionally, when it comes to federal aid, sometimes outside scholarships could reduce a student's eligibility for need-based student loans or work study eligibilities. And one thing to keep in mind also is a student's total financial aid package, which could be all outside funding, or gift aid funding, can never exceed a student's estimated cost of attendance.

  [00:28:32] BT: Yeah, one of the big things that I'm walking away from this episode with is just how complex this process is, and how important it is for students and families really to reach out to each of the schools on their list and talk to folks like you, Erin, and like you, Jamie, who can really help them get all of their ducks in a row as they apply to these schools.

  We're coming up on the end of our time here. And so before we end, I wonder if there's one piece of advice that you want students and families to walk away with from this episode, as they figure out what strategies are best for them? What would that be?

  [00:29:05] EW: I think, No. 1, it's really important for families to have honest conversations about college and understanding the cost. When it comes for paying for college, one size will not fit all for everyone. And you may need to be utilizing a mix of many of the items we talked about today and scenarios and putting those together into really what works best for your family. The most important and key thing you can be doing is going out there and using all those free resources via net price calculator, FAFSA4caster, and really read and do the research.

  And just one final takeaway for me is encourage your students, while they're in high school, to get a part time job, if possible, and start putting some funds away for things like your book expenses, and just being prepared to have some extra money in your pocket for when you get there and you may need some help with personal items and other things like that. It really puts the student and has some skin in the game of being prepared for college.

  [00:30:03] JL: I would say that it's never too early to start thinking about paying for college. The sooner the better. You definitely want to be proactive and educate yourself regarding the whole entire process.

  I've worked in aid for many, many years, and I thought I had it down pat. And when my son started looking at colleges, I started looking at policies and I'm like, “Oh, they do that. We don't do that.” Definitely really educate yourself.

  Admissions counselors are going to be a great resource for asking about scholarship opportunities. And financial aid offices are extremely helpful as you try to navigate the financial aid process.

  [00:30:39] BT: Yeah, the landscape is vast, but the support is abundant. Well, thanks again to Jamie and Erin for helping us peel back the curtain on this really huge part of the college process.

  [00:30:49] EW: Thank you for having us today. Really appreciate it.

  [00:30:52] JL: Thank you. I had a great time.

  [00:30:53] BT: We also want to thank everyone out there for listening. If you’re a fan of the podcast, please take a moment to rate, subscribe and share this episode with the students and families in your life.

  [00:31:01] BHA: We’ll be back with another new episode in a few weeks. In the meantime, send your questions, comments and episode ideas to podcast@bucknell.edu. We read every note you send.

  [00:31:12] BT: We also invite you to follow Bucknell on your favorite social media apps. Just look for @bucknellu on Instagram, Facebook, Twitter, YouTube and TikTok. You can also follow our student run Instagram account, which is @iamraybucknell.

  [00:31:26] BHA: Until next time, keep reaching for your dreams and your dream school.
  [END]