Why Financial Aid is Important in College
How to Understand College Costs
Though many students and parents shudder at the mention of the words “college costs,” understanding the components will help both groups make better decisions about how college expenses will inform their best-fit college selection. Having the knowledge of college costs can save thousands and even help families avoid unnecessary student debt. Here we provide an overview of costs and financial aid.
College Cost Breakdown
It should be mentioned that college cost terms are not interchangeable. Tuition, room & board, billed expenses, and cost of attendance are all different and refer to different expenses.
Tuition typically refers to the academic cost of your college education. Think of tuition as the cost to pay the professors, administrators, and for the general services related to your academics. These college costs vary widely from college to college. At public colleges, tuition is typically very low. Given its public nature, raising tuition is very unpopular and doesn’t happen very frequently. Private colleges, however, have tuition that is often higher than at public colleges. Since private colleges get funding from private sources, they’re free to raise tuition as they see fit.
Fees are the second component of college costs. College costs fees are any other charge from a college that is not tuition. Fees include room and board, a meal plan, health fees, facility access fees, and more. The reason tuition can be so low at public colleges is because they often increase their fees to account for the low tuition rates. Together tuition and fees are “Billed Expenses” and are represented by the bill that families get from their college.
But what about books and things like that? Those items are still college costs but are not officially billed by a college. These college costs are called “Non-Billed Expenses” and can include books, laptops, transportation to and from the college, clothes, sheets, and anything else a college student will need. On average, families in the United States pay almost $5,000 per year in non-billed expenses. The combination of billed and non-billed expenses results in the overall “Cost of Attendance,” as this number will be the total cost to attend a given college.
The Collegize app (shown below) provides financial information as well as a full college cost breakdown.
Images from Collegize App iPhone / Android
Financial Aid 101: What is Financial Aid?
Minimizing college costs can be done in 4 ways: merit-based financial aid, need-based financial aid, work-study programs, and loans.
Merit-based aid includes scholarships and grants that families get based on their merit. Those students with high test scores, GPA, or skilled abilities can get merit-based scholarships. Most scholarships are merit-based, the most famous is the National Merit Scholarship
but check out this list of other national scholarships
Need-Based Aid for College
Need-based aid relates to financial aid that is given based on need. The Pell Grant is a $5,500 grant given to students based on their financial need. Colleges also give need-based financial aid and can even cover 100% of a family’s billed expenses based on need. Here is a list of Need-Based Colleges
Work-study is another way to reduce college costs. The college will give students a campus job and reduce their college expenses based on the number of hours worked. This is a popular option as it seems to be a win-win for both the college and student.
The last method of financial aid is a loan. Loans are financial aid because they allow students to pursue their college education. However, the money given in loans is expected to be paid back with interest. The amount of loans that should be taken out depends on an individual’s ability to repay. For context, a $50,000 loan at the average interest rate of 5.8% over 30 years equates to a monthly payment of $262. A $100,000 loan with the same criteria is $525 a month.
To learn more about debt and loans check out this article that goes over everything you need to know for college debt
Talking with Family About Money
College costs do not just affect students, but impact the entire family. As such, conversations about money and college are very important. When you talk with family, be sure to get an understanding of how much parents make per year (combined and individually), how much a parent is willing to pay in college costs or take out in loans, and what the expected salary will be for the future college graduate. These items will be important when considering if a particular college is affordable. If the Cost of Attendance for a college is higher than the family can afford, even after financial aid, then that college should be avoided.
College costs and expectations are best discussed as a family. Each person’s perspective, risk tolerance, and ability to pay will play a part in which college is a best-fit and which are simply too expensive. Regardless, having a breakdown of college costs and financial aid will help the conversation. Make sure to check out what FAFSA is
and how to apply to FAFSA
to help with the conversation.