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More and more high school students are attending college. According to the
Bureau of Labor Statistics of the U.S. Department of Labor, over sixty-five
percent of the high school graduating class of 2002 were enrolled in colleges
or universities in the fall. This proportion is 3.5 percentage points higher
than a year earlier and represents the highest rate of enrollment since 1998.

Cost of Education

During the 2003-04 academic year, college tuition and fees increased an
average of:

Total charges, including room and board, increased 9.8% for public
institutions and 5.7% at private institutions (both due to a lower rate of
increase in room and board).

The average cost for tuition, fees, room and board at a four year public
institution averaged $10,636 in 2002-2003. The average cost for tuition, fees,
room and board at a four year private institution averaged $26,854 in
2002-2003.  Although rates have increased, they do not represent a trend of
accelerated rate increases.

Financial Aid

Financial aid to students is growing. In 2002-03, $105 billion was
distributed in student financial aid, $13 billion more than distributed the
previous year.

GovernmentAid

Pell Grant funding rose by 15 percent in inflation-adjusted dollars.
However, the average Pell Grant increased only 3 percent, providing an
additional $123 per recipient. The $2,421 average Pell Grant covers less than
30 percent of average total charges (tuition and fees, room and board) at
public four-year colleges and universities, while the maximum Pell Grant
covers 41 percent of these charges.

While most federal grant aid is need-based, a decreasing portion of federal
‘from all sources’ aid is distributed according to need. Combined,
unsubsidized Stafford loans, federal loans to parents and tax credits now make
up 43 percent of total federal aid.

Institutional Aid

Institutional grants account for nearly 20 percent of student aid. These
funds have more than doubled over the past decade and make up about 62 percent
of the grant aid that undergraduates at private colleges receive, and over a
quarter of the grant aid used by those attending four-year public
institutions.

Identifying Financial Need and Awarding Financial Aid

If you will need financial aid to attend college, be attentive to the
financial aid policies of schools you are interested in attending. In some
cases, there are schools that will not consider your request for financial aid
unless you apply for financial aid at the same time that you apply for
admission. Be sure that your financial aid application arrives on time.

Calculating Need

The financial aid office will open a case file for you and perform the
following analysis. First, they will calculate the cost of your college
education for the upcoming year. That dollar amount is your ‘cost of
education’. Second, your ‘family contribution’ will be calculated based upon
the FASFA (free application for federal student aid) and, if a private
college, usually the CSS Profile (College Scholarship Service) and tax
returns.  The gap between the cost of education and family contribution is
your ‘demonstrated need’.

Once the financial aid department identified the ‘demonstrated need’, they
begin to develop a financial package to offer you. Some schools notify you of
your financial aid award at the same time that your receive your admission
decision. Others send the financial aid award letter after your admission
decision letter. Some schools are able to offer incoming students with
financial need a complete financing package that covers the total cost of
education. Other schools cannot cover the whole cost and leave a ‘gap’ that
must be filled through other sources such as outside loans, etc. According to
the National Association of College Admissions Counselors, 23% of all colleges
close the “gap” based on the academic desirability of a student.

Closing the ‘Gap’

The financial aid office fills in the gap in the following order:

1. Self-help funds in the form of work-study and loans. The area of loans
   for school is beyond the scope of this book. However, you should be aware of
   how these loans work. Go to
   
   www.ed.gov/DirectLoan/students.html for complete information or check
   with the financial aid office of your college.
2. Federal Pell Grant or state grants may be available for students with
   very significant financial need.
3. Institutional funds

If there continues to be an unmet gap, (73% of the cases), the family will
typically turn to Parent Plus loans, alternative student loans and/or
scholarships to make up the difference.

Impact of Scholarships on Financial Aid

Scholarships are an excellent way top fill the gap between your need and
the college financing package. However, financial aid from all sources may not
exceed the calculated cost of education. Consequently, if you have $2,000 in
scholarships and your college offers you a full package without a gap or the
gap is only $1,000, you have an extra $1,000 that will have to be reconciled.

Many colleges allow students to use scholarship funds in excess of
calculated need to reduce the amount of loans taken. Other schools reduce
their institutional grants on a 1:1 basis with scholarship awards, thereby
destroying the incentive to seek awards. Other schools use a phased approach
where, for example,  the first $500 in scholarships reduces loans and any
amount over $500 is equally split between reducing loans and reducing
institutional grants.

You must check with your school to see what their policies are regarding
outside funding. In most cases, scholarships will decrease the overall cost of
going to college.

There is also a certain amount of flexibility in financial aid packages.
So, if you think that your family’s financial need isn’t completely
represented by the usual financial analysis, make an appointment with a
financial aid counselor to review your specific situation. There may be an
opportunity to substitute more institutional grants for loans or find other
creative ways to improve your package.