Financial Award Letters: Why all that glitters is not gold
Be FutureWise About COLLEGE
Guest Post By: Felicia Gopaul, President of College Funding Resource
This is the first in a series of two guest posts about financial considerations that contribute to making the best college choice.
In 1848, gold was discovered in California and news of the discovery brought thousands of men to the Golden State in search of the fortune and their share of the gold.
What some of the men found instead was pyrite (or fool’s gold). An article in the LA Times about a student weighing her financial aid award letters reminded me of the Shakespeare quote that “all that glitters is not gold.” Let me explain why I believe she should have selected one of the other colleges.
The student in the article was admitted to UC Irvine, Cal State Long Beach and San Diego State University. She chose to go to Long Beach because it was the least expensive option. But was it really the least expensive?
Cost of Attendance (COA)
CSU Long Beach: $23,1761
San Diego State: $25,4642
UC Irvine: $30,6843
Ranking Based on COA
CSU Long Beach: 1
San Diego State: 2
UC Irvine: 3
Source: College Cost Navigator software
When looking at the cost of college, I look at several numbers beyond the cost of college because it can be misleading.
As you are evaluating financial aid award letters, you should also consider the graduation rate of the colleges you are considering. UC Irvine has the highest graduation rate of the all of the colleges that admitted Kristine. It’s important to look at the graduation rate of the colleges because Cal State Long Beach has a much lower graduation rate than either San Diego State or UC Irvine.
In fact, 83% of students at UC Irvine graduate in 5 years (the period that colleges track students), as opposed to 60% for San Diego State and 12% for Long Beach. The lower graduation rates can mean paying as much as additional $23,176 per year (inflation adjusted) to stay in Long Beach long enough to graduate. If it takes Kristine an additional 2 years to complete her degree at Long Beach State than it would if she graduated from Irvine, her family would be responsible for paying her Expected Family Contribution (EFC) for an additional 2 years.
If I assume that Kristine’s family is like my typical family, her EFC would be $20,000. That means that Kristine’s family would have to pay an additional $40,000 out of their pocket because Kristine chose the least expensive school with the lowest graduation rate.
What else is important?
The other number I pay attention to is the distribution of merit aid or need-based aid versus student loans. I recognize that student loans are a necessary part of many students’ award letters, but I prefer money that I don’t have to pay back. When evaluating an aid award letter, look at the amount of financial aid that doesn’t require repayment versus how much will need to be paid back. If you have more in student loans than need-based and merit aid, I would have a serious talk with my student about how much it REALLY costs to attend XYZ College.
But my kid is smart
You may be reading this article and thinking, “My kid is smart. She’ll be in the 12% that graduates in 4 years from Long Beach.” And you may be correct, but I wanted to offer you another perspective that I see all the time in my practice and feel is important for you to consider. If your child takes a little longer to graduate from college than 4 years, how much will going to the least expensive college cost you in the end?
What to do next?
As those financial aid award letters start hitting your mailbox or email box, make sure you are not looking at fool’s gold and thinking an offer is more valuable than it appears. Evaluate the award letters in light of not only how much it costs to attend a particular college, but how much it would cost you ultimately if your child is not on the 4-year plan. In addition, take a look at the free money in merit and need-based aid versus the student loans to verify what you are really paying to attend a particular college.
My advice if Kristine was my daughter? Go to UC Irvine.
Felicia Gopaul is President of College Funding Resource. She specializes in helping families select the right college for their finances.