Introductory Guide to Financial Aid - Understanding Cost of Attendance

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Welcome! With applications for college and grad school being submitted, the next major milestone for applicants are the financial aid forms. For many, this process can feel a bit like a black box - inputs go in, a decision is spit out, and there is no real understanding of what that process looks like.

This post is designed to demystify financial aid and provide a basic understanding of what financial aid is and how it works toward a student and their family paying for college.

Note: This is not designed to be a comprehensive guide or cover all scenarios. It is instead intended to provide financial aid literacy.

Part 1: Understanding College Costs

In conversation with several families, one of the most common questions is: “How much does it cost to go to X school?” Often, they hear the total cost of a school and assume that the university is immediately out of reach.

Let’s start with some basic financial aid terminology:

• Cost of Attendance - This is the total cost associated with actually attending a college or university. This is NOT what you will necessarily pay, but is the actual sticker cost of attending the college.

• Financial Aid - This is the total calculated aid available to meet the total cost of attendance. Financial aid comes in several forms. Financial aid may or may not cover the entire cost of attendance. Financial aid will also vary from school to school.

• Out-Of-Pocket Cost - This is the difference between the calculated cost of attendance at a given university and the financial aid offered. This is typically paid through work-study, loans, or by the family’s contribution. Sometimes, this amount can be $0 if the financial aid covers the entire cost of attendance.

• Expected Family Contribution (EFC) - This is an index number that is typically used to calculate eligibility for federal aid. The lower the EFC, the greater the eligibility for financial aid.

Now that you have some basic definitions out of the way, let’s dive into the specifics.

Part 2: Understanding The Basics Of Cost of Attendance

Cost of attendance varies on an individual by individual basis. There are several factors that will drive cost including:

• In-state vs. Out-of-state tuition for public schools

• Fees associated with a given major or school

• Living on campus vs. living off campus

Let’s use the University of Minnesota as an example:

Note - there is no single view of cost of attendance - different colleges will include different lines in how they calculate total cost. This is intended for illustrative purposes only.

Let’s start with the tuition and fees. This is the main difference in cost between in-state and out of state students. A few tidbits:

• Not every school requires you to be a resident of the state to receive the in-state tuition rate. For example, the University of Minnesota extends in-state tuition rates to students that are residents of Wisconsin, South Dakota, and North Dakota.

• This difference usually only applies to public universities. Private universities will usually charge a flat tuition that does not changed based upon where you reside.

• The cost of tuition is an actual amount, not an estimate.

It is important to pay attention to the tuition amount in the overall cost of attendance. Many scholarships are restricted to only applying to the cost of tuition.

You will notice that the cost of books and supplies is $1,000 - that is an estimate. While it is included in the cost of attendance and ultimately included in financial aid estimates, the cost shown is an estimate based on historical data, not a real number assigned to an individual student. For example, social science majors tend to have higher book costs because they need to buy more books than say, an engineer.

What that means for you is that you cannot believe the $1,000 is the entire costs of books. Your individual costs may vary, but the financial aid package awarded will make an assumption about how much you will spend on books in a given academic year. Be prepared to cover the cost if that number is not accurate.

Next is the room and board cost - this is the cost to be housed and fed on campus through a meal plan, if applicable. The in-state and out of state costs are the same and the number is based on an actual cost set by the college. The only way to circumvent this is if your student plans to commute to and from campus, in which case they may not need the room and/or board costs included.

Transportation costs also differ - these are not exact costs, but estimates for financial aid purposes. The assumption is that an out of state student will incur greater costs traveling (e.g., a flight) than an in-state resident will (e.g., a car ride or train home). As a student, you can control this cost, similar to the personal spend category.

In summary, you have two cost categories:

• Fixed Costs (e.g., Tuition)

• Variable Costs (e.g., Books and Supplies)

Why does this matter?

There are several potential outcomes when financial aid offers are issued:

1. A college may not meet 100% of stated financial need

2. A college may determine that the expected family contribution is higher

3. A financial aid offer may not include favorable terms (e.g., heavy loan dependency)

If that happens, you may find yourself in a position where you need to make hard choices on what you can and cannot afford.

For example, as an in-state resident, is it worth the cost of room and board over being a commuter if the additional cost will be paid with loans? That is a personal decision, but you should be prepared.

If you understand what you MUST pay compared to what the college is saying you SHOULD pay, you will have some control over the actual cost of attendance. And with that knowledge, you can choose to accept or decline the financial aid package offered, either in its entirety or in part. It is not an all or nothing proposition.

Hopefully, this provides a very basic understanding of the cost of attendance. If you find this helpful or believe someone else might, please feel free to share.