Financial aid policies vary by institution. Out of the approximately 6,900 accredited institutions of post-secondary education, less than 2% of these institutions share Notre Dame's policy of "Need-Blind admissions" and "Meeting the full demonstrated need." For more information on Notre Dame's financial aid policies, you can visit the Office of Admissions site.
In addition to government loans, many institutions include private loans in their financial aid packages, or they may "gap." The scenarios are intended to illustrate financial aid packaging strategies at various types of institutions and are preceded by the definitions of some related concepts.
- Cost of Attendance (COA): This is the total cost of attending the institution for one year. It includes: tuition and fees, room and board, books, transportation, and personal expenses.
- Expected Family Contribution (EFC): This is an estimate the amount that the family is expected to pay. It has two components - one is parental contribution derived from parent income and parent assets, and the other is student contribution which is derived from student income and student assets. These amounts are calculated annually through the submission of the Free Application for Federal Student Aid (FAFSA) and/or the CSS Profile.
- Financial Need (FN): This is the difference between Cost of Attendance and Expected Family Contribution.
- Scholarships or Grants: This "gift" money that does not have to be repaid. It may come directly from the institution, or it may come from another organization (e.g., civic organization, parent's employer).
- Student Work-Study: This is money that the student can earn by working typically at an on-campus job.
- Government Student Loans: These are the Stafford and Perkins Loans. Students qualify for these loans by submitting the FAFSA form. If a student demonstrates need, he/she may be eligible for a subsidized Stafford Loan. This type of loan has no interest charged while the student is enrolled at least half-time, during the grace period, or during deferment periods. In addition, if the student demonstrates greater need, he/she may be eligible for a Perkin's Loan which is also subsidized. If the student is unable to demonstrate need, he/she will be eligible for an unsubsidized Stafford Loan where interest is charged during all periods (while enrolled in school, during the grace period, and during deferment periods), however the student can have payments deferred until after graduation. For more information on Student Loans visit FinAid.org, or StudentLoans.gov.
- Parent Loans: These are unsubsidized loans that the parents of dependent undergraduate students can borrow to help meet the cost of the Expected Family Contribution and/or any "un-met need." The repayment of these loans are the responsibility of the parent, not the student. For more information on Parent Loans visit FinAid.org or StudentLoans.gov.
- Private Loans: These are unsubsidized loans that can be given to either the parent or the student and are not administered or sponsored by the federal government and typically require the borrower's credit worthiness and/or a co-signature. For more information on private loans visit FinAid.org or your private lending institution.
For the following examples, we will describe two institutions:
- Institution M - meets the full demonstrated need
- Institution N - does not meet the full demonstrated need
Let's look at their cost of attendance (COA):
|Institution M||Institution N|
|Tuition & Fees||$40,000||$35,000|
|Room & Board||$10,000||$7,000|
For our examples, we will use the Jones family which has 2 children, and the first is going to college next year. The Jones family has an Adjusted Gross Income of $110,000, and approximately $100,000 saved in non-retirement assets. They have submitted its FAFSA and CSS Profile forms and the Expected Family Contribution for both happen to be the same - $30,000.
|Institution M||Institution N|
Institution M meets full need which means that they will create a financial aid package that meets the "Financial Need" (FN) amount. Institution N does not meet full need, so they will not always package to meet the FN amount. The sample financial aid packages for each school attempt to illustrate the differences.
|Institution M||Institution N|
|Work Study||$ 2,500||$ 2,500|
|Stafford (subsidized) Loan||$ 3,500||$ 3,500|
|Stafford (unsubsidized) Loan||-||$ 2,000|
|Perkins Loan||$ 5,500||$ 5,500|
|Total Financial Aid Package||$22,500||$13,500|
In this example, Institution N's package had a $1,000 gap as the total amount in the financial aid package is $1,000 less than the student's financial need. In addition, Institution N included $2,000 more loans in their financial aid package than Institution M did.
So where does a college savings plan come into play during these financial aid calculations? And does having a college savings account reduce one's ability to receive financial aid?
These are good questions, and the question of the impact of college savings accounts when calculating financial aid comes into play when viewing the "expected family contribution (EFC)." The EFC is comprised of two components, parent and student contribution. Each of those components can be further broken down into income and assets. A college savings account would be considered an asset. When calculating financial aid, a flat 20% of a child's assets are included in determining the student contribution. However, parent assets are treated differently. First, some of the assets are excluded from the assessment based upon certain allowances intended to protect parent's assets such as:
- Qualified retirement plans (e.g., IRA, 401(k), 403(b)
- Value of the family's primary residence
- Value of small businesses owned and controlled by the family
In addition, parent assets are assessed on a graduated system from 0% to a top rate of 5.64%.
From the above example, the Jones Family had $100,000 in non-retirement assets (of which $5,000 are student assets). Consider the following two scenarios:
- Scenario 1 assumes that the Jones Family does not have any savings specifically for college
- Scenario 2 assumes that the Jones Family has $30,000 (of the $100,000) in a 529 savings account owned by the parents.
|EFC Generated From:||Scenario 1||Scenario 2|
|Parent Assets (Non-529)||$ 4,750||$ 3,250|
|Parent Assets (529)||$ -||$ 1,500|
|Student Income||$ 2,000||$ 2,000|
|Student Assets||$ 1,000||$ 1,000|
As one can see by comparing scenario 1 & 2, the Jones Family did not experience any increase in Expected Family Contribution by using a 529 Plan to save for their child's college education. In fact, by doing so, they were able to enjoy the advantages of a 529 Plan such as federal tax-free growth and withdrawals. In addition, by using a 529 Account, the Jones Family was also able to take advantage of its state's tax incentives for contributing. And now, when the Jones Family is faced with a $30,000 payment that they have to make for their child's first year of college, they can take some of it from their current income, but they also have resources saved that they can use to give them more flexibility in their household budget. If the student chooses to go to Institution N that does not meet full-need, the Jones Family can use $3,000 from the 529 account to offset the gap and the additional loan amount (when comparing to Institution M's package). Not only would having such an option using the 529 asset offer the student a reasonable and reachable choice, it might also serve to reduce the need for financing.