I wanted to share this note that I got today from a mother, who wonders about the fairness of merit aid scholarship policies. In my next post, I’ll comment on Rebecca’s note. I’d urge you to share your thoughts on this subject in the comment box below.
— Lynn O’Shaughnessy
Hi Lynn,
I would love it if you would write (perhaps again) about those of us with less than full need for tuition at liberal arts colleges, but more need than our Expected Family Contribution on the FAFSA would indicate.
Our 2012 adjusted gross income is about $127,000, and our EFC is just over $38,000, just about $20,000 less than the full cost of the expensive liberal arts colleges. Carleton, Macalester, Pitzer and Macalester are among those to which my son has applied. All these schools cost in the mid to upper 50’s, and all “full need” schools, with little merit for non-National Merit Finalists).
Carleton College
My son has also applied to other schools which award merit aid as well as need-based aid, some up to half or full tuition (Lawrence, Knox, University of Puget Sound, Kenyon, Oberlin). Lots of schools, yes, but the reason we agreed to allow him to apply to that many is that financial aid for those of us who are neither full pay nor full need seems to be a complete crap shoot.
The net price calculators returned results varying by up to $15-20 thousand a year in cost to us. Some of that is accounted for by the difference in original cost, but some of it is the variation in what the schools seem to think we are capable of paying.
Early Merit Scholarships
My son has received two early acceptances, from Knox and Lawrence, each with approximately $20,000 in merit money – a fantastic result, and a well-deserved recognition of the stellar record my son has amassed throughout high school. In spite of that record and the wonderful merit offers, we’re not likely to receive any additional financial aid from either of those schools, because their merit offers exceed our need, given their costs.
My guess is that either school would have provided approximately that amount of need-based aid, or slightly less, if my son had not qualified for merit aid, and I expect that at least some of the schools from whom he has not yet heard will provide an equivalent amount of need-based aid if he is accepted.
So for those fabulous students from families like ours with some financial need who can get accepted at these great schools, the merit aid, unless it exceeds our identified need amount, does not dramatically change the bottom line cost to us.
Merit Aid vs. Expected Family Contribution
If we could afford to pay full costs, the merit aid would directly reduce our costs, and it would (obviously) be aid provided in excess of our need. Yet for those of us with some financial need, merit aid being offered by these schools is essentially subtracted from our “need” amount, rather than being available for our use in paying our EFC.
It seems like many of the ways that schools choose to use their financial aid dollars seems to be social engineering of one sort or another. I am not at all clear on the theory behind providing merit aid in excess of need to 
full-pay families, while not allowing merit aid to be used to pay our EFC.
I have additional concerns (in the context of need-based aid) about schools providing accommodation of families’ choices to pay for private elementary and high school tuition, yet requiring tax-deferred retirement contributions to be added back in and considered as income for that year. What goals are the schools who make these decisions seeking to accomplish with the policies they employ?
I know that the merit aid offers are made before the schools have a full sense of a given family’s financial circumstances, so they wouldn’t necessarily know whether a high caliber student would require additional need-based aid or not, or whether they might be a full-pay student, whose family would benefit from the merit aid in a way that a family with some financial need might not. That is, they wouldn’t know whether the merit offer is money they might not otherwise expend, or whether it is just substituting for need-based financial aid it would otherwise provide to a partial-need family.
Unfair Merit Aid Policies?
It seems exceptionally unfair to high caliber students in the partial need category to not allow merit aid to be used by the family to pay the EFC.
Please understand that I know this is a situation confronting a fairly narrow range of students, and that we are, in many ways, very lucky to be in circumstances where it affects us. The policies will not determine whether or not my son can go to school, or even whether he can go to one of these horribly expensive private schools, but they clearly make an enormous difference in what a given family will pay for that privilege.
I would love your help to better understand what the colleges’ goals are with these policies. Otherwise, they just seem rigged to help the very wealthy. Would love to hear your thoughts. And thank you for your blog – it has been enormously helpful for us in this process.
Rebecca
Rebecca wrote a thoughtful note that demonstrates that she is a lot more savvy about this subject than most parents. So what do you think folks?
Are you frustrated with how college price themselves? Are merit scholarships fair? I’d love to know what your opinion is. Lynn O.
Learn More from The College Solution:
What Is Your Expected Family Contribution?
A Wealthy Mom’s College Questions
5 Reasons to Attend a Liberal Arts College
8 Financial Aid Mistakes to Avoid
Steve, you’re not being “harsh.’ You are just a cheerleader for a terrible status quo.
For example: My son was given a composite offer: grant, work-study and loan. Then he was given a merit scholarship. His grant was reduced by the amount of the merit award, so it was a wash. If we were wealthy enough to afford to pay for college with no assistance, we’d be getting a gift of that merit money. More money where we did not “need” it (and therefore less need-based money available for others). It’s a benefit for the rich and not the middle-class. The same happened when my daughter applied to school–she selected a school that opposes the awarding of merit aid.
I don’t want to be given a Mercedes paid for by someone else. But yes, I’m pissed when a rich family (that could fully afford it) is given a Mercedes for a massive discount, when I have to pay for mine with a loan. Life’s not fair–you’re completely right. The difference is you seem to support this sort of privilege; I don’t.
The colleges know what they are doing with merit aid–and it’s not providing a benefit to help anyone who needs it–other than themselves. More rich attending means more donations immediately, which raise the quality of the student center, dorms and gym, which results in more rich folk applying etc., and the cycle continues. The rich, the privileged, the “legacies” do all they can to make sure life stays the way it is. You argument is firmly in the camp of supporting privilege for the few.
For the record, I drive a Honda, purchased used.
I Must Agree, If Your Family Has $120,000 of Income, You Are Likely To Be In A Better Position Than A Family Making Less Income. It Seems Justified To Me To Charge A Higher Bill To The Richer Family…I would like to add that Community Colleges and State Colleges are always a good option. In the End, the College Education You or Your Child Receives Highly Depends on How Much Effort The Student Puts Into Learning and Making The Most of Their Education! I Believe An Ivy League Student Could Go To Community College and Still Be Highly Successful In Life…that is the story of my life in a way…
I am in the same situation as I look at colleges for my 11th grade son. Our EFC is more than 25% of our yearly income–how are we supposed to adjust for that? Are we expected to take out a home equity loan that we will be paying off for 30 more years–into our retirement? I have been so stressed because I don’t know if my son (who has worked so hard all throughout high school) will have many colleges to choose from because nearly all of them are looking for what seems to be an untenable family contribution. Then we have an 8th grader, so basically, we will be expected to pay 38,000 a year for seven years. I’m not sure where that is coming from, when my husband I both drive cars with over 215,000 miles on them and have very little savings.
I am curious how many families are like ours in that they qualified for financial aid and merit scholarships. We are lower middle class economically speaking. My income varies a lot because I do contract work. All schools gave us the same size Pell Grants, but differed in merit and need based grants they awarded. I liked that merit aid was a larger component at one school because that portion of the aid would remain even if we had a good year. (Experience has taught me that years when I earn a lot are often followed by lean years.) This difference in the way the financial support was packaged meant my daughter will be attending a somewhat less well known school that is still academically strong but far from home.
I also think the use of Merit Aid is good because it is paying her for her hard work in high school. I think merit money is fairly new and that if lower income families find that their children can get substantial scholarships for good grades and good test scores there will be more families like ours that qualify for both.
I have four children, and my oldest is a senior in high school. The whole college selection process has been like falling down the rabbit hole.
I agree about the unfairness of most colleges’ scholarship policies. If your child receives a scholarship, they reduce their award by that exact amount. So in the end, unless you are paying full tuition, any scholarships are a wash. So they sound great, but reduce your tuition by $0. So why bother? I don’t have issues with schools being able to set their own policies, they just seem strange.
And the financial aid process also rewards those who don’t save. If you have money saved up, they take it (and then some). If you don’t have money saved, they give you more aid. Bizarre.
The whole process has been so confounding that I’m jotting down my thoughts and thinking about turning them into a book.
I do know that I will take an entirely different approach to the college selection process for child #2, thankfully not for three more years.
John “Wiser but poorer” Mac
I sympathize with you John. You should know, however, that saving for college rarely impacts financial aid. Mark Kantrowitz over at FinAid.org estimates that only 7% of families are impacted. It’s the wealthier families who are impacted. Here is a story that I wrote about this topic: https://www.thecollegesolution.com/will-your-savings-hurt-your-financial-aid-chances/
Also, how colleges treat outside private scholarships differ. Some reduce the grant portion of an award by the amount of the outside scholarship and others reduce the loan portion or go halfway. Private scholarships are a very small portion of college money. Only about 7%. The big money is from the schools themselves.
Lynn O’Shaughnessy
I am in the process of filing my son’s FAFSA and ran some on line EFC calculators and I agree that if you live in a more expensive area, your cost of living works creates a disparity in their version of what you should be able to contribute and have left to support your family. We live in a far suburb of Chicago with similar income to this example. The estimated EFC’s were around $33,000. When you look at the detail of their formula they were saying we had $83,000 available income and with an EFC of $33,000, we should support a family of 4 on $50,000. However, just my real estate taxes and property insurance are $9,000/yr. That doesn’t leave much left to pay a mortgage, utilities, food, etc. Thank goodness we don’t have a car payment. My son wants to attend a private out of state college that stickers for $37,000. they have preliminarily offered $14,000 merit money. Somehow we hope to make this work for him while not saddling him with too much student loan debt. Higher income is the biggest problem with their calculations as it has no regard for expenses.
A quick blurb for University of Puget Sound, mentioned in the list as a merit-giving school. Our son just finished his first semester. He absolutely loves it, he got a generous merit aid award, and he’s very socially involved on campus. We think his writing make a huge leap (really from B to A quality work, so we couldn’t be happier).
I think there’s this gulf in America’s definition of “rich”. I read somewhere that the category is HENRYs: high-income, not rich yet. The idea being that these (typically) two-income couples have relatively large incomes BUT they are both working so they have child care and summer camp expenses to earn those high incomes and usually large graduate school debts of their own to retire. Meanwhile to have these high-earning jobs, they live in expensive suburbs or cities. As a result of all this, the assets just aren’t there. It seems like the FAFSA tags these people, like us, pretty hard. Merit aid fills that gap.
Thanks Susan for your comment. What people overlook is that the EFC that the FAFSA produces isn’t supposed to be an accurate figure. The methodology for the federal EFC is created by Congress. Also, as you alluded to, people living in expensive parts of the country aren’t given a break by the methodology.
Lynn O’Shaughnessy
We are in the same situation. The income is not our adjusted gross, which is considerably less than $120K. Subtract taxes from that and our takehome pay is about $84,000. This means we are expected to pay half of what we take in each year. We have saved but the more we save, the higher our EFC is. Our son will be the 3rd child we have put through school, but costs are so high that we are not sure we can do it. He is a top student and should get merit aid because he has worked hard for it.
College costs are out of control. We also have simialr stats to Rebecca ( income of about $120k) and EFC of about $37k. this is not a high income in NJ. No fancy house or car. We have a small home that needs lots of updating. I drive a nine year old Honda. We have been saving for college since birth and only have about one year of private school tuition saved. How do colleges expect families to be able to afford 30 percent of income each year? I need need based aid.
We will be taking Lynn’s advice and search out coleges that offer a good value for the money.
Thanks Michelle, How much do you expect to pay is THE question for sure and it is not easy to answer since the pricing scheme is individual to the college and to the family.
WOW that is amazing! CollegeResults.org shows the FTE (which I think is the number you mentioned) and it is very revealing. We have a great state flagship (spends about about $9,000/ student) and compared with another private school that we are considering which spends more than 4 times as much. I am thinking the flagship may spend more on certain majors that are STEM because their overall ranking in this area is high nationally. I suppose location might figure in as well if a school is in an expensive area? This is an interesting way to compare.
I find these discussions very interesting. I guess my question is how much do you expect to pay for college? My husband and I had very similar “stats” to the family in the letter. We always expected to have to pay for at least the full cost of our states in-state tuition. We expected our son to qualify for merit aid to bring the cost of private schools close to public.
But I don’t think we ever really took it as a scholarship that our son earned. It was more like his academic accomplishments were the minimum entry requirement. If you met the requirement at less competitive colleges, the school “discounts” your tuition to make it competitive with in-state tuition. After all, even with a $38,000 EFC the family would still be on the hook for the entire tuition at a public school.
As for families who can afford the full tuition, yes, they get to deduct it from their EFC but life is like that. And I don’t think the lower income families are getting that big of a break. Just take a look at the net price by income in the College Navigator. I did a little research on it because there seems to be a lot of financial aid “envy.” http://diycollegerankings.com/financial-aid-low-income-students-no-cause-envy/2751/
CollegeResults.org shows expenditures per student although that isn’t really the “true cost” of educating a student. It can be interesting for comparing colleges. The average is going to be less than half, if not a third of the actual tuition. Any place where it comes closer to the actual cost isn’t going to be offering merit scholarships. The information comes from IPEDS and includes research, student services, and institutional categories.
Michelle — Excellent point & excellent article on DIY. Thank you for taking the time to put that together.
When do people start saving for their kids education? I work with a lot of students in SE Asia who pay full tuition (+ international tuition) semester by semester.
Yes, they make enough to write the checks, but they also set aside a fund for each kid around birth.
How does that work with American parents?
Craig
It is very frustrating when EFCs come back much higher than families feel like can afford to pay. Two things I would keep in mind as you consider the value of merit scholarships versus financial aid. First the merit scholarships are 100% free money you are not obligated to pay back. At most colleges part of the financial aid package will made up in part of loans and student work – in other words, not free money. Also, it is worthwhile to remember that many schools have a pretty significant gap between the student’s determined need and the aid they actually receive.
One benefit of replacing need-based aid with merit aid, I believe, is that the $20,000 in merit aid would be grant, while if it were $20,000 of need-based aid it would include a loan component and a work study component. So for families like this, with an EFC of 35-40K, a discount in the form of merit aid may reduce both the student’s debt burden and the need to work during the academic year.
Just ten years ago, Carleton College’s total cost of attendance was around $31,000 per year. Now it is around $58,000 per year. I am not picking on this college; Carleton’s costs, then and now, are typical of most similar colleges. I don’t know about you, but my income has not doubled over the past ten years. I would like to second Mike’s comment – how has is become “normal” for an undergraduate education to cost a quarter of a million dollars? This is the major reason that families such as Rebecca’s are in such a bind. There are many families with no identified “need” who may not reasonably be able to pay 50K for 4, 8, or 12 years running (depending on number and ages of children).
I wonder if those colleges that do not give merit aid will find that their student body is becoming increasingly bifurcated – lots of full-pay students and lots of students with significant need, but not so many high-achieving students from stable, mid-higher income families. Those students may increasingly go to schools offering at least some merit award.
It is very confusing and a long process to figure out.
What is the true cost to the private school of educating one student ?
I know it will be different for each school but I wondered if this could be known?
It would be interesting to compare the true cost to how much more or less you are asked to pay above or below the true cost. So say the true cost was 30,000 and you are asked to pay 38,000 you have a sense of the value.
Is this something that is known Lynn?I love how you are such a strong advocate for knowing the numbers!
Good Morning Lynn,
Thanks for sharing the experience from this parent and my heart goes to her and her son.
The pattern that I have seen in my job as a public school counselor is that my low income families do get all the financial aid available even it is means getting loans to cover for the entire cost. Those students who have a talent or are accomplished do get merit aid scholarships even if they come from affluent families (I will have to pay attention next time to the EFC) and end up attending private schools because it is cheaper than to enroll at a CSU or UC (California public). Now, where I have seen the unfairness is with my middle income families because if they end up receiving any merit aid scholarship is very limited and any outside scholarship is just applied to reduced their loans amounts and at the end, these bright students end up attend a 2-year community colleges because parents can’t afford to send them away.
And that is why the great majority of our students end up attending either a CSU or a UC (which by the way has the gold and blue program for families earning 80,000 or less I believe).
Very wealthy, as a term, is nebulous. In the eyes of many (not mine), a family with an adjusted gross income over $120K might fall into that category. To me, a family that can freely write a check for the full amount without adjusting any of their other expenditures would meet that definition. See…nebulous. At the most selective schools, families with EFCs at or in excess of the total yearly obligation will receive nothing.
Granted, families with more disposable income will find it easier to bridge the gap financially. They will also find it easier to buy a Mercedes and get even a better deal when Mercedes offers purchase incentives. Families on a Honda budget, still won’t be able to buy a Mercedes regardless of the incentive.
But that’s not the issue. The issue is that there are no more Hondas in the college ranks. it used to be that a family could say “As long as they don’t go to Harvard or Yale, we’ll be fine.” Not any longer. Nearly all private institutions are over $200K.
Rather than eschewing USNWR’s college ranking system like Reed did, most schools went on binges to try to increase their attractiveness. That included infrastructure projects unrelated to the task of educating students such as fancy gyms and giving out merit aid to students that met certain thresholds on standardized test scores, mainly NMSF or higher. Why? To get more students to apply. Why? So they can reject a higher percentage than they did previously, increasing their “selectivity,” a major component of the USNWR ranking.
The problem is that every institution did it at the same time. Who pays the bills? Students in the form of increased tuition.
So, the issue isn’t so much about fairness in the distribution of aid. The issue is why have we allowed an undergraduate education to creep up to a quarter of a million dollars?
I am in a very similar situation to that of Rebecca with my oldest daughter. Large merit scholarship offers, but probably no need-based aid. I look at the merit scholarship as a gift because it is “free money.” If my child had little to no merit scholarship and was still accepted at the same schools, it looks like per the net price calculators that she would have received the same amount in grant money (also “free money”). It would be ideal to be given the merit scholarship on top of the grant money, but that is unfortunately not the way it works. Schools would never be able to exist charging us so little. So like Rebecca, we accept this reality and move forward.
The reality is that wealthier families with high EFCs need to fund more of their own children’s educations so that those with very low EFCs can get the majority of the need-based grants. I can accept this because I too realize that I am fortunate to be in this situation and realize that I am responsible for saving enough to be able to cover our EFC. I’m afraid most parents don’t understand the EFC concept until it is too late in the college search process.
For parents who have very high EFCs and who feel like they can’t cover the gap between EFC and school cost, they may be setting their sites on schools that are beyond their means. I see it as our duty as parents to guide our children towards a list of schools that are not more expensive than we can handle. Of course we want the best for our kids, but it is a delicate balance between where they will get the best education and what we can afford.
I think it is great to have blogs like this one out there to help educate parents so they understand all of this early on in the college search process and hopefully make the best choices up front to minimize out-of-pocket college cost.
Lynn,
Please, not another letter from a parent who wants to drive a Mercedes, but wants someone else to help her pay for it. Your writer gets no sympathy from me.
Many families, including mine, are in the same financial situation. College is expensive. A liberal arts education is a luxury item.
Colleges know best how to use their finite resources for aid. The rules are pretty well established, and apparently work for schools like Macalester and Carleton and Pitzer.
Did your writer look at any of the following, excellent liberal arts colleges, all of which offer incredibly generous merit aid, even full rides, for exceptional students?: Hendrix, Claremont McKenna, Colorado College, Centre or Washington and Lee [to name a few]. If not, then as the parent of a “stellar” high school student, she should have cast a wider net. A Honda Fit is a pleasure to drive and will take you anywhere you want to go.
I’m sorry to sound so harsh, but life’s not fair.