by Zach Miners

Students applying to college and for financial aid are being hit with a double whammy right now: Acceptance letters and financial aid packages are making their way into mailboxes, and certain provisions in the controversial healthcare bill recently signed by President Obama promise big changes to the student loan industry.

Change might be on the way, but making sense of the language and the breakdown of various forms of aid on your award letters right now -- and using that information to compare colleges -- can be tricky enough. To get the skinny, we spoke with Mark Kantrowitz, founder and publisher of and publisher of, two hot online resources for financial aid tools and advice.

What is the first thing students should look at when they get their financial aid package?

A lot of these financial aid award letters will not be entirely upfront about all the costs. It won't be possible, right off the bat, to do an apples-to-apples comparison. Schools might not be listing the same set of costs. Some might just be listing tuition and fees; others might be listing the total cost of attendance, which includes room and board, books, transportation costs, and miscellaneous expenses.

What is the best way to determine that "total cost of attendance" for a school?

Visit the financial aid section of the college's website. Sometimes they'll bundle everything together into one overall figure. The school's catalogue often has detailed information. You can also always call the financial aid office.

[Read Comparing Financial Aid Offers.]

What figures, exactly, should students be comparing across colleges?

There are two different figures you can look at. One is the number that the colleges tend to emphasize -- the net cost. This is the need-based financial aid package subtracted from the total cost of attendance. And make sure that you're not subtracting any unsubsidized Stafford loans or Parent PLUS loans, because that is not need-based financial aid.

Your out-of-pocket cost, which is what you get when you subtract only grants and scholarships -- that's your free money -- from your total cost of attendance, is more important. This is more important because everything else is money you're going to have to come up with on your own, either by working for it through work study, borrowing it, or taking it out of your savings or some other source. Loans aren't really financial aid. They might provide cash flow assistance, but they're not giving you money that doesn't have to be repaid.

Should you subtract work study from total cost to get your out-of-pocket cost?

Yes and no. I don't care whether you include it or not, as long as you're consistent across the colleges. Work study is part-time employment. If you don't want to consider work study as a form of financial aid, then exclude it from the subtraction. I usually exclude it.

[See our Financial Aid Letter Decoder]

Once students know the out-of-pocket cost for each school, then what?

Cost shouldn't be the only factor in your decision, but it should be a contributing factor. If the difference in out-of-pocket cost between two colleges is $1,000 or less, it really shouldn't make that much of a difference in terms of which of those colleges you choose.

If you have a significant difference in out of pocket cost between several colleges, you should check the net costs of those colleges to see if those also differ. If net cost differs, that's usually a sign that there was a piece of information available to one college that was not available to the other colleges.

What kind of information?

Job loss, salary reduction, a family member's surgery, things like that. If you do have an unusual financial circumstance, you need to tell the school and ask for what's called a professional judgment review. Some schools call it a financial aid appeal or a special circumstances review.

So students shouldn't go back to the financial aid office to ask for more money unless there are specific circumstances?

The process is driven by information and documentation. If you try to get schools into a bargaining situation, it's just not going to do any good. If there is a difference, you bring it to their attention. It's not that they're saying, "Oh, you're getting $2,000 more from this other college. We're going to match that offer." That really doesn't happen all that often. What is more likely is they say, "Oh, there's this piece of information you told to them that you didn't tell to us." Then they plug it in and out pops a new figure.

Colleges don't really get into bidding wars. If they believe that you're going to have a 3.75 GPA and you're middle income and the difference is only $500, maybe you'll get it -- if they think they have a good chance of getting you to enroll as a result. But if you're low income, you're already getting full aid. If you're high income, it doesn't really make that much of a difference.

How should students think about their debt upon graduation?

Obviously, if you graduate with no debt, you're going to have much more flexibility than if you graduate with some debt. There's a lot of freedom in graduating with no debt. It might be worthwhile to go to, say, a second-tier school if you're intending to go on to graduate school at a top-tier school. And sometimes you'll get in easier to a top grad program if you went to a less well-known institution for undergrad, because the top-tier schools want to have a bit of diversity in the sources of their students.

Another consideration is you need to compare the total amount of debt you're going to be taking on to pay for your education versus the starting salary for your field of study -- that is, if you already have career plans. If the debt exceeds your starting salary, you probably should go to a less expensive school. If you borrow twice as much as your starting salary, you're at very high risk of default. You will have to use extreme measures like living at home with your parents after you graduate for the next two decades in order to avoid defaulting on your debt!

There's another rule of thumb that I use. I take the 90th percentile debt at graduation by degree as a sign of overballing. For a bachelor's degree, that would be $45,000. For an associate's degree, $25,000. If you're borrowing more than that, you're probably overballing.

But it depends on the field of study. If you're going in to nursing or computer science, you might be able to afford more debt than $45,000. But if you're getting a degree in art or sociology, you probably shouldn't be borrowing $45,000.

How would high school seniors determine now what they're likely to owe when they graduate, or how much aid they might receive for sophomore, junior, and senior years?

Generally speaking, they will get the same amount of aid, barring significant changes in financial circumstances. But still, when there's a financial aid night or you're going on a tour of the college, a good question to ask is how next year's aid package will compare to this year's aid package, assuming everything is the same.

Is what you get out of college a function of what you put in? How important is name recognition in comparison to the amount of financial aid that is offered?

A funny story was told to me about MIT students during welcoming orientation session. The dean of students said, "How many of you expect to graduate in the top half of your class?" Everybody raised their hands. Somebody has to be in the bottom half. There are indeed going to be some students who will slack off. And that can happen just as much at a small rural institution as at an urban university in the middle of the city.

You need to know yourself and how you're going to react. You're going to college first and foremost to get a degree. You should pick the college where you will be most likely to get a "good" degree, and you do that by figuring out what interests you. You don't need to know if you're interested in biology, cellular biology, or genetics. You'll figure that out while you're there.

Some of the third-tier institutions might provide academic scholarships to attract talented students. So in that case, you'll be balancing a much more generous financial aid package -- maybe even a free ride -- in exchange for attending a less well-known institution. And if you're a talented student who's driven, you can do well anywhere. If you need prodding from the outside, you might not do as well in a less aggressive environment.

But in general, if the difference in cost between colleges is less than $1,000 a year, cost should not be a factor. But if it's more than $5,000, I would strongly recommend going with the lower-cost school.

Should students think twice about schools that have high rates of loan defaults?

They can check that online. The Department of Education's College Navigator provides that information. Or they can Google "default rates," or "cohort default rates," and they can check each individual school. A high default rate is a sign of one of two things. Either the students aren't graduating, or they are graduating but they're not getting jobs. For some colleges, students don't get jobs because the school serves students from a region with high unemployment rates, or some other demographic factor. But if it's a college that draws from a wide area of the country and it has a high default rate, then you should consider that maybe that says something about the quality of education. If it's under 10 percent, that's probably not worth focusing too much on. If the difference in default rates is only a few percent, then that's not enough of a difference to tell you anything meaningful. But if you've got one college with a 25 percent default rate and another that has a 2 percent default rate, that difference is significant.

Anything else seniors should be mindful of?

Students might not want to hear this, but listen to your parents! They can provide good advice. That doesn't mean you have to do what they say; it just means listen and take what they say into account.


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Education: How to Pick the Best College for You and Your Wallet | Zach Miners

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