Paying for College: The Parents’ Guide to Financial Aid and Scholarships

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Financial Planning:

The time has come. Fewer than 2 decades ago, you were watching your baby take their first steps, and now you’re planning to send them to college. Perhaps you started saving when your child was born or opened a college savings account as they grew older, but you still aren’t sure if your savings is enough to cover it all or what to do if it isn’t.

Since this is a topic near and dear to many of our clients’ hearts, we decided to compile the fundamentals on financial aid and scholarships for our extended audience so you, too, can gain some clarity and confidence around how you’ll pay for this major expense.

How do most families pay for college?

Most families pay for college using a combination of savings, income, and financial aid. In what ratio you use these resources will be dependent on your personal financial situation.

There are four main types of financial aid: grants, scholarships, loans, and work-study programs. Financial aid can come from the federal or state government, the college, or private organizations.

However, as financial advisors, we would be remiss if we didn’t preface this with the advice that it’s wise to prioritize grants and scholarships—forms of aid that do not require repayment—over loans. If you can avoid taking out debt to pay for college, this will likely be in your best interest.

Facts to Consider BEFORE You Get Started

  • Most full-time college students receive some kind of financial aid.
  • Applying for financial aid isn't the same as applying for admission to college. The financial aid application process has its own forms, deadlines, and requirements.
  • The most important step in applying for financial aid is filling out the FAFSA. Your child may also have to fill out other forms, such as individual colleges’ financial aid applications.
  • To get nonfederal financial aid from many colleges and scholarship programs, your child needs to fill out the CSS Profile™. We’ll go over this in more detail below.
  • Don't wait for your child to be admitted to a college before applying for financial aid.

I. Scholarships and Grants

The terms "scholarship" and "grant" are often used interchangeably, but there are usually differences between these two forms of aid. Most grants are need-based, and most scholarships are merit-based.

Scholarships and grants, often referred to as "gift aid," are preferable forms of financial aid because they do not need to be repaid. While grants typically focus on financial need, scholarships usually reward merit. Both can originate from governmental bodies, educational institutions, or private entities. Scholarships from private organizations are sometimes called outside scholarships because they're not part of a college's financial aid offer.

Receiving an outside or private scholarship may decrease the financial aid offered by your college. However, this does not necessarily mean you will pay more out-of-pocket for college expenses. Instead, the funds from the scholarship will simply take the place of some of the dollars originally allocated in your financial aid package.

Sources of Grants and Scholarships

Navigating the myriad sources of grants and scholarships can be overwhelming, but understanding where these funds come from can significantly simplify the search process. Here are the primary sources of grants and scholarships that students and parents should consider:

  • Government Sources

Both federal and state governments offer a substantial amount of gift aid, primarily through grants. The federal government is the largest provider, most notably with programs like the Pell Grant, which is designed to assist undergraduates with significant financial need. On the state level, numerous grants and scholarships are available to residents attending college within their state, often with the intent of encouraging students to continue their education locally and contribute to the state's workforce.

  • Educational Institutions

Colleges and universities frequently offer their own grants and scholarships as a means to attract talented students and make college more affordable. These awards can be based on merit, such as academic achievement or athletic ability, or on financial need. Some institutions provide a combination of both, with different stipulations for maintaining eligibility throughout the student's academic career.

  • Private Organizations

A variety of private organizations, including corporations, foundations, community groups, and professional associations, also sponsor grants and scholarships. These awards can target specific types of students based on factors such as study fields, heritage, community service, or even unique personal qualities. Examples include scholarships from major companies, local civic groups, and national organizations dedicated to the advancement of specific demographics or interests.

It's Time to Research and Apply for Outside Scholarships

Start by talking with your child’s school counselor about how to find outside scholarships. You can start by using free online searches, such as the College Board's Scholarship Search. To apply for an outside scholarship, you’ll probably have to fill out an application form, and you may also have to submit financial aid forms.

Your child’s school counselor may also be able to share the listings of some local, community-based scholarships your college-bound teen can apply for. These can be incredibly helpful for students and parents who take the time to research and apply for these forms of gift aid.

II. Fill Out Your Free Application for Federal Student Aid (FAFSA)

The FAFSA is the form you need to fill out to apply for federal and state grants, loans, and work-study funds to help you pay for your child's college tuition. The form asks questions about your family's financial status to determine the amount of aid you qualify for. You must submit a FAFSA to receive any federal aid.

You can submit your FAFSA starting in December, as it is currently undergoing a redesign and simplification. We will share more information when we know about future application opening dates. Each state and college may have their own, earlier deadlines, so be sure to add those to your calendar.

The Free Application for Federal Student Aid (FAFSA®) form is the student’s responsibility, but when a student is considered a dependent student for FAFSA purposes, parents have a large role in the application process. Educate yourself about the process and opportunities so you can provide the guidance your child needs to do their part. 

Your child can apply for not only federal student aid but also student aid from states and schools with the FAFSA form. 

It is important to understand whether a child is considered a dependent student and who is defined as a parent for FAFSA purposes. 

Before Filling Out the FAFSA® Form 

You and your child each need to gather these documents: 

  • Social Security number or Alien Registration number if you are not a U.S. citizen but an eligible non-citizen
  • Federal income tax returns, W-2s, and/or other records of money earned. If you’re applying in the 2023─24 Award Year, use your 2021 tax return and other documents.
  • Bank statements and records of investments (if applicable) 
  • Records of untaxed income (if applicable)

Filling Out the FAFSA® Form 

The FAFSA form should be submitted as soon as it’s available because funds are limited. States and schools use FAFSA information to award their aid, and state or school deadlines may be earlier.

Multiple ways to complete the FAFSA form are available: 

  • Log in at fafsa.gov to fill it out online. 
  • Complete a FAFSA PDF for the award year you’re applying for (note: you must print out and mail the FAFSA PDF for processing).

The FAFSA form is your child’s application, so keep in mind when it says “you,” it means “you, the student.”  Once your child’s FAFSA form is submitted, the “Confirmation” page will appear on the screen. Depending on your state, you may find a link to your state’s financial aid application here.

The information you and your child report on the FAFSA form is used to calculate your child’s Expected Family Contribution (EFC), which  

  • measures your family’s financial capacity
  • determines how much federal student aid your child may be eligible for 
  • and may also be used by your state and the schools listed to determine grant and scholarship eligibility

Your child will receive an EFC on the Student Aid Report (SAR), which summarizes their FAFSA information. Using the FAFSA information and EFC, the financial aid office will determine the amount of aid your child may receive.  

After the FAFSA® Form   

If you submitted a paper FAFSA form, you can check the status after it has been processed (seven to ten days from date mailed). After your child’s application is processed, he or she will receive the Student Aid Report (SAR). Review your child’s SAR to ensure his or her FAFSA information is correct and complete. If necessary, make corrections. 

Encourage your child to read all communications from the school carefully and to supply additional information, forms, or signatures needed by the school’s deadlines.  

III. Additional Aid: CSS Profile

There's also nonfederal financial aid available from colleges and scholarship programs. Many schools and programs require your child to complete the CSS Profile online application to be eligible for aid.  

The CSS Profile gives colleges and scholarship providers more information about your financial circumstances and helps them determine how much financial aid they'll offer. If your child qualifies for an SAT fee waiver or meets other requirements, there's no CSS Profile application fee.

Your child can fill out the CSS Profile beginning October 1 to receive aid for the following school year.

IV. Understanding Financial Aid Awards

After your child applies for financial aid and is accepted by a college, they should receive a separate financial aid award letter from the college explaining the financial aid award, or package, that the institution is offering.

The package usually includes scholarships and grants, loans, and in some cases, a work-study program. It gives you an overview of all the aid your child will receive from the college and from federal and state sources, but not outside scholarships.

Sit down with your child and compare all the financial aid offers they've received. This will help them choose a college that’s the best all-around fit for them—academically, socially, and financially.

V. Filling in the Gap with Your Financial Advisor

This is critical juncture in the process as you will now know exactly what your child will owe and what options you have available to cover the remaining balance. In other words, now you can now see where the gap is—after federal aid and scholarships—and how much it will be to send your child to their school of choice. Do you have a 529 college savings plan to cover the remainder? Will you sell assets from a brokerage account? Pay with your ordinary income?

You’ll have to decide how to cover that gap. Maybe you choose a school with a greater scholarship award or perhaps a lower tuition. There are many paths that lead to the desired outcome, but which option makes the most sense for you financially might mean meeting with your financial advisor so that your child’s college expenses don’t throw off your other future financial goals. Remember, you can finance college, but you can’t finance retirement. Putting goals in perspective is something a financial advisor can help you accomplish.

At Colorado Wealth Group, we recognize that financial planning extends beyond simply managing finances—it's about crafting a roadmap for major financial milestones, including funding your child’s education. Financial planning involves a thorough assessment of your current financial situation, setting targeted goals, and formulating a strategic plan to achieve those goals. Our expertise lies in navigating the complexities of financial decisions, ensuring you feel confident and informed every step of the way.

As your financial advisors, we want to empower you with a deep understanding of the reasoning behind each strategy we recommend. That way, when you make a financial decision, especially significant ones like financing college education, you do so with clarity and confidence. At Colorado Wealth Group, we're dedicated to easing the stress associated with these pivotal financial choices, helping you move forward with assurance and strategic insight. Reserve a Consult with us today to see if partnering with us could be just what you need to move in the direction of your ideal future.

 

Advisory services are offered through Colorado Wealth Group, LLC, a Registered Investment Adviser (DBA “Colorado Wealth Group” and/or “CWG”).