Editor's note: This article originally appeared in the April 2014 issue of Kiplinger's Personal Finance.
Typical scenario for parents of a high school senior: Your student identifies a half-dozen colleges he’d like to go to. He spends long nights and fraught weekends filling out applications. The whole family waits anxiously for the acceptance letters. In the spring, he gets accepted to the school he likes most. Then you realize you’ll have to scrounge to afford the price of admission, if you can afford it at all.
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Maybe you need to turn the process around. To give yourself the best chance of covering college costs and avoiding debt, weigh the financial fit of a school at the same time you consider the intellectual fit and feel—say, six months to a year before your student applies. Wait too long and you could find yourself agreeing to your kid’s college choice when your pocketbook says no. “It’s not helpful for families to think about cost in March or April of senior year, when they have to make a May 1 decision,” says Frank Palmasani, author of Right College, Right Price (Sourcebooks Inc.).
The question of college affordability arose early for University of Rochester student Charlotte Humes of Bardstown, Ky. “I started thinking about cost before I even started the college search,” she says. Her stellar academic record, including a 4.0 grade point average and a perfect score of 36 on the ACT, meant she could expect generous merit awards from a number of schools, including public universities in her home state. But Humes had her sights set on the University of Rochester, a private school in upstate New York. After applying, she received an offer to interview for the university’s merit-based Renaissance & Global Scholarship, which covers tuition for four years. She landed the scholarship.
Humes knew she had a good shot at earning merit-based aid at the University of Rochester. She was clearly a competitive applicant—University of Rochester freshmen score between 29 and 32 on the ACT, on average, and have a 3.83 GPA—and the school awards non-need-based aid to 68% of incoming freshmen. A top-tier school might have met her full need (the difference between what the financial aid formula said her family could pay and the total cost of attendance), but because most of those schools don’t offer merit aid, she wouldn’t have been able to count on a full-tuition scholarship. The state school she applied to, Western Kentucky University, would have guaranteed a full ride based on merit. But it was not the intellectual fit that Rochester is.
Estimate your aid
As you start your search for colleges you can afford, you’ll need to know the types of financial aid available to you and how colleges and the federal government calculate it. Merit-based aid—typically grants you don’t have to pay back—is designed to reward students for their academic and personal achievements. It can come from state governments to encourage students to attend school in-state (Florida’s Bright Futures program and Georgia’s Hope Scholarship are examples), from outside scholarships or from colleges themselves. Schools typically use merit aid as a recruiting tool and often list scholarships and their criteria on their Web sites.
Need-based aid in the form of grants and loans comes from the federal and state governments as well as from colleges. Federal need-based aid includes Pell grants for low-income students, subsidized Stafford loans and Perkins loans, as well as work-study, a guaranteed on-campus job.
To get in on this aid, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA). Colleges use the FAFSA to determine your eligibility for federal need-based aid, and most public colleges and many private schools also use it to dispense their own financial aid dollars. The FAFSA uses a family’s financial information, such as income and assets, to determine “expected family contribution”—the amount of money your family is expected to pay for college each year. Family size and the number of family members who will attend college during the year also matter. You’ll be responsible for contributing about the same total amount whether you have one or four children enrolled.