For our newest blog series, we wanted to look at college planning and financial aid, as the student debt crisis has most certainly been a hot topic in the media recently.  For this series, we wanted to know exactly what students need to understand when it comes to financial aid, college financial planning, loan repayment, and student debt.  It just seems so complicated!

For the first installment in the “Ask the Expert:  College Financial Planning” series, we wanted to know what students should be concerned about when it comes to finances and applying for college.  To find out more, we spoke with Mark Kantrowitz, a noted financial aid and college planning author and publisher of FinAid and FastWeb, two resources for students looking to find out more about financial aid options available to them.

Kantrowitz tells us that students should ideally start looking at financial aid options as early as possible.  Often many students start looking their senior year, however, many of the deadlines have already passed.  Kantrowitz says that students looking to get scholarships should be planning for deadlines as early as junior year (if not earlier), so that they can get their applications in for those scholarships with deadlines in the fall of the their senior year.  He explains students should start considering financial aid as early as possible, as this increases the number of scholarships available to them, including those that they may earn in earlier grades.

According to Kantrowitz, when it comes to examining their options, they should weigh the cost of financial aid.  For students, he says, saving is always the better option.  “Every dollar you save is a dollar less that you’re going to have to borrow and every dollar you borrow, will cost you about $2 by the time you pay back the debt.”  It is simply the more affordable options, because when you save, you earn interest and when you borrow, you will pay interest. He gives us the example that, “If you were to save $200 per month for 10 years at 6.8% interest, you’d accumulate about $34,400.  If instead you were to borrow and pay back over 10 years at 6.8% interest, you’d pay $396/month.”  That would roughly double what one would pay if they were to save money instead.

Kantrowitz explains that students should also be aware of the actual cost of college.  He says that students should utilize a net price for college, which is the difference between the cost of attendance and just grants and scholarships.  “Think of it as a discounted sticker price.”  He explains that using this figure is a better basis for evaluating the cost of college rather than utilizing other cost evaluations.  Especially when it comes to the net price figures that schools will often provide on their websites.  Kantrowitz explains that these numbers will often include financial aid packages and loans, that do not actually lower the cost, but will rather increase the cost.

Kantrowitz also urges students to use caution with net price calculators that universities are now required to provide on their websites.  He explains that since October 2011 schools have mandated to host a calculator, however, he says that they really should only be used to determine a ballpark figure for net price.

According to Kantrowitz, there are a couple of major issues with these calculators.  The first major concern with these calculators is the number of questions the calculator has.  He says that much of the accuracy of these calculators is dependent upon the number of questions that they ask; while the standard calculator provided by the National Center for Education Statistics (NCES) contains approximately 10 questions, other calculators such as the one provided by the College Board, contain more questions.  The more questions a calculator has, the more accurate the calculator will be, he explains.  While these calculators are will mean more work for the user, they will produce much more accurate results.

The second concern Kantrowitz points out is that the age of data will play into the accuracy of the calculator.  He explains that calculators like those provided by NCES contain data that is approximately 2 years old, while those like the one provided by the College Board are current, and are more up-to-date.  In either case, Kantrowitz explains, one should use caution with these calculators and should not exclude any colleges on the sole basis of the figures provided by a net price calculator.

The last major concern Kantrowitz points to relates to the financial aid award letter.  He explains that students should be careful when they receive their financial award letter that they understand the characterization of the different awards and understand which award they were given.  “I’ve had families come to me thinking that they’re getting a free ride from a college, and when I look at the financial aid award letter I see $5,000 in student loans and $20,000 in parent loans.  That’s far from a free ride.”  Students should really do their homework when it comes to the different classifications of financial aid, so they know that when they receive a grant, they know which grant they have received and what this implies.

Overall, Kantrowitz urges students to start considering college financial aid early and often, and to do their homework when it comes to understanding the different options available to them.  He explains that students and their families should always exercise caution when it comes to financial aid and to make financial aid decisions that work best for them.