Financing Your Human Capital: Tips and Resources

In the Washington Post article "An Economic Professor's Guide to Figuring Out How Much College Costs," Phillip Levine, a professor at Wellesley College, declares that understanding how much college costs is "harder than you think," adding humorously that "coffee is required." His article was written in response to the paper's much-publicized report that many low-income students, looking only at sticker price, miss the opportunity to attend top colleges, possibly shortchanging their futures. As that report points out, the generous financial aid packages offered to low-income students from such schools may bring the cost of attendance even lower than that of attending their state's public universities. Both articles include numerous tips and links to resources on calculating what college costs and how to pay for it, including an article on what to do if you haven't saved any money for college at all. But with so much information out there, including noisy marketing from vendors who will gladly help you navigate the necessary applications and forms—for a price—where do students start?

Step 1: FAFSA

The first step in applying for financial aid is to fill out the Free Application for Federal Student Aid, or FAFSA. Many students and parents mistakenly believe they are ineligible for aid (there is no income cut-off for federal student aid) or that the form is too complicated and difficult to fill out (the average completion time is 23 minutes). Some neglect to fill out the form because they confuse academic scholarships, which are based on grades and test scores, with federal and state financial aid packages, which are based on need alone.

Students must fill out the form each year—and the earlier the better, as many programs award aid on a first-come, first-served basis. Students should check with the school they plan to attend for specific deadlines. Although tax information is needed to complete the form, parents or students can enter estimates and then later, when they file their taxes, use actual figures to finalize the FAFSA form. An e-mail reminder is easy to set up so students don't forget to the FAFSA after filing taxes.  And the form's new IRS retrieval tool can link the FAFSA directly to the tax return to avoid errors.

Teacher resources for helping students learn more about the form are available from the St. Louis Fed. The Personal Finance 101 Conversations series includes video primers on both the FAFSA and financial aid. The FAFSA is also a topic of conversation between a father and son in the Personal Finance 101 Chat series. At the Federal Student Aid website is information on preparing for college, types of aid and eligibility criteria, and how to apply for and manage loans. For an interesting economic take on the subject of tuition and financial aid, the St. Louis Fed also features an article with discussion questions in its Page One Economics series. This article applies the theory of price discrimination to the college financial aid market.

Costs and choices

The St. Louis Fed's College 101 Infographic reports that academic reputation, at 64 percent, was the top factor in selecting a college, yet 46 percent of the time college costs were also part of the equation. The St. Louis Fed's Personal Finance 101 video "College Choice 101" offers tips for comparing colleges using the numbers, including cost of attendance and projected future earnings. The infographic contains a link to the video, as well as links to a FAFSA aid estimator and a loan payment calculator to help students determine how much they can afford to borrow, if necessary. The infographic also explains different types of loans and grants, and provides typical earnings for a number of careers.

Step 2: Researching other financial aid

The Consumer Financial Protection Bureau has a website called Paying for College that is full of useful tips and information, including the financial aid and college costs comparison calculator, which allows a side-by-side comparison of the real costs of up to three schools. The College Board's website bigfuture hosts numerous college finance calculators and includes information on financial aid and filling out the FAFSA. Other topics on the site allow students to search for colleges and scholarships, explore careers, and even get tips for applying for college. Students can also create a customizable road map for their college plans and watch video vignettes of students who successfully found and funded their way through a higher education. Decision-making guides for choosing a college and a thorough explanation of net college price are also featured. The Richmond Fed offers Invest in What's Next: Life After High School, an online interactive mini-course that allows students to take interest inventories and compare college costs after determining which educational path fits their lifestyle and income expectations. Future modules in development will focus on budgeting for the future and building a plan to reach educational and career aspirations.

Career options and personal finances

Career exploration and the costs and financing options for postsecondary education are also themes found in Lesson 4 of the Federal Reserve Bank of Atlanta's Katrina's Classroom personal finance curriculum. A worksheet included in the classroom lesson allows students to compare colleges and estimate loan payments using the National Center for Educational Statistics' College Navigator, a tool also used in the Richmond Fed's Invest in What's Nextweb tool. Students also participate in a reality check activity during which they calculate budgets based on real-world salaries. The Navigator gives information on estimated expenses, financial aid statistics, and even includes a multiyear tuition calculator in addition to information on enrollment, admissions, majors, athletics, and graduation rates for colleges and universities across the country.

At the U.S. Department of Education's College Affordability and Transparency Center, the College Scorecard provides searchable statistics on net price for college expenses, which gives you an estimate of costs after merit and need-based aid have been applied. If cost is a consideration in choosing a college, it is the net price that should be used to base comparisons. The site also hosts a list of the most and least affordable schools in the nation. Many state Departments of Education also host informational websites on student aid with general tips and resources for both students and parents, as well as information specific to their state.

As college acceptance letters roll in this spring and juniors begin planning for summer college visits, it is easy for students (and their parents!) to get caught up in the excitement and forget about the less glamorous side of higher education: paying for it. In the case of higher education, knowledge is power when it comes to college finances—the more you know, the less you may owe!

Resources

Articles

7 Common FAFSA Mistakes

An Economic Professor's Guide to Figuring Out How Much College Costs

Don't Let the FAFSA Ruin Your Holiday Cheer: 10 Financial Aid Myths Debunked

It's Almost Time to Fill Out College Financial Aid Form for Fall 2015

The Rising Cost of College: Tuition, Financial Aid, and Price Discrimination (Page One Economics Classroom Edition)

What to do when you haven't saved much for your kid's college education

Why students have no idea what college actually costs

Multimedia and web tools

College 101 Infographic

CFPB Financial Aid and College Cost Comparison Calculator

Invest in What's Next: Life After High School

NCES College Navigator

Personal Finance 101 Chats

Personal Finance 101 Conversations

Websites

bigfuture (College Board)

Federal Student Aid website (U.S. Department of Education)

Paying for College (Consumer Financial Protection Bureau)

U.S. Department of Education's College Affordability and Transparency Center

Lesson plans and curriculum

Katrina's Classroom