Paying the Bill: Why Do Need-Based Packages Differ from College to College?

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You may be surprised to learn that your aid offers will differ, sometimes by a sizable amount, even at colleges that offer only need-based aid and that promise to meet the full need of all admitted students. Although all colleges must use the FAFSA to compute the EFC (expected family contribution) for federal financial aid, they may use the PROFILE and their own forms to determine need for institutional aid. Additionally, different colleges may interpret your need differently; you can’t know what your aid will look like, either in amount or type of aid, until you have your offer in hand.

This wasn’t always the case. For more than thirty years, a group of twenty-three high-profile selective colleges known informally as the Overlap Group would meet each spring to agree on the need-based financial aid packages for students who were being admitted by two or more of them. The goal of the Overlap Group was to meet student financial need without engaging in counterproductive bidding wars that would interfere with their ability to use their funding for the neediest students.

Then in 1989, after an investigation of the Overlap Group, the federal government called its practices a violation of antitrust laws that amounted to “price fixing.” The meetings were permanently discontinued in 1991. With the demise of the Overlap Group, member colleges once again could make financial aid offers independently of one another. This free market approach to financial aid awards has led to a good deal of variability from college to college in the size of aid awards for the same student.

Increasingly, there is evidence that students and their parents are confused by the substantial disparities in the reports they receive from financial aid experts at different campuses of the costs of educational expenses that families will reasonably be expected to pay. - Hunter Rawlings, former president of Cornell University

How Can You Estimate Your Financial Need?

It is a good idea to do a quick FAFSA analysis to get an idea of how much need-based aid you might qualify for under federal methodology. Although the FAFSA itself can’t be filed before January 1, you can use online calculators at any time to get a ballpark idea of your EFC. The College Board Web site, www.collegeboard.com, has a very helpful and easy-to-use FAFSA calculator. It also has a PROFILE calculator, though individual schools may follow their own guidelines in interpreting the PROFILE calculations. The Department of Education has also established a Web site, www.fafsa4caster.ed.gov, that can provide you with an early estimate of your eligibility for federal financial aid. When you are ready to complete the FAFSA itself, FAFSA4caster will transfer your data to the actual FAFSA application, making the process much easier.

You and your family may be pleasantly surprised to learn that your expected family contribution is lower than you thought it would be. Some families, however, may find that the government expects them to contribute more than they had planned. As a general rule, the estimated EFC using federal methodology will probably be the lowest estimate of your EFC and hence the most generous estimate of your financial need. The PROFILE usually, but not always, calculates a higher EFC, meaning less need, because it includes income and assets specifically excluded from the FAFSA. For example, a family with substantial home equity or a noncustodial parent with financial resources may find that its EFC is significantly higher using the institutional methodology.