Written By Travis Hornsby, CFA®, CFP®
Updated on June 6, 2024
Paying for college is one of the biggest financial decisions you will ever make. And that’s true whether you come from a wealthy family that already set aside funds for your college education or from a low-income family with hardly any savings.
The financial aid system has been tweaked and improved over many years to cover many areas. But the blunt truth is that it has also become more and more complicated. There is no way an ordinary American, let alone an incoming college freshman who is likely a teenager, would be able to navigate the level of complexity in the system.
Many universities and colleges take advantage of the complexity to entice and trap young students in their programs while raising tuition fees arbitrarily year-over-year. It’s no wonder many college graduates are grappling with huge student loan debt.
So I sat down with New York Times columnist, personal finance expert and author, Ron Lieber, to discuss the intricacies of college education and the financial aid system.
Demystifying the financial aid system
It’s important to have a clear understanding of how the system works so that you can get the best value for the huge financial investment you make. There’s no one better to explain the complexities of the financial aid system than Lieber, who experienced it first-hand as a young student.
After navigating the system and successfully applying for financial aid, Lieber made it his life’s mission to demystify the complexity and help students and their families discover smart ways that they can “beat the system” to get the best value at a reasonable cost.
His book, The Price You Pay for College: An Entirely New Road Map for the Biggest Financial Decision Your Family Will Ever Make, provides clarity and guides families and young students as they navigate the complexity and make the best choices for their college education.
I had an enlightening conversation with Lieber in the Student Loan Podcast and here are the key takeaways from the conversation:
1. The financial aid appeal and why you should use it
When you are admitted to college, if you applied for financial aid, the admission letter comes with the financial aid award letter enclosed. Most people don’t realize that you can appeal that financial aid award and negotiate for more financial help from the institution.
Oftentimes, it's the lower-income people and first-generation students that actually need financial help the most.
Some people don’t appeal because they are afraid that they might look greedy or lose their admission. But there is no shame in getting more aid if it’s available.
Filing a financial aid appeal is not complicated. You just go to the financial aid office and ask them to reconsider your application.
“You say, ‘I’d like you to use professional judgment,’ which is the technical term,” said Lieber, “‘to reconsider my application for the following reasons.’”
Then you give valid reasons that prove to the financial aid officer that something significant has changed in your life financially since you filled out the FAFSA forms, such as a big change in income or expenses.
Of course, it doesn’t mean that your appeal will be accepted, but there’s nothing to lose in trying.
2. Financial aid access for minorities and people of color
Statistically, people from lower-income backgrounds and people of color don’t access as much financial aid as their white counterparts.
This is partly because they’re not aware that the financial aid appeal process exists. As a result, they might be getting a worse deal on average.
Sure, there are other forms of aid like athletic scholarships and leadership awards. But even these could still disproportionately disadvantage low-income people and people of color who may not have been able to invest in the development of their athletic competence or leadership in the first place.
While it isn’t everybody that applies for or appeals for financial aid is automatically given, people who do not know about the appeal process in the first place may be at a disadvantage.
3. Merit aid is just discounting
Some colleges offer “academic scholarships” or merit aids to the best students with the sole aim of improving the quality of their undergraduate pool. Ultimately, the average GPA for the college goes up, which helps to increase their rankings. Now, all of a sudden, the school looks more attractive and prestigious to other students.
These “academic scholarships” are not drawn from an endowment pool or a special fund. What they are is just a discount on the list price to attract more students.
As the colleges are competing with each other, now every institution starts offering merit aid. Some even end up giving aid to almost 90% of their student population. And that’s why merit aid has become a common feature in almost every undergraduate institution in America.
4. Honors colleges at flagship state universities: where is the best value in higher education?
Nearly all state universities have an undergraduate honors college. These colleges were initially designed to keep the in-state students around but they sometimes take out-of-state students.
The big idea was to try to make a big school feel small and to create an intimate experience where you can get to know your professors and your peers.
This can be an incredible value but there are few points you need to consider:
- Honors colleges tend to be disproportionately white and disproportionately female.
- Your intended field of study might not be compatible with the general, undergraduate honors requirements.
- Large percentages of people drop out of the honors colleges.
Honors colleges present a chance to create valuable networks and to interact with influential people, including top professors and renowned speakers. But at the end of the day, the savings you get might not be of any value if you drop out of the honors program after six months.
5. Explaining the rising cost of college education
The biggest part of the cost of college is the labor expense, despite the trend towards using adjuncts and non-tenured faculty.
“If there was any upside [to using adjuncts and non-tenured positions], you would hope that it would come from the fact that colleges are saving money and therefore tuition prices and net price should not go up, or not go up as much as it has,” said Lieber.
But it’s generally not working that way. Part of the reason is that colleges have added more and more administrators over time. “Faculty unions, particularly people who would like there to be more tenured professors, refer to that trend as so-called ‘administrative bloat’,” said Lieber.
However, as a customer or consumer of higher education, you want your institution to be enforcing Title IX, have enough financial aid administrators to help the increasing number of students who need financial aid, technology experts to ensure the networks are up to par and counselors to deal with the growing mental health issues among students.
These are all very important people to the institutions, but they come at a higher administrative cost.
Navigating college costs and financial aid
These are some of the key things that you need to understand if you are preparing to go to college and to apply for financial aid.
Ron Lieber covers a lot of this in his book, The Price You Pay for College: An Entirely New Road Map for the Biggest Financial Decision Your Family Will Ever Make.
The book includes valuable information on financial aid appeals, where to find merit aid data, a net price calculator for college costs, what to know about gap years, accessing mental health resources and more to save you money on college.
“The book is available anywhere and everywhere that books are sold, and I encourage people to go out and support their independent booksellers,” said Lieber.
You can find out more about Lieber at RonLieber.com.
And for even more help figuring out how to pay for college, book a pre-debt consult with one of our student loan experts. This is a strategy session designed to forecast the future of what loan repayment will look like and what balance you'll actually have at graduation vs what financial aid will tell you, so you can relax while in school instead of being stressed out.
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