This is part 3 of our mini series around college savings and financial aid. As part of these we have a guest post from our Podcast guest, Jack Wang.

Most people think the key to getting more aid is understanding the nuances of the financial aid formulas. What counts, what doesn’t, and when. Yes, those items are important, but the real story to getting more aid is far simpler.

Two analogies to explain how college financial aid works.

Imagine your student just got their driver’s license. You agree to let her get a car and you send her out to find the right car.

While you might have a reliable used Toyota in mind, inevitably she will end up at the Lamborghini (or insert your favorite luxury/supercar here) dealership.

But it’s a really good car…

All my friends are getting one…

According to an April 2022 CNBC article, the Lamborghini SUV has a more than 12 month waitlist as very few vehicles are produced while demand continues to surge.

Now, you’re sitting with the salesperson trying to convince her:

1. To let you buy the car
2. To reduce the price substantially because you don’t want to pay the $230,000

Meanwhile, there is a line out the door, down the street, and around the block with other people wanting to buy the same car and ready, willing and able to pay the full sticker price.

What would motivate the salesperson to sell you the car AND give you a discount?

What does this have to do with college?

Of the over 4,000 colleges and universities in the US, the majority of students apply to the Top 100 or so. It’s basically the 80/20 rule - 80% of all college applications go to the top 20% of schools. These are the Lamborghinis (or insert favorite exotic car here).

These schools are the ones on the US News and World Reports Top National College lists, including the Ivy League and near-Ivy schools, as well as flagship publics like North Carolina Chapel Hill, Michigan, and Cal Berkely.

This dynamic existed well before the pandemic, but the pandemic and resulting test optional policies exacerbated this effect. The top schools all had significantly greater numbers of applications, resulting in record low admissions rates.

Consider this: UCLA had almost 150k applicants for academic year 22/23, with roughly 20k admitted. New York University had over 105k applicants. Harvard had over 61k applicants, which resulted in a barely over 3% admit rate.

Conversely, this means that 80% of all colleges fight over the remaining 20% of applications. These colleges include regional private colleges and regional campuses of public universities. Mathematically, the admissions rate at these schools - which can be just as good as the Ivies - are much higher.

Which of these schools give - and which students get money?

Consider the NFL draft. In 2021, a total of 259 players were selected in the seven rounds, out of over 3,000 eligible players from all levels of college.

The top player in the draft, Trevor Lawrence, is now a quarterback for the Jacksonville Jaguars. His contract is worth an average of $9 million per year, plus the huge signing bonus.

The last player taken in the draft was Grant Stuard, linebacker, by the Tampa Bay Buccaneers. His contract averages less than $900k per year, with a small (comparatively) signing bonus.

When each player was drafted, how much they earn, and the amount of signing bonus were based on the position, athletic ability (throwing, running, etc.), and the needs of the individual teams.

This is an almost perfect analogy of how college aid works.

1. There are many players eligible (total students applying to a college)
2. Some players get drafted (students who got admitted)
3. Some players get big money contracts (students who get scholarships/aid)

What parents forget, but football players and other athletes know - It’s not about the individual.

Repeat: It’s not about the individual.

It is how that individual compares to the others in the group - the college applicant pool.

How much a college wants a student determines the amount of aid. It is NOT about how much a student wants a particular college.

A college does not “want” a student by admitting them. Mr. Stuard was “admitted” to the NFL, but could hardly be considered “wanted” as he was drafted last. Similarly, a student getting admitted to a college without aid means the college is giving them the privilege to pay full sticker price - upwards of $80k.

What most parents and students think is that aid is based on grades or test scores. In reality, colleges are like NFL teams with needs that can vary each year. That could mean colleges are looking for:

• A certain major they are trying to expand
• Gender balance, or gender balance within a particular major
• Geographic origin as some schools love out of state students whereas others don’t
• A combination of the above factors or a myriad of others

Financial aid is also a factor all schools fall into either of two financial aid formula methodologies, but schools have their own variations. Some schools are simply more generous than others.

Most families focus on the basic financial aid formula of:

• Cost of attendance (tuition, room/board, fees, books, etc.)
• Less: Expected family contribution (from the financial aid forms)
• Equals: Financial aid eligibility

Expected family contribution, soon to be renamed Student Aid Index, is based on a family’s income and assets. This is why so many families think they are “too rich” to get any aid.

Just about all colleges will give aid - either merit or need-based - to some degree. But not all give merit. Why? Because they don’t have to! The Ivy League schools don’t give merit because, quite frankly, it is hard to stand out among superstar applicants.

What does this all mean?

Remember the example of sending your student out car shopping when they first get their license? That’s how most families handle the college search process, looking at the “names”.

Then they hope and pray that their student gets in. And have their prayers answered that money will appear to pay for college without having to take on debt.

No wonder there’s a student debt crisis.

Do something different - first, find that school that really wants your student.

Have an engineering major? Maybe consider a small, liberal arts college that isn’t really known for engineering but still has a great program.

Want to go out of state? Look at colleges that are generous with aid for out of state students - not necessarily schools that admit a lot of out of state students.

Have a particular financial profile? Look for colleges that use the financial aid formula in the most advantageous way for your financial situation.

Ask the right questions:

• What everyone asks - what is required (GPA, test scores, etc.) to get admitted?
• What nobody asks - what is the profile (GPA, test scores, etc.) is required to get a merit scholarship?

And so on.

Most families don’t think this way, which is why most families don’t get a lot of aid. The amount of aid you get really starts with what colleges you consider in the very beginning of the college process - not at the end.

Bottom line - don’t just go to the “Lamborghini” college expecting a lot of aid. They have no reason to give you a lot of aid.

Having a thoughtful strategy of knowing and playing to the limit of the rules can save your family $10,000s in college costs.

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