When it feels like another logic puzzle... How to afford your EFC?
Hi all.
First off, let me say that I am really enjoying the feedback on the previous post. My one logic puzzle has turned into a thread of logic puzzles with a really hard one which Michael posted (Jane and her dad just answered it -- I think), and some easier (but still difficult) ones from Jane, Ben and Meder (and others). So keep up the fun!
Also a bit of a news update: we will be packaging about another 25 students tomorrow (we missed it today) and will be sending out these awards. This brings us up to those of you who completed as of Tuesday of this week, so keep your applications coming... We will also be sending another set of missing information letters out by email to Freshmen admits, either tomorrow or Monday.
I also will be out of town this weekend, so be aware that if you post something here I will not see it until I get back late Sunday (I'll be in New York City with a religious retreat -- 8th through 10th graders). If you are in the Big Apple, look for me this weekend!!!
Now, to the post:
I know some of you may be concerned as to how you (or really, your parents) are going to cover your EFC. As I said in one of my previous posts, the EFC is supposed to be an expectation of how much your family can absorb in costs for a year, not just how much you can pay out of pocket directly to the bill. If your EFC seems like a stretch for you and not something which you can simply pay from savings or current income, this post is for you.
Some families see their EFC and panic -- they think that the only option to them if they cannot pay it all is to borrow it all, and while that may work for your family it leaves lots of other options unexplored. So I would like to recommend the following hierarchy for you and your family.
- Determine what your EFC is. If you will be using some of your Self-Help as work, add the amount of the work to the EFC you will need to cover. If you will be earning your summer expectation, subtract that amount from the EFC.
- Determine what your out-of-pocket cost is. Realize that you are not billed for books and supplies. Decide if you plan on covering these with a payment plan or from a different source. Look at the budget in “Making MIT Affordable.” Keep in mind that the housing and meal costs will be estimated until you finally move into a dorm (in September) and choose a meal plan.
- Determine how much you can pay directly toward the bill. Do you have money set aside for college expenses? Are there resources you can apply to (even if it doesn't completely cover) the Fall and Spring semester bills?
- Examine the MIT Monthly Payment Calculator to see what combination of Loan and Monthly Payment Plan works for you.
So here we arrive at the crux of this post. To help you determine what should be the best combination of loan and payment plan works for your family, we have designed a fairly simple Excel spreadsheet which should help.
To understand how this works, let's examine a sample family -- the Joneses. The Joneses want to send their son, Ben, to MIT, and in order to make this work they need to come up with $15,000 (assume they have already done step 1 - 3 above). They download the MIT Monthly Payment Calculator and enter in the $15,000 figure (in the top line which says “Enter the amount the family needs to finance”) which presents them with twenty options they can consider as they look at financing Ben's cost at MIT (see the image below):
With the “calculator” in hand, the Joneses see that they can spend between $133 and $1,906 a month during Ben's Freshmen year to cover their $15,000 expense (see column labeled 2). They understand that each row in the sheet represents a combination of a loan (in this case, the MEFA Fixed Rate Loan) and the MIT Monthly Payment Plan. They look at the chart and notice that column 3 lists the total amount they will put in the MIT Monthly Plan while column 4 demonstrates how much they will be paying monthly (in 8 payments) under the MIT Monthly Plan. Similarly column 5 shows how much they will need to borrow using a MEFA loan while column 6 demonstrates how much the monthly payment will be for the MEFA loan (with a 15 year repayment term).
Looking at this chart, and more importantly looking at their monthly budget, they determine that a $500 monthly payment seems reasonable. They therefore will apply for a MEFA loan in the amount of $12,000 and will place $3,000 under the MIT Monthly Plan (with a payment of $381 for the MIT Monthly Plan and a payment of $106 for the MEFA Loan).
Several caveats:
There are some built in assumptions in the spreadsheet: that the payments to the MIT Monthly Plan have a generalized 8% interest rate and that payments are made on the first of every month; that the family borrows a fixed-rate MEFA loan with a 6.19% interest rate and pays on the first of every month; that the interest rates and terms of the loans do not change between now and when the family borrows; and that there are no prepayments under either program. This chart should be used for illustrative purposes only. It does not pretend to be a final representation of your actual monthly payments and should not be considered an offer of the loan.
So, enough warnings, and have at it. Here is the version with the MEFA loan, and here is one using the PLUS loan. The PLUS interest rate has not been set yet for next year, so the chart is using the rate for 2004-05.
If you have questions about any of this, feel free to ask! I will also be talking a bit about this at my presentation at CPW. In the Excel file, you will also notice a very pretty chart which illustrates the breakdown between payment types for the 20 options. It is suitable for framing, if you like!
Hey all! Enjoy. Remember I won't be around tomorrow or this weekend! And see you at CPW (I hope!).