Understanding the Gap Amount

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Have your child’s college tuition bills arrived yet? For some unprepared parents, this might provide their first look at the amount of money they are actually expected to come up with to send their student to college. Their child is excited about attending and is already looking at possible courses, but the parents may be thinking, “How did they calculate this amount, and where are we going to get this money?”

This could be an unwelcome introduction to the term, “gap amount.” The gap amount is the dollar figure that is left over after all costs have been added up, and all “free” monies have been applied. Let’s take a look at what this means, and figure out a few ways that you can “bridge the gap.” For example, the cost of an entire year at the school your student will be attending is $15,000. This includes tuition, dorm room, food plan, lab fees, and other student fees. Your child has qualified for $5000 in grants and scholarships from the college, and has won a private scholarship in the amount of $2000. This leaves $8000 that is due.

From this amount, you may be able to subtract money your student can earn through a federal work-study program. If your child can earn about $1000 per semester, that now leaves $6000. In addition to this amount, you still have to come up with money for books, travel expenses, and out-of-pocket expenses. If you estimate those costs at about $1000 per semester, you are back to a “gap amount” of $8000 per year that you will be responsible for paying. Some sources for these funds might include:

• College Savings Account: If you have been putting money aside for your child’s education, you might have a sufficient amount of money available to cover this gap amount.

• Grandparents/Relatives: Other family members might be willing to provide some funds each year to help cover the cost of tuition.

• Additional Income: You and your student might be able to earn additional money to help offset some of these costs.

Let’s say that you can come up with another $1000 per year from these resources, but that still leaves $7000 outstanding. After you completed the Free Application for Federal Student Aid, the college sent you a financial aid award packet. In addition to the money available from the school itself, it should also have informed you of your eligibility for federal student and PLUS loans. Based on your family’s financial situation, they may have concluded that you are eligible for $5000 per year in federal student loans.

That still leaves $2000 per year. One final resource is to look at private student loans. Private lenders like Discover Student Loans often offer competitive interest rates, no fees, and incentives for good grades. If you borrow $7000 each year, there will be $28,000 owed when your child graduates. You will need to talk to your child about who will be responsible for repaying this amount.