Before you start shopping for college, it is helpful to know what your Expected Family Contribution (EFC) is. The Department of Education uses your EFC to determine eligibility for the financial aid they provide. The individual universities use the information to determine aid, but are not bound to meeting 100% of a family's need. In other words, just because your EFC is $10,000 per year doesn’t mean that you will only be expected to cover that much. The terminology and calculation will be changing in the near future and it will be called the Student Aid Index (SAI).
Honestly, you’re not going to want to try to estimate the EFC manually. The Department of Education has an online tool to make your life so much easier. What may be more helpful is to know how certain changes can affect your EFC.
Once you get your EFC, you can better identify how much need-based aid you might get from a specific school.
What Factors Effect My EFC?
If you are doing this a few years in advance, it may help to know that the FAFSA uses income numbers from two years before the beginning of freshman year. So, if your student starts school in August of 2022, the 2020 tax return information will be used for that year’s FAFSA application. Therefore, it is the income from the latter half of the high school sophomore year and first half of the junior year that are the most important for the first year of college. Keeping your income down starting that year will help you on the FAFSA. Most families can’t afford to cut their income just to save money on college, though, so this information is rarely useful.
The other big factors in your EFC are non-retirement savings and investments. I say ‘non-retirement’ because assets held in a qualified retirement account (401k, 457, IRA, 403b) are not counted. You will be reporting your asset values as of the day you submit your FAFSA so there is more of an opportunity for last minute planning. The important thing to know is that it is much better to hold assets in the parents name than in the students name, which are included at a higher percentage.
Will It Help To Try To Lower Your Assets To Qualify For More Financial Aid?
Maybe and maybe not. Income is, by far, a bigger factor in how much need-based aid your receive than assets. If your income is over $150,000-$200,000, you will likely get no need-based aid, even if you're dead broke, unless you have multiple children in college simultaneously. If your income is quite low, you may get some aid, even with substantial savings.
Things get more complicated with blended families. Thankfully, the Department of Education provides guidance here.
What Is The CSS Profile
Some schools also require you to complete a second financial aid form known as the CSS Profile. It collects a little more information than the FAFSA. Schools can use this information to offer need-based aid in a way that meets their school’s admissions goals.
One of the main differences between the FAFSA and CSS Profile is the treatment of home equity. The FAFSA doesn’t take it into account at all (for your main home), whereas, the CSS Profile collects home equity information and schools often use at least a portion of home equity in their EFC calculation.
Why does it matter?
Very High EFC (Over $80,000) - You shouldn’t expect need-based aid. Look for schools that offer a lot of merit aid.
Very Low EFC (Under $20,000) - You can expect need-based aid from many schools. Look for schools that cover a large portion of need. This includes many top tier schools.
Middle EFC ($20,000 to $80,000) - If your EFC is lower than the cost of the schools you apply to, you may get some need-based help. If your EFC is well below the full cost of a school, you may get a substantial amount of need-based aid, but if your EFC is not far below the full cost, you should still apply to schools that offer considerable merit aid and hope that you qualify for both need and merit aid.
I Know My EFC, But How Much Will College Cost Me?
Of all aspects of choosing colleges to which you want to apply, this is probably the most opaque when it comes to finding information online to help with that decision. That’s why I use software that is very good at predicting how much an individual family will likely pay for college at just about any US based college or university. It uses your specific financial and academic information to make a determination about how much aid a specific student is likely to receive with about a 90% accuracy rate.
For access to this tool, please get in touch by scheduling an appointment with me here or sending an email to rynda@21finance.xyz.
