Parents often want to know whether their child will be eligible for financial aid.
They often assume that there is some sort of income deduction in order to be eligible for aid. However, there is no income dividing line between households receiving and not receiving aid.
That’s because financial aid formulas calculate much more than income. Financial aid formulas also take into account non-retirement assets, the number of students in college, the size of the household, and the marital status of the student’s parents. The lenience of a specific college’s financial aid policy and the cost of the school are also huge factors in determining aid.
However, a way to determine, already exists, if a student will be eligible for financial aid, and that is to receive the expected family contribution of a family.
The EFC, expressed as a dollar figure, represents what the federal formula says a family should be expected to pay for at least one year of college. It’s almost always more than parents think they can afford.
The lowest possible EFC is $0, which means that a family cannot pay anything for college. (It is extremely rare that someone with this EFC will pay nothing for college.) Conversely, there is no limit to how high the EFC can be for a wealthy individual.
The EFC can provide an indication of whether the family has access to need-based assistance by comparing the family’s EFC to the typical cost of school attendance.
Let’s say a family has an EFC of $60,000, and the cost of a school with a list of children is $55,000. Since the EFC exceeds the cost of college, there is no chance for need-based aid.
Conversely, if the family’s EFC was $6,000, the student would be eligible for up to $49,000 for a university costing $55,000.
When money is an issue, and it almost always is, families can use their EFC to determine what kind of colleges and universities their children should target and receive need-based or merit aid. opportunities should be maximized. It is also possible to get a combination of both.
Families who find that they have a high EFC and are not eligible for need-based financial aid should look for schools that offer merit scholarships that are given regardless of need. The vast majority of public and private colleges and universities offer merit scholarships. In fact, in many private institutions, almost all students get a discount.
If an EFC is modest, families should look for schools that provide excellent need-based support. Very few schools fall into this category. Those who need financial aid can also apply to public colleges in their state which have lower sticker prices.
Parents should get a ballpark idea of what the family’s EFC will be as a child freshman year in high school. Getting an early EFC will give parents a rough idea of the minimum amount they will be expected to pay for college.
Families will typically pay more for college than their EFC because most schools do not meet 100% of a student’s demonstrated financial need. As a result, it is important to identify the most liberal colleges that would consider a child an attractive candidate.
Parents can find their EFC using the College Board’s EFC calculator.
Parents will need to access their tax return and their latest non-retirement investment account details, including checking and savings accounts, as well as any accounts their child has and income.
The College Board’s EFC calculator actually produces two figures that use a federal and an institutional method. The federal EFC formula is linked to the Free Application for Federal Student Aid. Most private and public institutions only use the FAFSA when determining who receives federal, state, and institutional aid.
The institutional formula is tied to the CSS Profile, which is used by about 200, mostly private, colleges. Nearly every name-brand private college uses profiles to determine who qualifies for their own institutional pot of money.
Parents should also use their EFC at the end of the college admission process.
Parents will get their official federal EFC a few days after filing the FAFSA. The EFC will be on a document called the Student Aid Report which will be emailed to them.
After filling out the CSS Profile, families will not receive a follow-up document with their EFC. Instead each profile school can change its own EFC for a student in different ways. For example, some profile schools calculate home equity, while others do not. If the EFC is not on the financial aid letter, families should ask a school what it is. Without that figure, you cannot determine whether this is as much as a student can get from a school.
Once a family has their EFC(s) and their financial aid package, compare the EFC(s) with what each school has to offer.
For example, let’s say a school costs $41,000 after deducting institutional grants and has an EFC of $29,000. This means there is a $12,000 difference between what the EFC suggests can be paid by a family and what the school wants the customer to charge. Based on this knowledge, a family can and should appeal for the award.
Nationally recognized college specialist, Lynn O’Shaughnessy, offers an online course — the Savvy College Planning — specifically for financial advisors. Click here to get Lynn’s guide to finding the most liberal colleges.