The expected family contribution (E.F.C.) is based mostly on the family income. A family making about $60,000 will likely have to contribute about $4,000. As well as yearly income, the discretionary income is assessed while providing for some shelterss, things such as minimal living costs and federal and state tax expenses, but consumer debt is not considered. The final result is available income, which is assessed at somewhere between 22% and 47%. This figure is at last divided by the number of children attending college.
And, what about a family’s assets; do they also figure into E.F.C.? Yes, but less so. Some assets are entirely protected: retirement plans, the net worth of the family house, small businesses owned and operated by the family, and up to $50,000 dollars of other assets. What is left for assets are then assessed additionally at up to 5.64%
The E.F.C. is also affected by what the student has for income and assets. After allowing for minimal living expenses one half a student’s income is assessed, and one fifth of any student assets are assessed.
All the above applies to dependent students. What about students who are on their own?
• If an independent student has dependents other than a spouse, the formula is about the same.
• If the student is independent or has a spouse but no dependents, the formula is harsher.
• If a parent with a student from a previous marriage is applying, child support affects the formula. If the parent pays less than half the child’s support, the child support is reported as additional income and the child can not be claimed as a dependent.
What does the E.F.C. have to do with the financial aid a students receives for college?
Once the FAFSA is made out and processed, parents and students will receive their Student Aid Report (SAR). The SAR will subtract the calculated E.F.C. from the Cost of Attendance (COA) which includes tuition, room and board, books and supplies, travel, and incidentals. The bottom line is the the Financial Need. It is the Financial Need that determines the amount of Financial Aid. Obviously the lower your E.F.C., the higher the Financial Need will be.
How can a family or student lower their E.F.C.? Here are some legal ways.
- First, always double check your SAR. Look for errors, and if you find errors, have them corrected.
- Don’t save monies in the child’s name; his assets are assessed at one fifth.
- Pay of credit card and other debt. You will lower your interest costs and reduce your assets to be assessed.
- Buy a car or other expensive items now to reduce your cash assets.
- Maximize your retirement fund. Contributions are not assessed.And, don’t withdraw retirement monies to pay for college as the withdrawal counts as income.
- Ask grandparents to contribute after the child has graduated so those contributions or gifts don’t get counted as assets for you or the child.
- Know that monies in and from a 529 account have little impact on parents’ assessment and no impact on grandparents’.
Nonetheless, always remember two things.
- There are limited monies for financial aid and they should be distributed fairly.
- The second thing to remember is complete honesty must be used in filling out the FAFSA.