Bill & Caitlin want to put their children through college, but like many people, they had other priorities. With three younger children, it’s been a difficult road to save for their oldest. Now Jennifer is a senior in high school, and they were in my office with the same look a football team has when they’re down by five points and have 50 yards to go with only 8 seconds left in the game. Time for some drastic action.
Luckily, Bill & Caitlin had some room to work with to make their chances of aid better than they’d expected. We also made it easier for them to pay for college by making some changes to their overall financial plan.
But first, there were some crucial terms Bill & Caitlin didn’t understand that we had to define. Their whole college aid strategy would be predicated on knowing the rules of the game, and off these rules were wrapped up the terms “FAFSA” and “EFC.”
The FAFSA
The Free Application for Federal Student Aid is more than the name implies. Although this is the government’s financial aid program to apply for the Pell Grant, it also opens up nearly all need-based aid programs you’ll ask for in traditional college programs. Sure, Bill & Caitlin had heard of the FAFSA form before, but they were about to make a critical mistake: they weren’t going to fill it out because the chances of them receiving federal government aid was highly unlikely.
That would be a huge mistake.
Don’t avoid the FAFSA in your search for college funding options. Here’s a good way to think about financial aid programs (although schools and states wouldn’t present the information this way): schools will not give you financial aid until you bleed the state. The state won’t give you financial aid until you bleed the feds. For this reason, EVERYONE works through the FAFSA form. While most people will be denied a Pell Grant, this is also the form to apply for subsidized and unsubsidized student loans, and unsubsidized student loans programs are open to nearly everyone. It’s also the way to apply for almost every need-based aid through states and schools.
Key point: Fill out the FAFSA form, even if you think you won’t receive any aid. When? Start now.
EFC
This is another “biggie.” Expected Family Contribution (or EFC), is the amount the government says you should be expected to pay out of pocket for school before aid programs kick in. Bill and Caitlin were making some huge mistakes in their money management that was actually costing them EFC dollars.
Your need will be based on the difference between the cost of the college and the amount of your EFC.
Cost of school minus EFC = need
Based on your need, your school’s financial aid officers will create an aid package.
It’s important to remember that the acronym is eFc (expected FAMILY contribution, not ePc (expected PARENT contribution). Schools will look at the income and assets of the student as well as parents. They’ll also examine how many other family members there are and the number that are also attending college.
Schools may not have the same EFC calculation. There are two. You should ask which your favorite institutions use:
– Federal EFC calculation. This is the most used number and is determined using the FAFSA.
– Institution EFC calculation. This calculation is used by individual schools to determine their own EFC. While they may rely on the FAFSA as well, individual schools may have additional criteria they consider when determining aid packages.
Takeaway Information
So, Bill & Caitlin had a ton to consider, but a few points were obvious already:
– Understanding the basics of the FAFSA before filling it out would help them calculate ways to better reflect their true EFC.
– Ask schools what EFC calculation each uses and find out any institutional discrepancies from the national EFC calculation BEFORE applying for financial aid.
Even though my daughter is only 2, this is good info to know! At the time I went to college (a million years ago), my parents paid my tuition so I never took out a school loan so I don’t know anything about them. This is very informative!
I am not well versed in Student Aid but it is my assumption that if you receive this money you don’t have to pay it back. Is this true?
Not true. Student aid can be grants (don’t need to pay it back) or loans (which have to be paid back). You also need the FAFSA to apply for gov’t orchestrated student loans.
The FAFSA has been HUGE for my return to school. Everyone should fill it out…you might just be surprised at what you’ll get awarded! That being said, at previous times in my life when I applied I thought there were some serious holes in some of the logic of calculating EFC. The people who get funds DEFINITELY need it…I’ll say that much. Great, great post with such important info to know.
Oh, the FAFSA. It’s January, isn’t it? Where are yours going to college?
Autumn is headed to the University of Arkansas Honors College. Nick? It looks like a race between the University of Texas, NYU, and Carnegie Mellon.
I’m curious what mix aid (loans) and grants there are. We saved for college starting the month my daughter was born, and put aside enough to pay for college with cash.
In hindsight, I wonder, had we saved that money in our retirement accounts, arranging for enough to be in Roth the year before college, and simply retire, would we then qualify for grants that we’re now ineligible? (Note – 4 more years till college. Money was set aside in trust to take advantage of annual gifting, as back then the estate tax could have hit us if my wife and I checked out early.)
Hey, Joe! The aid package depends on the school, but it’s public information and good to ask. Money in retirement accounts doesn’t count against your EFC (while current contributions DO count). So, if you have a way to get the money out successfully without penalty…money in retirement accounts may be a great idea if you’re looking for ways to save that are more EFC-friendly. IF the trust you set up is yours, there is a protected amount (depending on your age and family situation) that won’t count against you with regard to EFC (in other words, the FAFSA allows you to keep a sizeable reserve before counting money toward your EFC). If junior owns the trust, then there is no money protected against EFC calculations.
Filling out the FAFSA is so important. Like you said, almost all aid is based off information provided in the FAFSA. Fortunately (or unfortunately depending on how you look at it) my parents weren’t high income earners so I did pretty well in the grants department (all money I didn’t have to take out in student loans!). Better to fill it out and find out you’re not eligible for any aid, then not to bother and later learn you were eligible.
Absolutely, KK….AND the school will need it for any aid they may decide to throw your way, which was often a welcome surprise for my clients.
Students need parents to get on this ASAP. As I recall (and this was more than a decade ago), FAFSA needed finalized tax info to be filled out.
My parents were putting their taxes off until the last possible moment, so I had a hard time getting FAFSA information so I could get final financial aid packages from schools prior to Declaration Day.
KIDS – kick your parents’ butts to get this info as early as possible. You’ll want to negotiate aid packages with your college of choice, and that requires time to be on your side.
The good news is that you don’t need finalized tax info. The FAFSA allows you to fill in prior year information (as long as it’s close to current) as a holding place for current info. When you get current info, then you replace the old with the new.
I forgot one thing….to make changes later, you need to request and secure a PIN number, which you can get from the main page of the FAFSA website.
I hate leaving money on the table! Everyone should fill out the FAFSA because most college use the information as the basis for student aid. Particularly the private colleges. Private colleges often will offer more student aid because their own financial resources although their costs are higher.
Great point! Most people assume that private colleges are a ton more expensive because of the “sticker price.” However, because of some huge endowments, you would be surprised how much aid is awarded to the average student at many of these campuses.
I got a full ride through college while my sister had to pay for everything because she didn’t move a finger and just assumed she wouldn’t get financial aid. Even $500 rebate in tuition would make the effort worth your while.
If your father is Bill Gates, you still need to fill out the FAFSA form. Having worked in a college financial aid office, EVERYONE NEEDS TO FILL OUT THE FAFSA FORM. Do not leave lame excuses why below.
No only are Federal Grant and Federal Loans administered through the FAFSA, but so if your total Financial Aid pkg from the school. This includes Scholarships and Work-Study (the type where the library gets an apathetic kid to sit at the desk, but the library doesn’t really care b/c they aren’t coming out of their budget).
Also, if you don’t get any aid initially b/c of a high EFC, it can be adjusted midyear if your parents are laid off, suffer financial hardship, etc etc. Going into my freshman year, I got nada from the school Fin Aid. My father got laid off in the middle of my 1st semester. The 2nd semester I got grants, subsidized loans, scholarships and work study.
Wow! I didn’t know about the midyear adjustment. That’s great information.
The EFC really negatively impacts a lot of families, but it is a measurement of what they use. There’s not much you can do when your school insists that you pay for college and you can’t afford it, so it is best to start saving ASAP.
Great advice, Robert. I’m going to do a piece on EFC and savings, because it’s important to know the most “taxed” EFC savings places.
Luckily I had scholarships for undergrad, but I still had to do the FAFSA to get aid for optometry school. My Dad refused to fill it out because he though it was like applying for food stamps, so my Mom and I had to do the best we could. As I remember, for graduate school, they didn’t ask for a family contribution. Is that correct at all? It think it should be because some of the students were in their 30’s and one was in his 50’s. Do they count social security as income?
Parents, fill out the form. I’m still paying back the loans. It wasn’t for food stamps!