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Understanding EFC & Need-Based Aid

Every year families go through the tedious process of filling out financial aid forms in hopes of getting enough money to make college affordable for their student(s). Despite putting in the work, most families do not receive enough aid to help them cover the costs of college.

The good news, or not so good news depending on how you look at it, is that anyone who fills out the FAFSA will qualify for federal unsubsidized loans, which tend to have lower interest rates and more flexible repayment plans than private loans.

Even if the student is awarded some grant money, however, many families will struggle to pay the balance due to the college.

This ‘balance due’ is usually determined by the Expected Family Contribution (EFC) of the family. The EFC is essentially an estimate determined by formula of how much your family can pay for college. It is NOT how much you will pay for college.

The EFC is computed by using family financial data submitted on the Free Application for Federal Student Aid (FAFSA). Private colleges may use their own institutional methodology to determine a different EFC via the CSS Profile, a separate financial aid form.

The EFC is then subtracted from the Total Cost of Attendance (tuition, fees, room and board, books and supplies, personal expenses, transportation, etc.) to arrive at the student’s “need,” or eligibility for financial aid.

Calculate Your EFC

Just because you are eligible for a set amount of need-based aid does not mean you will receive it. To research how schools meet need, enter specific colleges on the College Board website and click on the “costs” tab.

Financial Aid Example

Johnny wants to attend XYZ Private College. The total cost of attendance is $50,000 per year. Johnny’s Expected Family Contribution is $34,000. This means he is eligible for $16,000 of need-based aid.

Fortunately, XYZ Private College meets 100% of need. Unfortunately, a substantial portion of this aid is in the form of student loans.

XYZ college offers Johnny $10,000 in grant money and $6000 in student loans.

Question – Is this an attractive financial aid offer?

Answer – Maybe.

Question – Can Johnny get a better deal from this college?

Answer – With professional help… probably.

Question – Does this offer make college much more affordable to the family?

Answer – Not really.

You see, the real problem is Johnny’s family must still come up with around $34,000 per year to cover the cost of the college (plus the future student loan debt). And even if Johnny’s aid package was appealed to $13,000 in grant money and $3,000 in student loans, the family still owes the college that $34,000 balance.

What can this family do?

They could go into debt and take out parent (PLUS) loans at a 6.28% fixed interest rate and an origination fee of 4.228%, potentially jeopardizing their credit score and their retirement.

Similarly, they could take out private loans, perhaps with a more favorable interest rate (depending on parents’ credit score), and pay the balance out of their income and assets.

They could also take money out of their retirement to pay college expenses (this is absolutely the WRONG thing to do).

As a last resort, Johnny could decide to forego his dream college and attend a public university. However, with a cost of attendance of $25,000 and a family EFC of $34,000, Johnny would not receive any need-based aid.

Consequently, the student and parents would have to cover the $25,000 cost, which is still unaffordable to some families, especially if they have multiple children they want to send to college.

Is there a solution for Johnny’s family?

Yes, there is, but it’s not necessarily a one-size-fits-all fix. Often a combination of seeking merit aid/tuition discounts, finding the right financial fit, and creating a savvy financial plan can prevent financial issues down the road.

Many families have lots of trouble paying for college on their own because the process is so opaque and there are so many variables to account for.

There are many financial strategies that can help you fund college expenses without raiding your retirement fund. Our College Funding Coaches use the following strategies to help families pay for college without going broke:

  • EFC strategies – minimize your EFC and maximize your financial aid eligibility
  • Loan strategies – reduce your education debt so as not to jeopardize your current budget, your credit rating, or your retirement funding
  • Tax strategies – increase your potential tax savings that can be converted to college funding
  • Cash Flow strategies – find potential areas of cash flow improvement in your investments, health costs, insurance costs, mortgage costs, and current living expenses – all of which can be used to help fund college costs
  • Investment strategies – uncover “hidden costs” that can be converted to real dollars used to help fund college costs

How do you plan to pay your tuition bill? If you don’t qualify for financial aid, will you need to go into considerable debt, or even raid your retirement fund, to cover college expenses? Do have the time and expertise to try to figure out all this for yourself?

Don’t wait until the last minute to find out if you qualify for financial aid. We can help, but time is definitely running out!

Schedule a Free Consultation


Brock Jolly, CFP®









Related Reading:

Is an Ivy League Education Worth the Cost?

Four Things to Do Before Taking Out Student Loans

Choosing the Right College: Look Beyond the Brochures

The Financial Aid Appeals Process: A Guide to Everything You Need to Know

Save for Retirement or Pay for Your Kids’ College?

Understanding Your Student Aid Report (SAR)

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