Determining Financial Need and Your Contribution for College Education

Congratulations, your child has been accepted to college!  Any idea how much this will cost? Will you be able to afford it on your own? Should you start burying coffee cans full of money in your backyard? A few weeks ago, I mentioned the website www.savingforcollege.com and their college savings calculator. Today I want to highlight another convenient tool they have, the Financial Aid Calculator.

While a financial aid calculator sounds like it will tell you how much aid you’ll receive, but really it tells you how much you won’t receive. This Expected Family Contribution (EFC) represents the minimum amount the government thinks you and your child should put in the pot to pay for kiddo’s education. That is the whole reason Uncle Sam has you fill out the Free Application for Federal Student Aid (FAFSA). The calculator lets you see in advance what number they will likely come up with so that you can do planning in advance. (After all, not planning in advance is called reacting.)

Now, let’s talk about the calculator.  You will need to enter your marital status, your age when your child starts college, number of household members, adjusted gross income (from both the parents and the child), and all other monies held in savings accounts, investment accounts, 529 plans, trusts, etc. All of this counts in varying degrees toward the final EFC.  The biggest portion of this number arrives from half of the student’s income and somewhere between one-fourth and one-half of the parent’s income.  Assets in your child’s name, including trusts held in custodial accounts, are counted at a much higher percentage than the parents’ assets.

Once you’ve entered the information, the tool will arrive at an estimated figure of your yearly out of pocket costs, or your EFC, in seconds.  Once you’ve arrived at your EFC, you can then estimate your child’s financial need.  It’s determined by taking the yearly cost of attendance and subtracting the calculated EFC and other resources such as scholarships. This is why going to a more expensive college can actually end up being affordable because there is a bigger gap that the government and school might be willing to fill. You see, as the price of tuition goes up, your EFC doesn’t. 

The financial aid system is constantly changing and you should maintain communication with your university financial aid counselor.  Don’t fear your EFC, the counselors at these institutions have the tools, resources, and their own sets of rules available to adjust your child’s final financial aid package to a number that won’t give you ulcers, just heartburn.  But remember, most aid comes in the form of loans, not grants, so you may want to hold those gifts of buried coffee can money until they get their degree and have to begin paying down that debt. 

 
This article was published under the title "Calculate Savings to afford college" in the Wichita Falls Times Record Newson March 10, 2013.