While every situation is different, there are rules that apply when one needs financial aid. Find out how your financial aid is calculated in this article.

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Every family's financial situation is different, but there are some "rules" that apply universally when one's Expected Family Contribution (EFC), an important part of determining financial aid, is being calculated.

About the EFC
The EFC is derived from the federal need formula, using information from the FAFSA. In addition to using the FAFSA for assigning government aid, about 400 private colleges that provide a considerable amount of their own money to fund scholarships also require an aid application called the PROFILE. These colleges use their own need formula which may result in an EFC that differs from the federal calculation.

Having an idea what your EFC might be is only part of the need equation. The EFC must be compared to the Cost of Attendance (COA) to judge whether or not you will qualify for need-based student aid.

Case One: A Lower-Income Family from California
Our first family includes a single mother with two children: a high school senior and a ninth grader. The mother is hoping get financial aid for college for the senior. The total family income is $42,000, with checking and savings accounts totaling $10,000. The family home was bought ten years ago for $50,000, but is now worth quite a bit more. The only retirement plan is Social Security.

                EFC = $1,000

What you can learn:

  • For most lower-income families (roughly defined as earning less than $40,000) the EFC will either be zero or a small amount. In this example, the EFC is roughly the amount the mother spends on her daughter during senior year. The expectation isn't that she spends extra money, but that she transfer expenses to the college bill.
  • There is no contribution required from a parent's savings until they reach about $50,000.
  • Even though this modest home has appreciated, its value is not considered in figuring the EFC.


Case Two: A Middle-Income Family from Pennsylvania
Our second family interested in financial aid information includes two working parents and two children, one a high school senior and one a sophomore at a private secondary school that costs $5,000. The father has been with the same company for 25 years and has a good retirement plan. Combined income is $72,000. Investments in mutual funds total $77,000 and they own their home, worth $250,000 after subtracting the mortgage. Over the past year, the family has paid $3,000 in un-reimbursed medical expenses. The student has $3,000 in a savings account.

            EFC = $8,500

What you can learn:

  • Though the family home is worth a good amount, its value is not considered in calculating the EFC.
  • To a large extent, savings are protected. Of this family's $77,000 in investments, only about $1,500 of the EFC amount comes from income.
  • The value of father's retirement plan is not counted.
  • Although the FAFSA does not collect information about un-reimbursed medical expenses or private school tuition, a college aid counselor may allow for these expenses and reduce the EFC under the "professional judgment" provision of the federal need formula.
  • The $3,000 in student savings is "taxed" at a rate of 35 percent, accounting for $1,050 of the EFC. When saving for college, it's a good idea to start a 529 plan. The need formula expects a lot less from a 529 plan than it does from money in a regular savings account.


Case Three: An Upper-Income Family from Florida
There are three children, an older sister who is a sophomore in college, a high school senior, and a seventh grader. The mother and father have put aside $50,000 in a 529 plan for the college-bound senior and are interested in other forms of student financial aid. Total income, including taxable and non-taxable sources, is $160,000. A quarter of this income comes from the mother's antique business, with an estimated net worth of $40,000. Stock investments total $180,000. There is $300,000 of equity in the home, in addition to a lakeside cottage worth $60,000. The father has worked ten years for a company that matches his $10,000 annual retirement contribution. This fund is worth $250,000.

                EFC = $20,000

What you can learn:

Because this family has considerable assets, let's look at the effect of each on the EFC:

  • Neither the father's retirement plan nor the $300,000 in home equity is counted.
  • The total value of the stocks and cottage are considered and added $9,700 to the EFC.
  • The $40,000 net worth of the mother's business added $800 to the EFC.
  • The $50,000 in the 529 plan is an asset of the parents, adding $2,500 to the EFC


The total of the assets comes to $880,000. Of this, only $13,000 was added to the EFC from income. Many families think they'll be penalized for saving, but the need formula is actually quite kind to savers.

Many factors will ultimately affect your ability to manage the tuition cost at various schools. However, the next step after determining your EFC is to identify your remaining need. Only then can you assess the amount of financial aid you'll need to come up with, whether through loans, grants and scholarships, or work-study.

The colleges
Now we'll use three examples of college to compare the student aid each family will need. We will use a low-cost college (though nowadays hardly any college, other than your local community college, can be called low-cost), a mid-cost college, and an expensive private college.

An in-state, four-year public institution — the student will attend as a commuter and live at home. The cost includes tuition, fees, books, commuting expenses, and lunches. COA: $12,000

An out-of-state, four-year public institution — the student will enroll at a university in a nearby state. The cost includes the higher tuition for out-of-state students, fees, room and board, books, personal expenses, and travel. COA: $23,000

A four-year private college — the cost includes tuition and fees, room and board, books, personal expenses, and travel. COA: $37,000

Let's look at the need for our three students at each school.

Case One: A Lower-Income Family from California


College 1

College 2

College 3

Cost of Attendance $12,000 $23,000 $37,000
EFC $1,000 $1,000 $1,000
Estimated Need $11,000 $22,000 $36,000

Case Two: A Middle-Income Family from Pennsylvania


College 1

College 2

College 3

Cost of Attendance $12,000 $23,000 $37,000
EFC $8,500 $8,500 $8,500
Estimated Need $3,500 $14,500 $28,500

Case Three: An Upper-Income Family from Florida


College 1

College 2

College 3

Cost of Attendance $12,000 $23,000 $37,000
EFC $20,000 $20,000 $20,000
Estimated Need No Need $3,000 $17,000


Qualifying for financial aid

Comparing EFC to cost of attendance can give you clues as to your estimated need at each school.

An important thing to remember is that the EFC remains the same regardless of the cost of the college. In other words, high-cost colleges don't expect you to pay any more than you would at a less expensive college.

Also, while you may be no-need at one college, you may qualify for a good amount of student financial aid at another. Look at the estimated need for the high-income family at the private college. The last family, with a very good income, nevertheless qualifies for aid at this expensive college.

Tips for receiving financial aid for college

  • While you work through the admission process, educate yourself as a financial aid consumer. Learn about the size, structure, and terminology of the aid system.
  • Make an early evaluation of whether or not you might qualify for need-based aid. If you think you will, follow the college's instructions for applying for aid.
  • Regardless of your possible need, keep your eyes and ears open for non-need (merit) scholarships. This is especially important if you will not qualify for need-based aid.
  • Whatever your EFC might turn out to be, if you feel you will have trouble paying for any of the colleges on your list, apply for student aid. An aid application will cost you some time, but it may save you a great deal of money.


Other financial aid information to consider

Finally, there is the issue of how your college deals with the level of need that has been calculated. Unfortunately, there is no easy answer since each college has its own set of aid policies on how it "packages" need. A college may fill 100 percent of your need with some form of aid or fill only a portion of it and leave you with the responsibility of coming up with additional money to cover the shortfall.

Because of this wide variation, it is important that you find out as much as you can about the policy of each school on your list. Ultimately, you will not know the amount or the "quality" of your aid (the more scholarship/grant aid, the better) until you receive an award letter. But that doesn't mean you should wait to prepare!

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