My oldest friend once asked me to help her bright daughter with her college search.
I said sure. And then I told Mary what I absolutely needed from her before we checked out a single college.
I needed to know what her household’s Expected Family Contribution was. A family’s EFC, which is expressed as a dollar figure, represents what a financial aid formula says a household should be able to pay for one year of college.
My friend is a registered nurse and her husband is a carpenter with bouts of unemployment. It would be easy to assume that their EFC is a modest one.
The EFC for the average American household that makes an adjusted gross income of roughly $55,000 is usually going to be in the $2,000 to $4,000 range. These families would be expected to pay at least that much for one year of school. With that kind of modest EFC, my friend would be looking for schools that are generous with financial aid.
I knew, however, that Mary inherited money from her father, who was a successful dentist.
I wasn’t privy to how much she inherited, but the money could make a difference in whether her daughter would qualify for financial aid or not.
Your First Step
I told Mary the same thing that I am telling you right now.
As you begin your search for colleges, obtaining your EFC should be the FIRST STEP you take. You will learn how to generate your EFC in the next lesson.
If cost is a factor – and it is with most families regardless of their income – you need to match up what you will be expected to pay with the generosity of schools.
You will learn how to determine whether individual colleges and universities are generous later in this class!
What If You Have a Lower EFC?
If Mary’s EFC is low and there is not much inheritance left, I would tell her daughter to stay away from expensive schools that are stingy with financial aid.
As you’ll learn in the course, many prominent schools with poor to mediocre financial aid are located in cities on the East and West Coasts because families consider these areas to be highly desirable. These schools can afford to be miserly because there is a huge demand for their freshmen slots.
With a low EFC, Mary should look for colleges and universities that provide generous need-based aid. Regardless of her family’s EFC, Mary’s daughter should also consider public universities within her own state, which in this case is Missouri.
What If You Have a Higher EFC?
On the other hand, if Mary is now a wealthy woman, but doesn’t want to pay full price, I would tell her to look for schools that give healthy merit scholarships to affluent students. Most schools in this country dispense merit scholarships to high-income students. In fact, the average grants/scholarships at private schools are now slashing 55% off the tuition sticker price, which is an historic high. You’ll learn more about this practice in the modules entitled, Targeting Schools for the Most Money, Parts I & II.
Many state universities are aggressively dispensing merit aid to students they covet. To learn more about this strong state trend, read this lesson, State Universities and Merit Aid, which you’ll find in the module entitled, Targeting Schools for the Most Money, Part II.
Many parents assume that there must be some kind of income cut-off to qualify for financial aid, but automatic cut-offs don’t exist. There are too many variables that play into the determination of whether a family qualifies for financial aid that goes beyond income. The marital status of parents, the number of students in college, the type of assets and, in some cases, home equity will play a role in determining aid eligibility.
That’s why it’s important to obtain your EFC before you start seriously looking at schools. You should not guess that you will qualify for need-based aid or automatically assume that you won’t.
EFC Example: Family Needing Financial Aid
Let’s see how a package might be built at a school that costs $50,000 and the family’s EFC is $3,000. The first thing the school would do is subtract the family’s EFC to determine how much aid is needed.
|Cost of attendance:||$50,000|
|$47,000 Demonstrated need|
Next the school would subtract any eligible state and federal money:
|$47,000 Demonstrated need|
|Minus||$3,000 (Partial Pell Grant)|
|$6,000 (State aid)|
|$38,000 Remaining need|
In this example, the college would have to decide whether it would provide $38,000 of its own money to cover the remaining cost of this child’s first year in college.
If the school meets 100% of a student’s financial need, the school would put $38,000 worth of assistance in the package. Ideally, the help would strictly be grants (free money that doesn’t have to be repaid.)
In reality, most colleges and universities will require that families cover more than their EFC for one year of a child’s college.
These schools will not meet 100% of need. Instead these institutions will gap your child. A school might meet 88% of need or 59% of need or 72% of need. Some of these aid packages can be outrageously stingy. If your child is a more valued applicant, the award he or she receives will often be better.
It will be up to families to scramble to pay more than their EFC figure to compensate for the gap or to walk away.
When you need help with college costs, it makes sense to look for schools that will be as generous as possible that your child has a good chance of getting into. You won’t know what you will need and what you might expect, however, until you obtain your EFC.
2nd EFC Example: High-Income Family
Let’s take a look at the package that a wealthy student with a high EFC received from a private school:
|Cost of attendance:||$50,000|
|$5,000 Actual need|
This student didn’t qualify for state and federal money, but she did capture a $15,000 merit award from the school. In this case, the award would cover the family’s actual need of $5,000 and the excess would allow the family to pay less than their $45,000 EFC. Their total outlay would be $35,000 for the year.
If your child doesn’t qualify for need-based aid, you will pay the sticker price minus any institutional or private scholarships that your teenager receives.
An Important Point About Aid
Schools will use merit awards, outside private scholarships and government aid to first reduce a family’s demonstrated financial need and not the family’s out-of-pocket costs or EFC.
To see how this plays out, let’s take a look at an example of a family with an EFC of $15,000 whose child will attend a $40,000 school. Before any aid, this family would be seeking $25,000 in financial assistance. ($40,000 Cost – $15,000 EFC = $25,000 of demonstrated financial need).
The student, in this example, receives a $12,000 merit award. The parents would like this award to reduce their out-of-pocket costs (EFC), so their contribution would drop to only $3,000. But schools will use any type of aid — merit or need-based – to first reduce the student’s demonstrated financial need.
So after the merit award is applied in this case, the $12,000 award would whittle the family’s demonstrated need down to $13,000 and the family would also be responsible for their EFC of $15,000.
What Colleges Do With Your EFC Figures
You will generate your official federal EFC automatically when you complete the Free Application for Federal Student Aid, which is the federal financial aid document that families must submit to be eligible for financial aid and federal loans. After submitting the FAFSA, you will discover what your EFC is a few days later when you receive your Student Aid Report.
Students who complete the CSS/Financial Aid PROFILE, an additional aid application that 229 mostly private institutions require for eligibility for their own aid programs, will generate a separate EFC for each PROFILE school. Colleges rarely share these EFC figures with families.
When a school looks at your EFC, it will build an aid package based on other sources of money first. A college’s financial aid office, for instance, will put the Pell Grant into the package if your child qualifies for this federal money. The Pell Grant is targeted at low and lower-middle income families.The school will also determine if your child qualifies for any state grants. This aid can vary significantly by state. After all this outside money is plugged into an award, the school itself will decide how much it will kick in to meet the cost beyond the family’s EFC.
You need to obtain your EFC before you can start identifying schools with policies most favorable to your financial situation. You will learn how to generate your EFC in the next lesson.
For further reading try…
Troy Onink, a Forbes college contributor and the CEO of Stratagee.com, a college-planning firm in Pennsylvania, wrote an excellent article in Forbes Magazine that you can access in the above link, which provides an in-depth explanation of EFCs and financial aid formulas for the 2017-2018 school year.