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 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.
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.
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.