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If you ever wondered how your income and assets are counted against you when your child applies for college aid, and if there is anything you can do to maximize your aid eligibility -- wonder no more. Updated for 2017, this comprehensive guide to college financial aid includes new tips and insights to help you estimate how much your family will be expected to contribute toward the cost of college and how to maximize your financial aid eligibility. This guide will help you gain a clear understanding of how the college financial aid system works with straight-forward explanations of expected family contribution (EFC), need-based financial aid, merit aid, and how your income and assets count against you on the FAFSA and CSS Profile college aid forms.
Applying for College Financial Aid
The process of applying for need-based financial aid for college begins by students and parents completing one or two financial aid forms, the FAFSA (Free Application for Federal Student Aid) and/or the CSS Profile.
Any college or university that awards federal student aid must require that students complete the FAFSA in order to determine eligibility for federal aid (it works for most state aid too). Most colleges and universities nationwide use the FAFSA as their sole application for need-based financial aid, so students applying for aid at those colleges only need to complete the FAFSA. However, there are about 200 colleges which require that the CSS Profile also be completed in addition to the FAFSA. Those colleges use the CSS profile to assess the student’s eligibility for the college’s own institutional aid dollars.
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Typically, “Profile” colleges are very selective private colleges, including the Ivies, but the University of Michigan at Ann Arbor, William & Mary, Georgia Institute of Technology and the University of North Carolina at Chapel Hill are examples of flagship state universities that also require the Profile. There is also a group of 23 colleges that make up what is known as the 568 Presidents’ Group, which was formed by the presidents of those institutions for the purpose of assessing students’ ability to pay for college using a “consensus” methodology. The 568 Presidents’ Group schools also require the CSS Profile to be completed but they treat students’ assets and parents’ home equity different (more favorable to families) than the institutional methodology does.
Thus, there are two financial aid forms but three methodologies of calculating a student’s expected family contribution. The income reported on both aid forms used to be the income from the prior year’s tax return, but in 2015 a change to the so-called prior – prior year (PPY) format of reporting income was announced and went into effect in October of 2016 for the 2017-2018 academic year.
Below is an explanation of the new prior – prior college aid filing format.
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Prior – Prior Aid Filing Format
On September 14th, 2015, President Obama changed the filing format of the FAFSA college aid form from using prior year income to prior-prior year income, creating a lot of confusion as to how the rule works, how it impacts aid eligibility and when to file what to whom. So let me simplify this a bit for you.
Under the changes, students who are high school seniors this coming fall (2017) will be able to apply for financial aid for their freshman (academic) year of college in 2018-2019 by submitting the FAFSA in October 2017 using income tax information from their parents' 2016 tax returns.
This new method is referred to as prior, prior, because students' college financial aid eligibility is now based off of income from two years prior to when a student enrolls in college, not one year prior the way the rule had been until 2016.
FAFSA And CSS Profile: Why Two Aid Forms?
Karen Cooper is the Associate Dean and Director of Financial Aid at Stanford University, and a College Board trustee. At Stanford she is the person responsible for directing one of the most generous financial aid programs among all four-year colleges and universities in the US, and explains that the Profile does a better job than the FAFSA of assessing a family’s true financial strength.
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“The FAFSA does a great job of helping low-income families apply for federal and state aid, but the Profile is the best proxy of measuring the family’s financial strength at all income levels. At Stanford we want to really know each family’s financial story and the Profile gives us a far better understanding than the FAFSA does of what families can afford and if there is more to their story than the numbers alone tell,” Cooper said. Furthermore, she says, “Families with lower incomes tend to have less fluctuation in income from year-to-year than families with higher incomes. The FAFSA looks at just one year’s income; 2015 for the 2017-2018 academic year. It’s a snapshot, so there is concern in using that data.” Universities like Stanford use the CSS Profile to gain a better understanding of a student’s ability to pay for college by collecting income information for both the actual 2016 prior – prior year income via the parents’ 2016 tax returns and estimated 2017 year income. Cooper explains, “If there are income fluctuations that may affect a student’s aid, we want to know what is causing the fluctuations so we can provide the student with a fair award. Also, we don’t like to see big fluctuations in the aid we are awarding to students from year-to-year because that can jeopardize overall affordability.” Now that you know what year’s income will get reported on the aid forms, it is important to understand how the information on the aid forms is used to determine how much a family is expected to pay for college. That amount is known as the expected family contribution. Calculating Your Expected Family Contribution (EFC) Regardless of the aid form(s) the student is required to complete and submit as part of the process of applying for financial aid, and after all of the time and information it takes to complete the form(s), it all boils down to three letters, EFC, which stands for expected family contribution. You provide your financial information on the aid forms (FAFSA and CSS Profile), submit the forms online to the processing centers for each respective form, and the information from the forms goes into the aid calculations (the Federal Methodology, Institutional Methodology and Consensus Methodology). The output of those need analysis calculations is the student’s expected family contribution (EFC) toward the cost of college. The student’s EFC is the minimum amount the student is expected to contribute toward the cost of college. Thus, EFC represents a dollar amount. It is the “output” of the aid forms and calculations. Your data goes in and your child’s EFC comes out and goes to the colleges’ aid departments that the child asks the data to be sent to on the aid forms. All three of the EFC formulas focus primarily on the assets and income of the parents and student, family size and the number of dependent children enrolled in college in a given year to assess the family’s ability to pay for college using the income and assets that they have. And because the three formulas calculate EFC differently, it’s likely that the student’s EFC under each formula will also be different, sometimes drastically different! Using a Student’s EFC to Determine the Need for Financial Aid EFC is used to analyze a students’ need for financial aid using a simple formula that subtracts the student’s expected family contribution (EFC) from a college’s total cost of attendance (Cost of Attendance – EFC = Financial Need). If a student’s EFC is less than a college’s cost of attendance, then the student qualifies for need-based financial aid. Cost of Attendance Cost of attendance is obviously one of the two variables needed to determine need-based aid eligibility. Cost of attendance is the total cost of enrolling at a college, including tuition, fees, room & board, books, travel and personal expenses. So if you know the cost of a specific college you can subtract your child’s EFC from that cost to determine if your child is eligible for need-based financial aid at that college. If you don’t know the cost of a specific college, you can use the 2014-2015 national average costs for a 2 year public college ($20,000), a 4 year public college ($30,000), a 4 year private college ($58,000) or 4 year elite college (the most selective and most expensive colleges nationwide, at $68,000 per year), to get a general idea of your child’s aid eligibility. 2017 EFC Quick Reference Table for College Aid Step 1 – Locate your income in the AGI column. Step 2 – Find the column at the top of the table that corresponds to the number of dependent children that you have and follow that column down to the row that corresponds with your income (AGI). The intersecting number is your estimated Federal EFC based on parental income only. The estimated EFCs in the table below do not take into account your assets, or if you make contributions to qualified retirement plans or receive any form of untaxed income. All of which will increase EFC. Assumptions and Notes on the EFC Quick Reference Table The EFCs in the table do not take into consideration any parent or student assets that may be reportable on the financial aid forms, and counted in the aid formulas. The intent of this table is to give you a simplified quick reference to EFC. In general, the assets that get counted are non-retirement assets, and the aid formulas weigh assets in students’ names more heavily (20-25%) than they do parents' assets (5-5.64%), except under the Consensus Methodology which treats both student and parent assets at 5%. Small business assets do not count under the Federal Methodology, but they do under the Institutional and Consensus Methodologies. Likewise, home equity counts under the Institutional Methodology, but only up to 1.2 times the parent's adjusted gross income (AGI) under the Consensus, and not at all under the Federal Methodology. Therefore, when your assets are added into the overall aid calculation your actual EFC may be higher. Furthermore, the average cost of college in your home state may vary from the national average costs that this table uses to estimate aid eligibility, and the EFCs shown are based solely on the Federal Methodology of calculating EFC. How Income Gets Counted For College Aid Purposes Colleges expect parents to contribute up to 47% of their net income toward the cost of college each year. The formula essentially works like this. If you take your adjusted gross income (AGI) from line 37 on the front page of your 1040 tax return and add to it any retirement plan contributions you made, HSA contributions, child support received and other "untaxed" income, and then subtract from that "enhanced AGI" your government calculated income protection allowance and what you paid in Federal, State and FICA taxes, you will arrive at your net available income. If you have an AGI of about $90,000 a year or higher the aid formulas want 47% of that net available income amount. If your net available income is $50,000 after taxes and allowances, you'll be expected to pay roughly $23,500 per year toward the cost of college based on income alone, but the aid formulas also consider your non-retirement assets. How Assets Hurt Aid Eligibility On The FAFSA and CSS Profile Surprisingly, at the most expensive colleges, now charging $71,000 per year, students may qualify for a significant amount of financial aid even if their parents earn over $200,000 per year and have substantial assets. And if those assets are structured favorably, more of a college's own institutional (not taxpayer funded) aid dollars may come your way. For example, you don't have to list a $2 million family-owned small business when applying for college aid on the FAFSA, but you do on the CSS Profile. Your home equity will count on the CSS Profile, but not the FAFSA. If your child owns a 529 college savings account, it will be treated way more favorably on the FAFSA than the Profile. Assets in retirement plans don't count, but last year's retirement contributions do. They get added back to your income for aid calculation purposes. With so many questions and such confusion, you can be doing your best to save for college and retirement and inadvertently hurt your child's eligibility for college aid, raising your out-of-pocket cost and depleting more of your hard-earned income and assets. Calculate ahead of time how your assets will affect your child's college aid eligibility, and your ability to pay for college. That's why it is so important for you to discover ahead of time how your savings, investments, retirement accounts and 529 college plans may hurt your child's aid eligibility when you complete the FAFSA and CSS Profile college aid forms. You specifically want to determine three things as early as possible: 1) Which colleges use which aid forms and formulas? 2) How your family's finances will be assessed under each formula and, therefore, at each college?
3) Will your income throw your child out of the running for need-based aid regardless of what type of accounts your assets are in, or who owns them, you or your child? Thanks But No Thanks: While friends, family and coworkers have good intentions, they are usually the worst source of financial aid advice. Your planning needs to be based on your family's unique situation only!
Two College Aid Forms, But Three College Aid Formulas Expected family contribution (EFC) is the minimum amount the family is expected to contribute toward the cost of college, and is calculated using three different methods: Federal Methodology (FM), Institutional Methodology (IM) and Consensus Methodology (CM). All three EFC calculations are based on the income and assets of the parents and student as reported on the two financial aid forms, the FAFSA (FM) and the CSS Profile (IM and CM). Which Assets Count Retirement assets such as 401k, 403b, IRAs, SEP, SIMPLE, Keogh, profit sharing, pensions and Roth IRAs are not included in the calculation of EFC under any of the three EFC methodologies. Assets that aren’t in retirement accounts --- balances in checking, savings, CDs, brokerage accounts, money market, investment real estate, stocks, bonds, mutual funds, ETFs, commodities and 529 college savings and prepaid plans---do get included in the EFC formulas. Trust funds must be reported regardless of whether or not the funds are currently available to you or your child. On the FAFSA, if only interest or principal will be available, the present value should be calculated by the trust officer and reported accordingly. Parents’ total reportable assets will vary depending upon the EFC methodology, and from the reportable asset value a savings (emergency reserve) allowance of about $15,000 to $25,000 is subtracted to arrive at an available asset value. Parents are expected to use up to 5.64% (Federal) and 5% (Institutional and Consensus), of those available assets each year on college. Family controlled small businesses with fewer than 100 full-time employees, home equity and non-qualified annuities are not counted in the FM, but they are in the IM and CM, although, under the CM home equity is capped at 1.2 times the parent’s adjusted gross income. Some private colleges (like Lehigh) use an in-between formula for home equity, counting 2.5 times the parents’ AGI while others (like Bucknell) are now not counting home equity at all, even though it is asked for on the CSS Profile. When answering the questions about home equity on the CSS Profile, the questions specifically ask about when the home was purchased, for how much, and what estimated current market value is. The reason for these questions is that they are needed for the calculation of estimated home value using the Federal Housing Multiplier Index calculation which you can do yourself using the MSA/MSAD calculator here. Choose the region the house is located closest to, the quarter/year it was purchased, the valuation quarter (current quarter) and the purchase price and then click the calculate button to get the estimated value. This will be the value the CSS Profile and the colleges will arrive at via the FHMI calculation and is an acceptable (low) value to list the market value of the home at. Although, I always bump up the value to be reported as the market value on the CSS so it doesn’t come out to be the exact number the FHMI will arrive at on the CSS. Consumer Beware: Non-qualified annuities DO get counted on the CSS Profile, but not the FAFSA. Heed this warning before you decide to put all your liquid assets in annuity products to "hide them" for aid purposes. Retirement assets do not get counted, but your prior year's contributions to qualified retirement accounts do get counted as untaxed income, and are added back to your adjusted gross income in the income portion of the aid formula. Life insurance cash values are not counted under any of the formulas, but a few highly selective colleges will ask about policy cash values in their supplemental questions on the CSS Profile. Personal assets like cars, clothes and household items do not count under any of the formulas, but collectibles do. You Decide: Is a well-stocked wine cellar considered a "collectible" or a savvy liquid asset with subtle notes of financial aid? Rental Properties Rental properties are a popular tax and investment strategy among parents, but they do not qualify as a family controlled small business asset that can be excluded from the FAFSA. To be considered a business you must be providing a service such as laundry or cleaning. If your rental properties are in an LLC business structure, technically you can exclude the value as a small business on the FAFSA. However, if your child attends a college that requires the CSS Profile in addition to the FAFSA, there is no exclusion for small business assets on the Profile, so the rental will be counted on the CSS Profile anyway. Unless the rental properties are in an LLC (and arguably any other form of business structure except a sole proprietorship) they will need to be reported on the FAFSA under the investment question because the rental is considered “other real estate.” If the rental is actually in a business and the business is family controlled with fewer than 100 full-time equivalent then it does not have to be listed as an asset on the FAFSA, but it will have to be reported on the CSS Profile. When reporting the rental on the CSS, it will either be reported as part of “Other real estate” if it is personally owned, or as a business if actually owned by a business that the family owns. Personally-Owned Rentals Versus Business-Owned Rentals The difference in how personally-owned rentals get valued versus business-owned rentals is that combined business net worth is compared to a business value adjustment table on both the CSS and FAFSA. If the net worth of the businesses owned by the family is, for example, less than about $635,000, then the value will be multiplied by 60%. If the value is lower it could be multiplied by a factor as low as 40%. The adjusted value, after multiplying the value times the factor in the table gets added to the other reportable assets the family has and then multiplied by either the 5.64 or 5% factor for reportable assets on the FAFSA and CSS, accordingly. Keep in mind that families submit their tax returns (via the IDOC system, like Drop Box) as a requirement with the CSS. So the financial aid officer will have the tax return to compare to a claim of whether the business is personally-owned or not. Why do I mention this? Because clients want to take every rental deduction possible on their tax returns and then because businesses get an adjusted value on the aid form, want to claim the rental is a business. Cue the gong. Nope, that doesn’t work. They can plainly see it is personally-owned and will get counted as a personal reported asset. Student Assets Students must report the same types of assets as parents, but students do not have a savings allowance, so 100% of the value of student-owned assets gets counted. Student-owned assets are counted at a rate of 20% (FM), 25% (IM) and 5% (CM), but under the FM, 529 college savings accounts and Coverdell Education Savings Accounts (ESAs) are counted as parent’s assets (5.64%) even though they are owned by the student. Note: More and more CSS Colleges are treating student-owned 529 assets as assets of the parent (5% assessment), the same as the Federal Aid rule. However, not all CSS colleges adhere to the Federal Aid rule, in which case the student-owned (UTMA) 529 account would be treated as a student asset and a 25% assessment rate under the institutional methodology (IM). Parent Assets: Do The Math If there is $25,000 in reportable assets that you own, and your asset protection allowance is $35,000, then there will be no contribution expected from the assets because the total reportable assets do not exceed the asset protection allowance. If you have $200,000 in reportable assets, you would be expected to make a 5.64% contribution from $165,000 of those assets ($200,000 - $35,000 =$165,000 times 5.64% = $9,306 each year). Child Assets: Do The Math If your child has $25,000 in savings account, the child will be expected to contribute 20% of the asset ($5,000) each year toward the cost of college under the federal methodology, 25% under the IM ($6,250) and only 5% under the CM ($1,250). If your child owns a 529 college account of Coverdell ESA the aid treatment is more favorable under the federal calculation. The same $25,000 in a 529 account will only be assessed at a maximum of 5.64%, and sometimes it may not be assessed at all. Legislation was passed several years ago that changed the treatment of student-owned 529 and ESA assets for federal financial aid purposes. Now, under the federal need analysis formula only (not the IM or CM), 529 and ESA assets owned by students are considered assets of the parent for federal aid purposes, therefore they get more favorable aid treatment than other assets like savings accounts, mutual funds, stocks and bonds. So, for federal aid purposes (i.e. Pell grants, Subsidized Stafford loans, etc), if money is saved for college in 529 plans and ESAs in the child’s name, it has the same financial aid impact as saving in parents’ names. Remember, parents get an asset protection allowance. So if parental assets + student 529 assets combined are less than the asset protection allowance, the child's 529 assets will not be counted at all. Saving In Your Child's Name Isn't Always Bad Based on your income alone, if your child's EFC is high enough to prevent him from qualifying for need-based financial aid, then it doesn’t matter if your child has a pile of assets in his name or not. In fact, in some cases it can be a tax benefit to shift appreciated assets to your child, even under the so-called kiddie tax rules. The reason is so you can implement a variety of tax-saving tactics that employ the use of the standard deduction, personal exemption and the $2,500 American Opportunity Tax Credit on your child’s tax return during the college years, and minimize or eliminate the federal tax your child will owe. You'll pay less tax this way than if you sell appreciated assets in your tax bracket, even with the kiddie tax. Beware Grandparent-Owned 529 Plans However, 529 plans that are owned by grandparents are not counted as an asset when a student completes the FAFSA, but some colleges do ask for grandparent-owned 529 assets as a supplemental question on the CSS Profile (financial aid form). Like retirement assets, however, grandparent-owned 529 assets are not factored into the EFC calculation. It is there for professional judgment purposes to provide aid officers with a more complete financial profile of the family when the student has extenuating circumstances that need to be considered for aid purposes. Therefore, grandparent’s 529 assets are usually not involved directly in the calculation of the student’s EFC under the institutional methodology. Unfortunately, distributions from grandparent-owned 529 plans do count against aid eligibility under all of the aid formulas. More importantly, and far less understood is the fact that distributions from grandparent-owned 529 plans are technically considered a gift to the student, and treated as untaxed income for financial aid purposes, which can impact a student’s aid eligibility by up to 50% of the distribution. So having an asset in the form of a 529 plan account that is owned by the grandparent does not count as an asset in the student’s EFC (expected family contribution toward the cost of college), but if the grandparent makes a distribution from that 529 plan to help the grandchild pay for college, that distribution will be considered untaxed income of the student when the student completes the aid forms the following year. Ouch! Why Does The CSS Profile Ask Questions Not Used in The EFC Calculation? The CSS Profile is a much more involved aid form that will require more time and information gathering than the FAFSA. A lot of the questions and data on the Profile will not actually be used in the calculation of your child's EFC, such as asking for retirement assets values, for example. Why then do they ask all those other financial questions if they don't affect your EFC number? The additional information is used for professional judgment (PJ) purposes, meaning that if the student's family has special circumstances that legitimately affect the family's ability to pay, aid officers have a lot of good additional information already on hand via the Profile with which to make a "judgment call" to help the student POSSIBLY receive the additional aid she deserves. This information is not intended to hurt a child's aid eligibility. Putting Your Expected Family Contribution (EFC) Into Perspective Your Child Qualifies for Need-Based Financial Aid Using the example from above, if your income is $70,000 and you have two dependent children, one of which is enrolling in college, your EFC is $7,253 and is pink, which means that based on this estimated EFC using your income alone (your actual EFC may be higher), your child should qualify for need-based financial aid at all three types of colleges. As a result, your child is eligible to receive need-based grants, scholarships, work-study and student loans as part of the child’s financial aid package. Eligibility does not mean certainty, however. You will have to wait to see what form of aid the child gets and how much it is worth. Your Child Doesn’t Qualify for Need-Based Financial Aid On the other hand, if your income is $275,000 and you have one dependent child, then your EFC is $71,821 and is dark purple, which means that your child won’t likely qualify for need-based aid at any of the four types of schools used (Two-year public, four-year public, four-year private and four-year elite private colleges). But, that doesn’t mean that you have to pay $71,821 per year if the “sticker prices” are less than that. You will never pay more than the cost of attendance. Keep in mind too that the costs used to create the table are national average costs for these types of colleges and that the cost of attendance of a specific college will be different than the national average. The Ivy League colleges, and most of the elite private colleges, are now just over $71,000. EFC With Two Kids in College at the Same Time Note that under both formulas, if parents have two children in college, the parent’s portion of the expected family contribution is not twice what it would be for one child. In fact, in the federal formula, the parent's portion of the family contribution gets split equally (50/50) among the number of students in college. So if the parent’s have one child in college and have an earned income of $140,000, their EFC will be about $31,000 per year for that child. With two children in college, the parent’s EFC will get split 50/50 and applied to each child’s overall EFC, or $15,500 each. The CSS Profile applies a little more than half the parent’s contribution (60%) to each of two students. Bottom line: If you have more than one child attending a pricey private college, you may qualify for need-based aid even at a fairly high income level. Eligible For Aid at One College, But Not at Another A student’s eligibility for need-based aid is relative to the cost of attendance of each college the student is considering. The student may qualify for need-based aid at one college and not at another. Using the example above, based solely on the parent’s income alone, and forgetting all assets for the moment, parents earning $140,000 per year in income would have an EFC of approximately $31,000 per year under the federal formula with one child in college. At a private college costing $65,000 per year, the student would qualify for $34,000 per year in need-based student aid because the student’s EFC is $34,000 less than the college’s cost of attendance. Conversely, at the state university costing $30,000 per year, the student wouldn’t qualify for any need-based student aid because the student’s EFC is higher than the cost of attendance. Predicting The Financial Aid Award For the most part, even if a student qualifies for need-based aid it doesn’t mean that the college or university will meet 100% of the student’s need. And in most cases you won’t know what the student’s “aid package” will consist of until the student receives his/her financial aid award letter. Don’t get too caught up in trying to predict the exact makeup of a student’s aid package based on a bunch of statistics pertaining to the college’s historical aid awards. Rather, try to get an idea of what amount of aid the student is eligible for and focus on the most useful statistic, percentage of need met. Percentage of need met is a statistic that the majority of colleges release annually, and represents the average percentage of need that the college met for students that had need-based aid eligibility in the previous year’s incoming freshman class. For example, on average one college might only meet 70% of student’s need, and another college (like many of the elite private colleges) might meet 100% of need. That’s a very big difference in aid, especially over four years. The percentage of need met reflects all of the aid packaged by the college’s aid office on behalf of the students, including federal aid, state aid, and private scholarships and so on. Thus, it reflects all forms of aid, including merit aid, in one predictive statistic. Decoding Financial Aid Award Letters Once you start receiving financial aid awards from colleges you need to be careful to make sure they don't have loans buried in the small print. How To Avoid The Disappearing College Aid Trap This post by Forbes’ Miriam Kerler highlights the real life bait and switch by colleges that lure students on campus with up-front grants then pull the grants in subsequent years, leaving students and families to somehow come up with funds to cover the shortfall, or force them to dropout. What To Do If Your Family Has Special Financial Circumstances There is no place on the FAFSA to explain special situations that you would like colleges to take under consideration when assessing your child's need for financial aid. You should contact the financial aid offices of each college your child is applying to and have a written explanation ready to send however each college asks you to send it, usually by email or postal service. The CSS Profile, however, does have a dedicated space on the application to explain your special situation. First, this isn't a place to beg it is a place to explain special circumstances like a family illness, divorce, separation, one-time spikes in income, job loss and other LEGITIMATE circumstances. Be concise and professional in your explanations and be prepared to provide additional detailed information the college financial aid office may want to best understand your situation. Your lack of planning to pay for college is NOT a special situation. How College Selection Impacts Financial Aid The next thing you can do with the percentage of need met is to apply the rule of thumb that if the student, from and admissions perspective, is a good candidate for admission, or the college wants the student for a particular reason (whatever that may be), the student is more likely to get an aid package that meets a higher percentage of need met than the published average, and might expect that aid package to contain more grants and scholarships than student loans and work-study, especially at private colleges where they have greater flexibility to discount their tuition. If the student is in the middle or low end of the admissions pool, the college may not be all that interested in the student, but to help fill the college's seats the student might get admitted anyway, but the student's aid award may be a very poor one. Essentially, the college is saying, you can come, but you're going to have to pay to enroll with little help from us. This is a clear example of how college selection and affordability are integrated, and the reason why knowing what EFC formula and aid forms a college requires is also critical. For example, a state university will most likely require only the FAFSA to be completed, and as noted above, the FAFSA information goes into the Federal Methodology formula for calculating the student’s EFC. An elite private college, by federal law, will require the FAFSA to be completed to determine the student’s eligibility for federal student aid, but will require the student to also complete the CSS Profile to determine the student’s need (eligibility) for its own institutional aid dollars. And since the two formulas calculate EFC differently, have different provisions for some circumstances, and in the case of the CSS Profile, may also require financial information from non-custodial parents as well as the parent with whom the child resides (if divorced or separated), the student’s aid eligibility could be much lower at one college versus another on the basis of what aid form and formula a college uses. Moreover, as you will read about below, merit aid is another form of financial aid, but merit aid awards are not based on the student’s EFC (family finances), it is based on the merits of the student. Some colleges offer academic merit aid and others do not. Got a smart kid who has the grades, he might be able to get the aid, but not at all colleges. Merit Aid Merit aid is another form of student aid that is based on the student’s academic, athletic, music and other merits, not family finances. Therefore, any student can receive merit aid. The best things about merit aid are 1) merit awards are typically grants, scholarships or tuition discounts that don’t need to be repaid, unlike student loans and 2) students can be awarded merit aid regardless of the family’s overall income or how much the family has saved for college. Academic merit aid is typically based on the student’s grade point average (GPA) and standardized test scores (SAT and ACT), and occasionally on class rank. It is pretty black and white; if you have the grades – you get the aid. The one thing that astounds parents and students, often late in the college admissions process, is to find out that almost all of the elite colleges in the country do not offer academic merit aid. You get aid at those institutions only if you demonstrate a need for it, which means your EFC has to be less than the sticker price. Otherwise, you'll be writing a check for sticker price. Student Gets Merit Aid But No Need-Based Aid If your child doesn’t qualify for need based financial aid, but is awarded merit aid, then your out-of-pocket cost will be the sticker price minus the merit aid award. For example, if the college costs $35,000 per year and your EFC is $40,000 per year, you will be expected to pay the “sticker price” of $35,000 per year minus your child’s $10,000 merit aid award, for an out-of-pocket cost of $25,000 per year. Why Merit Aid Reduces Need-Based Aid Eligibility However, if your child, for example, qualifies for need-based financial aid in the amount of $15,000 ($35,000 - $20,000 EFC = $15,000 of need), and receives a merit aid award of $10,000, in most cases the financial aid office of the college will use the merit aid award to help “meet the student’s demonstrated need,” thus reducing the student’s need from $15,000 to $5,000. It is important for you to understand that merit aid, state aid, local and private scholarships, etc, will all be used to first reduce or “meet” the student’s need, NOT to reduce your out-of-pocket cost. Put another way, if the college costs $35,000 per year and the student’s EFC is $20,000 per year, the student has demonstrated need of $15,000. But the student’s merit aid award of $10,000 will be used to meet the student’s demonstrated need of $15,000 instead of helping you cover the amount you are expected to contribute toward the cost (your EFC). So the merit aid award will reduce the student’s need, not your EFC, or out-of-pocket cost. The college may offer the student a $5,000 Stafford loan along with the merit aid award of $10,000 to meet the student’s $15,000 need, and you will still be expected to pay $20,000 per year. This is also true if your child receives any other form of outside aid, such as private scholarships, state grants, and so on; this aid will also be used to meet the student’s need first before it will reduce your out-of-pocket cost. The Out-of-Pocket Cost of College A family with a $30,000 EFC might be able to send their child to the expensive private college costing $65,000 per year for only $30,000 out of their pocket, the amount of the student’s expected contribution (EFC). If the college offers an aid package that covers 100% of the student’s need ($35,000), and it consists primarily of grants, then the family’s out-of-pocket cost for the elite private college truly becomes $30,000 per year instead of the $65,000 annual “sticker price.” Since the student doesn’t qualify for need-based aid or merit aid at the $28,000 per year state university, the family will have to write a check for the annual $28,000 sticker price. The student in this case, although not eligible for need-based aid, would still be eligible for an unsubsidized Stafford loan of $5,500 as a freshmen (up to $7,500 annually in later years), which would help cover part of the $28,000 out-of-pocket cost, but the student will have to repay the principal and interest after college. At the end of the college admissions and aid application process, you will arrive at a list of colleges to which the student has been accepted for admission, and have been given an official financial aid award letter by each of those institutions that explains the student’s eligibility for all of the aid that he/she is eligible for and/or has been awarded, including outside scholarships, state grants, student loans, work-study, etc. The aid office at each college “packages” all of this aid and sends the student an award letter explaining the aid package for each student. The award letter also includes the total cost of attendance to enroll for the upcoming academic year, including tuition, fees, room, board, books, travel and personal expenses. Thus, the out-of-pocket cost for each respective college will be the cost of attendance of each college minus the amount of the aid package at each college. If parents and/or students take on student loans to fund a given college, then the out-of-pocket cost increases to include the interest on that principal borrowed to fund that college. Troy Onink is the CEO of Stratagee, a fee-based college planning consulting firm that helps parents determine their best strategy to pay for college. Need advice? Get an Hour With The Expert.
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发表于 2017-9-28 15:53:24
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