EFC, Net Cost and Aid Packaging

Step 1 in figuring out how to pay for college is estimating your EFC. You can use the FAFSA4caster, or the more detailed EFC Formula Guide (note that’s for 2018-2019; the 2019-2020 version should be released this month). But EFC is just a starting point: schools aren’t required to meet your need, and they certainly aren’t required to meet it through gift aid. That’s why net cost and aid packaging are important concepts to understand.

Colleges are required to have net price calculators on their websites. Many have adopted the helpful tactic of linking them through the College Board website so you can save your information rather than re-enter it for each school. A good net price calculator will ask about all factors that go into aid decisions at the school– need and merit, if applicable. If you’ve estimated your EFC, you might be disappointed at your net cost. For example, the closest anyone came to our EFC was $6,000 above it. Our net cost for two schools we visited was $10,000 more than our EFC; another was $20,000 more; a fourth offered us full-price admission. (In our case, the gap between EFC and net price is partly due to the fact that the FAFSA divides your EFC evenly between two college-aged children, whereas private schools tend to assume it’s not evenly divided; and partly due to the CSS PROFILE including home equity and thus calculating a higher EFC to begin with.)

Once you’ve got your net cost, though, you need to look at the actual aid package. Taking a step back, colleges are generally funded primarily through one of the following:

  • State or other public revenues
  • Endowments
  • Tuition

Aid packaging philosophies follow from there. Publicly-funded schools typically rely on state grants and Title IV federal aid programs including Pell Grants, direct student loans, and parent PLUS loans. (Yes, some public universities also have sizable endowments which may contribute additional scholarship funds.) Endowment-funded schools tend to have larger grants available, which are awarded based on the institution’s priorities. Tuition-funded schools are just that, and will have limited scholarships or discounting available outside of federal aid programs.

All by way of saying, a net cost of, say, $25,000 may be considerably more than that, depending on how the aid is packaged. Let’s say a school costing $60,000 annually offers the student the following:

  • $25,000 scholarship
  • $2,500 subsidized direct loan
  • $3,000 unsubsidized direct loan
  • $2,000 of work study
  • $2,500 parent PLUS loan

In that case, the student’s net cost is really $35,000, not $25,000, because the work study and loans are in fact the student’s or family’s money.

So your EFC is a good starting point, but once you start identifying schools of interest you need to be doing their net price calculators, and then comparing how the aid is packaged.

College Visits Whys & Hows

I received so many questions and comments on my last article about college visits that I wanted to follow up on a couple of items: Why should you make visits a priority and how can you visit a number of schools. The first point I’d make is this: It doesn’t matter which schools you visit. You will learn something that will inform your college selection process Continue reading College Visits Whys & Hows

Sales of Student Personal Data

Ever wonder why your student is bombarded with not just college information but invitations to high-priced “leadership” camps or “honor societies” or test prep and college counseling services? This article explains what the College Board, the ACT, and other organizations– including colleges who buy the data– do with your student’s info if they complete the voluntary surveys.

As the article points out, these surveys are voluntary, but that point may be lost on 16-year-old first-time test takers who are focused on the exams.

Need-Blind, No Loan, 100% Need Met Policies

On our recent college odyssey, we heard about a lot of need-blind admissions policies, and no loan/100% of need met financial aid policies. These are mostly good things but perhaps not as good as they sound on the surface, so it’s worth unpacking them. Continue reading Need-Blind, No Loan, 100% Need Met Policies

Application Deadlines

I just returned from a cross-country trip to visit colleges with my daughter, who’s a rising senior. It was a great trip– informative and enlightening, plus a wonderful opportunity to spend some quality time with her. We visited so many schools we joked that we should have made tour t-shirts– seven “official” tours and two visits on our own. According to my phone, we averaged over 6 miles walking and 19,000 steps each day of the trip. That Continue reading Application Deadlines

What’s a Qualified Expense?

Qualified expenses (QHEE’s) are expenses that are eligible for some form of tax benefit such as the AOTC or a tax- and penalty-free distribution from a 529 account. Sounds simple, right? Let the fine print begin! Not all “qualified expenses” qualify for all purposes. And of course the most important rule of claiming education tax benefits: You can’t double-dip. That means that if you use 529 plan funds to pay an expense, you cannot also claim a tax credit for that expense. Continue reading What’s a Qualified Expense?

What Year?

With the change to prior-prior tax year reporting on the FAFSA and CSS PROFILE, it seems that keeping track of what data dates pertain to what is becoming increasingly complicated. This table summarizes the relevant years or dates for each school year.

School Year 2018-2019 2019-2020 2020-2021 2021-2022 2022-2023 2023-2024 2024-2025
FAFSA/ PROFILE Income Year 2016 2017 2018 2019 2020 2021 2022
Assets As Of October* 2017 2018 2019 2020 2021 2022 2023
AOTC Tax Year** 2018, 2019 2019, 2020 2020, 2021 2021, 2022 2022, 2023 2023, 2024 2024, 2025

* Assets are as of the filing date, which may be as early as October or into the following year depending on the school’s filing date.

** Remember that the AOTC can only be claimed for four tax years, so families should decide whether the fall of freshman year is better than spring of senior year for claiming. With the income limit of $160,000 (married filing joint) or $80,000 (single), some families might not be eligible every year.

Parents may find that different strategies are needed during different years. For example, a family with a student beginning college in fall of 2020 might reduce pre-tax retirement contributions this year (to increase taxes, which are deducted from income on the FAFSA and therefore reduce EFC) and then maximize contributions beginning in 2021 to reduce AGI for AOTC claiming purposes.