Monthly Archives: September 2014

EFC: Why You Need to Know

EFC is your Expected Family Contribution. In the real world, think of it as your Minimum Family Contribution. There is no requirement that a school meet your need, though some will.

If schools aren’t going to meet your need, why do you need to know your EFC? Beyond knowing the minimum you’ll be expected to pay for your child’s education each year, knowing your EFC will help you with some other big issues:

  • What are the right schools to apply to, based on affordability for your family? If your EFC is low, you need to look for schools that meet most or all of need. If your EFC is high, you should be looking for schools that offer merit aid since you are unlikely to get much, if any, need-based aid.
  • Are there things you can do to reduce your EFC?
  • Are schools meeting your need through gift aid (scholarships and grants) or self-help aid (loans and work-study)? Knowing your EFC before trying out net price calculators will help you to understand this.
  • Should you avoid applying to colleges that require the CSS PROFILE? Or, for that matter, the FAFSA? The institutional methodology for financial aid (based on the CSS PROFILE) treats some assets differently and many families find that it yields a much higher EFC than does the federal methodology (based on the FAFSA).

Both formulas offer calculators to help you estimate your EFC. The FAFSA 4caster is here; the CSS PROFILE calculator is here. In these days of astronomical college prices, it’s crucial that you know in advance what you should expect to pay at different schools. It will save you and your student a lot of heartache in the application process.

Paying for off-campus housing with 529 funds

Yes, you can use funds in your 529 account to pay for off campus housing, but it’s not as simple as just adding up rent, utilities and food bills each month and withdrawing that amount. Instead, you need to check with your school’s financial aid office to determine what the off campus room and board figure is for your school. Regardless of how much you actually pay, that is the maximum Qualified Higher Education Expense (QHEE) amount that you can pay from your 529 account. The good news is, you don’t have to submit all of your receipts– though of course you do want to save them in case you’re audited.

And just a reminder: See my previous post “529 Plans: How to get money out” for more details on the withdrawal itself.

Other People’s Money

Using other people’s money to pay for your child’s college may seem too good to be true. But there are some ways to do this, besides scholarships. One is rewards credit cards that contribute cash back to a 529 account. If you are accruing frequent flyer miles or another reward and not using it, it may be worth looking at opening one of these reward programs.

Two of the leading ones are UPromise’s Mastercard, a no-annual-fee card that contributes up to 5% to a UPromise 529 account or several other college-related options, and Fidelity’s Rewards AmEx or Visa that contributes 1.5-2% to a Fidelity 529 account. Each has a different rewards structure, and different fees and terms, so one or the other may be more beneficial to your family. And of course there are a limited number of 529 plan options to which these link, so you may need to open an additional 529 account in order to take advantage of the rewards program.

But hey, it’s someone else’s money going into your college savings fund.