Better EFC Strategies

I get tons of questions about strategies for reducing EFC, especially those related to the Asset Protection Allowance. And there are plenty, but sheltering assets is typically the lowest bang-for-the-buck strategy out there: Every $1,000 you shelter will only reduce your EFC by $54. And that assumes that the school will meet your full need. Here are some better options:

The FAFSA has several allowances against income that have some flexibility. Remember that each incremental dollar of income is assessed at 47% for most families, so anything you can do to influence that is going to have a payoff. One of the biggest allowances against income is federal taxes paid. Given that, families in FAFSA income years might think about their balance of retirement contributions between traditional and Roth IRAs or 401ks. A family in the 22% federal tax bracket that switched $5,000 from traditional to Roth would see their EFC reduced by over $500. There are of course tax considerations that should make this decision part of your overall tax planning but for many families this can be a good strategy.

Families with multiple children might also consider gap year planning so that they maximize the years with two children in college. EFC is Expected Family Contribution and, while the income protection allowance decreases by $3,160 for each additional student, the EFC is effectively divided by the number of college students in the household. So while your total EFC would go up by about $1,500 with a second student in college, it effectively reduces your total cost per student. 

When it comes to schools, two important factors are 1) which aid form do they use, FAFSA or CSS Profile and 2) how do they package financial aid?

The fact that a school is private does not necessarily mean they use the Profile. And if you’re a homeowner in the current housing market, the Profile is going to cause your EFC to be considerably higher since it counts home equity. The Profile is used by over 400 schools; there are more than 1,700 private, nonprofit colleges. That means that many of them are using the FAFSA, not the Profile. Among private FAFSA-only schools are elite and highly selective colleges including St. Louis University, University of Puget Sound and University of Chicago. Divorced parents note: Even among Profile schools, many– including Santa Clara University, Lewis & Clark and Trinity University– do not require the noncustodial parent to complete the Profile. 

Aid packaging is the other big differentiator. There are some schools that meet 100% of demonstrated need through grants and scholarships, but the majority of schools include loans and work study in their aid packages, and may or may not meet a student’s full need anyway. “Loans first” policies– meaning grant aid kicks in after the student has taken out the full direct student loan for the year– are not at all unusual. Net price calculators are your best tool for uncovering how aid is packaged; if you’re unsure, a call or meeting with the school’s financial aid office can be enlightening.

All by way of saying: EFC is not the only element you control. You could go to great trouble to bring your EFC down by a few hundred dollars, only to end up choosing a school that costs you thousands more each year due to the school’s policies.

 

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