The FAFSA itself won’t be available until Oct. 1, but in the meantime you can download the EFC Formula Guide to see how the sausage gets made. If you are a parent of a high school senior who will be completing the FAFSA this fall for whom the cost of college is important, here is a suggestion for how to use this data:
Create a spreadsheet for the schools your student is considering applying to. Include the following columns in your spreadsheet:
- Does the school offer merit aid?
- Does the school meet financial need?
- What is the threshold for the 75th percentile GPA and test scores at the school? (answers to all of these questions are available on Collegedata)
- What does the school’s net price calculator estimate your student’s cost of attendance to be? (google “[school name] net price calculator” to find it)
- Does the school offer any automatic merit aid? If so, what GPA/test score combination is required? Do they have scholarships that require additional application materials? (google “[school name] incoming freshman scholarships” or visit the school’s website to find out)
- What is the school’s transfer credit policy? Will you get credit towards your major, general credit, placement only, or nothing for your AP or IB classes? (googling “[school name] transfer credit policy” is usually the easiest way to find out since this can be buried on the school’s website)
“Wait a minute,” you’re saying. “You didn’t mention the FAFSA formula at all!” That’s right, and the reason for that is, if your student is a senior you do not have a lot of opportunities to plan for the FAFSA. The biggest piece of the FAFSA is your income, and specifically your income from 2020. Which means you don’t have a lot of options to make adjustments to the FAFSA and instead, you should focus on what discounts schools are likely to give you. Discounts are reductions in tuition and other expenses from need-based financial aid and merit-based scholarships.
The one planning opportunity available to you at this point is your assets. You do not need to file the FAFSA on Oct. 1, and most families are better served by waiting until they’ve paid their biggest bills of the month in order to reduce their assets. The FAFSA considers 5.64% of a parent’s assets available to pay for college. In English, that means that every $1,000 in your checking, savings or 529 account will increase your Expected Family Contribution from the FAFSA by $56.40. So paying your mortgage, rent, credit card bill, car payment and so on will help you in the formula. Making retirement contributions for 2021 now instead of waiting until you file your taxes will help. Contributing to your HSA will help to reduce your assets. But reducing your assets has a pretty limited impact on your FAFSA.
Your assets aren’t the only ones that matter: your student also reports their assets. The FAFSA assumes your student has nothing better to do with their money than spend it for college, so 20% of everything in their checking, savings, UTMA, Robinhood, etc. accounts is added to their EFC. If your student is sitting on a big bank account balance after a summer job, now is a great time to move any of it that is for college into their 529 (where it becomes your asset and thus less costly), make a Roth IRA contribution, fix their car, buy their yearbook, buy groceries for the family, put money in their school lunch account, and so on so that when you file the FAFSA these dollars don’t count.
So, what’s new in the formula this year? The components linked to inflation– the Income Protection Allowance, Business/Farm Net Worth and assessments of Adjusted Available Income– all increased slightly. For example, the Income Protection Allowance for a family of four with two college students went from $26,570 to a whopping $26,830. The top assessment of AAI– 47%– now kicks in at $35,501 instead of last year’s $35,101.
The big change this year is the Asset Protection Allowance. It’s been on the decline for years due to its bizarre formula, and this year it is eliminated for one-parent households and cut almost in half for two-parent households. A 50-year-old single parent gets an Asset Protection Allowance of $0 this year, compared with $2,700 last year; married parents where the older spouse is 50 get $3,900 this year, down from $7,000 last year. (Before you get overly aggravated about this, keep in mind that this change would increase a student’s EFC by a maximum of less than $175.)
More details on all the components of the FAFSA are here.
Got all that? Here is your EFC Formula Guide. And, want to put this to work for you? Sign up for The College Financial Plan masterclass. You’ll develop a detailed financial plan for college, learn strategies to maximize financial aid and merit scholarships, find out how to qualify for tax credits and other benefits, and get your student a great college education at a price that won’t knock your family’s other financial goals off the rails. Sign up now! Introductory price of $250 through Sept. 19, 2021.