When you get into the realm of college applications, the acronym “EFC” comes up constantly.
Mostly you'll hear parents bemoaning how high theirs is and why it's unrealistic for them to pay.
Your “expected family contribution,” is a measure of your family's financial strength in relation to affording university.
More specifically, it's an index number generated by educational funding forms, the Free Application for Federal Student Aid (FAFSA) and also the CSS PROFILE, that colleges use to find out just how much financial aid you would receive if you were to attend their school (Pell grants, federal subsidized and unsubsidized loans, work-study, and institutional need aid and scholarships).
Financial aid is dependant on the student's demonstrated financial need, the distinction between the cost of attendance (COA) and the EFC.
A select few of colleges, mostly selective private colleges, make use of a second calculation in line with the CSS PROFILE or even the college's own financial aid forms for awarding financial aid in the college's resources.
This form uses the “institutional methodology,” and your EFC can vary from college to school.
However the vast majority of colleges use only the FAFSA.
After the FAFSA is processed, the generated “Student Aid Report” includes an EFC amount for your family.
One would believe that your EFC should be the amount of money your family will have to purchase college but in effect, you can expect to pay that amount or more.
Many families pay more because colleges often don't meet financial need.
Some families pay less if their students win hefty merit scholarships or attend public colleges that are less expensive than the family EFC.
What FAFSA EFC Numbers Mean
How is the EFC determined? It's generated by factors like age of oldest parent, how many kids you have in college, family size, parent income and assets, and student income and assets.
Even if you look like other college families from the outside, your EFC could be very different, based on these factors.
You can get an earlier estimate using the College Board's EFC calculator and I recommend you utilize it before your children's senior year to prevent shock.
Dig up your most recent tax return to help.
The FAFSA weighs parents' income a lot more heavily than parent assets, assessing income according to a scale of 22 to 47 percent of accessible income.
(I'm not sure how which percentage is reached).
It's hefty and uncomfortable for most families.
The EFC also assesses assets: savings and checking accounts, stock investments, 529 plans and Coverdell makes up about all your kids, and additional properties such as rentals and farms.
It assesses non-retirement assets at a maximum of 5.64 percent (so on $100,000 of stock, you would be asked to contribute $5,640 toward college).
Most people worry their savings accounts can make them look more well-heeled compared to what they are, but income influences your EFC a lot more than savings.
Thankfully, some of parent assets are protected by an asset shield allowance.
For a family of four with one college student, the wages protection allowance (Table A3) is $28,580, as well as for education savings, the protection allowance depends upon age the older parent.
For a two-parent family having a 50-year-old father, the protection allowance is $12,500 and $6,500 for one parent.
To take a closer look at protection allowances based on age, this document explains the numbers for 2023-2023 on page 19 .
In short, there's a way of determining your EFC but it is difficult to understand.
Student income is assessed at 50 percent and assets at 20 %.
A student's hearty savings account can definitely inflate an EFC, but there's an income protection allowance of $6570.
But, honestly, like a good guideline, plan for students to place all their money toward college.
You'll likely need these to do this anyway.
Can You Lower Your EFC?
Most people can't lower their EFC (even though there are several who will get an EFC score of 00000), but there are some things you should avoid doing while your son or daughter is within college so you don't artificially inflate it.
Starting in Oct. 2023 and going forward, the tax return you’ll use to complete the FAFSA comes from two years prior to the year your student will begin college.
For example, for students entering college within the fall of 2023, families will fill out the FAFSA in October 2023 and use their taxes from 2023.
Here’s some advice for attempting to manage your EFC…
Do pay down consumer debt. Colleges don't ask about your personal debt (they don't care about your living costs), so before the first FAFSA filing, attempt to pay it down together with your savings.
That way, you will have a smaller amount of savings to report.
Skip getting married. If your partner isn't ready to help pay for school costs, do not get remarried during the years you're completing educational funding forms.
A prenuptial agreement won't protect a new spouse's money from being counted in educational funding calculations.
Be careful saving towards and withdrawing from retirement funds. Most colleges won't ask just how much retirement you've saved prior to your first FAFSA filing.
But if you withdraw funds during any year that you're filing educational funding forms, it counts as income around the forms.
Colleges will even ask about retirement contributions made during the FAFSA-filing years.
Contribute to retirement funds as much as possible in the years before the tax year which your first FAFSA is based on (as well as for all other years you have to fill out the FAFSA).
The FAFSA will consider any contributions you make towards retirement accounts (IRA, 401k, etc) as income and add those contributions back to the wages they consider for formulating your EFC.
It seems during the years your student would go to college, the government believes paying for college is more important than saving for your retirement…isn’t the perfect?
Find out more here:
[10 Tips to Make the most Educational funding From Colleges ]
[Thinking About How To Pay For College? You Must See This Chart Of EFCs!]
Avoid putting accounts in kids' names. If your kids have education accounts within their names, transfer the funds into a custodial 529 plan so it becomes your asset.
It's always easier to cut costs within the parent's name due to the way parent and student assets are calculated.
Don't sell stock. Avoid selling stock since it will be counted as income and could jeopardize educational funding.
Leave stocks alone.
Consider the timing on selling your home. Selling could be a tricky juggling act, but avoid a pile of money sitting in your money whenever you file the FAFSA or CSS Profile, particularly if you are planning to place it toward another house purchase.
While your children have been in college, attempt to live on your existing income.
If you need to earn more, then earn more, but remember that additional earnings raise your EFC.
Of course, the college won't take all your earnings, so more money can help.
But within my family, we've stopped traveling, don't eat out, and reduce monthly spending.
It's like being back in college ourselves.
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