Paying for college - Applying for student aid, determining your Expected Family Contribution
As part of our financial planning process, we often discuss a parents desire to send their children to college, and calculating the expected cost when their children reach college age --hopefully several years in advance, is a major factor in the financial modeling we do for the families Personal Financial Plan. Understanding your Expected Family Contribution(EFC), and anticipated costs can help you make the financial plans you need. In this article we will review some tips to get the most out of the process.
If your son or daughter has done any research at all into picking a school or pursuing a particular field, chances are you are already aware of the Free Application for Federal Student Aid (FAFSA), and the impact of your (EFC). Your EFC is the amount that the student and their family are expected to contribute to the cost of higher education. The financial aid office at the prospective school will use your EFC and other information to determine the amount of financial aid for which you are eligible. A financial aid award is determined by each school based on your eligibility and the cost of attendance for their program. The school will subtract the EFC from the total cost of attendance to determine financial need. As you begin considering college options during high school, it is a good idea to get an estimate of your EFC to help you determine the affordability of the student’s various choices. There are a number of EFC calculators available out there. I completed one on the CollegeBoard website that took just a few minutes, but you will need your tax returns, investment statements and personal Net Worth statement handy to answer all the questions.
How it the EFC Calculated?
The EFC is calculated by considering your family's financial strength — that is, your family’s income and assets. Other factors that are considered include the number of total immediate family members and how many of them are in college.
Who’s information gets included?
How can I maximize savings now, before my child is ready for college?
Other Tips:
One last piece of advice: Get the student fully engaged, early in the process. You may not want to share all of your personal financial information with them, but you can complete the estimator yourself and share the results with them. Let them know what your family can afford, and what you expect them to contribute themselves (i.e. will they pay a % of the total, cover their own cost for books, spending money?). If loans will be necessary to fund a portion of the tuition bill, let them know the payments will be theirs upon graduation. This may help them appreciate the sacrifices you make on their behalf a little more and hopefully motivate them to hit the books a little harder, knowing at least a portion of the cost incurred is on them.
For additional information, contact john Davidson, CPA, CFP® - john@kyleshill.com
As part of our financial planning process, we often discuss a parents desire to send their children to college, and calculating the expected cost when their children reach college age --hopefully several years in advance, is a major factor in the financial modeling we do for the families Personal Financial Plan. Understanding your Expected Family Contribution(EFC), and anticipated costs can help you make the financial plans you need. In this article we will review some tips to get the most out of the process.
If your son or daughter has done any research at all into picking a school or pursuing a particular field, chances are you are already aware of the Free Application for Federal Student Aid (FAFSA), and the impact of your (EFC). Your EFC is the amount that the student and their family are expected to contribute to the cost of higher education. The financial aid office at the prospective school will use your EFC and other information to determine the amount of financial aid for which you are eligible. A financial aid award is determined by each school based on your eligibility and the cost of attendance for their program. The school will subtract the EFC from the total cost of attendance to determine financial need. As you begin considering college options during high school, it is a good idea to get an estimate of your EFC to help you determine the affordability of the student’s various choices. There are a number of EFC calculators available out there. I completed one on the CollegeBoard website that took just a few minutes, but you will need your tax returns, investment statements and personal Net Worth statement handy to answer all the questions.
How it the EFC Calculated?
The EFC is calculated by considering your family's financial strength — that is, your family’s income and assets. Other factors that are considered include the number of total immediate family members and how many of them are in college.
Who’s information gets included?
- The Student – you will need tax returns, investment, savings statements, and other assets if held in the students name.
- The parent(s) – this is a little trickier if the student does not currently reside with both parents. Basically, you should include information based on whichever parent the student lived with for a greater number of days during the year. If the student did not live with either parent during the previous year, there is a separate worksheet to determine if the student is deemed independent, regardless of if their parent of someone else claimed them on their tax return.
How can I maximize savings now, before my child is ready for college?
- Save in the parent’s name, not the students, as a far greater portion of the students savings, and income are included in determining the EFC. --A 529 plan account owned by the parents will count less than an account owned by the child
- Minimize capital gains – keep this in mind as you do your pre-year end tax planning
- Maximize contributions into retirement plans – they are not included as family savings for EFC calculations
Other Tips:
- Research non-federal aid early (ideally, start in the spring of your junior year of high school). Be sure to meet all application deadlines!
- January 1 is the first date that you are eligible to file the FAFSA. Try to submit the form as close as possible to this date since school, state and private aid deadlines may be earlier than federal deadlines.
- You will need tax return information for the parent(s)/custodian as well as the student, so whether you do your own returns or use an accountant, get them done early if possible.
One last piece of advice: Get the student fully engaged, early in the process. You may not want to share all of your personal financial information with them, but you can complete the estimator yourself and share the results with them. Let them know what your family can afford, and what you expect them to contribute themselves (i.e. will they pay a % of the total, cover their own cost for books, spending money?). If loans will be necessary to fund a portion of the tuition bill, let them know the payments will be theirs upon graduation. This may help them appreciate the sacrifices you make on their behalf a little more and hopefully motivate them to hit the books a little harder, knowing at least a portion of the cost incurred is on them.
For additional information, contact john Davidson, CPA, CFP® - john@kyleshill.com