Your Family’s Contribution (Don’t wait…here’s how to estimate it.)
Your child is not a senior, and you’re wondering “Why do I need to worry about tuition costs and estimating my expected family contribution? Can I wait a few years?” NO. Don’t wait – the more information you have, the better decisions you’ll be able to make. And talking about how much you can afford to pay for college needs to happen sooner, rather than later. It all boils down to your EFC (expected family contribution). Your EFC is the minimum amount that colleges will expect you to pay, on a yearly basis. If a family’s EFC is less than the cost to attend a college, the student qualifies for need-based financial aid.
Your EFC is calculated from the information you submit on the FAFSA and CSS forms. There are 2 methodologies used to calculate EFC: Federal and Institutional. The FAFSA uses the Federal methodology. In addition to the FAFSA, more selective schools use information from the CSS Profile form, which uses the Institutional method (here’s a list of schools that use CSS).
Take a quick peek into these two calculations:
- Federal Methodology (FM) This calculation is used to determine your EFC for need based only federal and state grants, loans, and work study. (Many states and colleges also use this calculation to award aid.) Basically, the regular form of this formula takes what you and your child own (non-retirement savings only, house equity is not included) and combines it with you and your child’s adjusted gross income (from your previous year’s tax return). The formula uses tables to determine how much of your assets and income can be used for college and factors in number of household members and number of other children in college.
- Institutional Method (IM) This calculation is used to determine how much money accepted students receive from a college’s own endowment. There are differences in the way the FM and IM are calculated, with some of the major differences being that IM includes different types of assets in their EFC calculation, such as: home equity, college savings accounts of siblings, scholarships, and assets of a non-custodial parent.
For both methods, parents are expected to contribute a maximum of 5.6% of their assets, while a student is expected to contribute 20 – 25% of their total assets towards college costs. If you’re really interested in a detailed comparison of the two methods, the College Board gives a good summary.
Remember, with the same EFC, a student may be eligible for financial aid at one school and not at another. A student’s eligibility is based on their EFC relative to the cost of the college: COA (cost of attendance) – EFC = Financial Need.
Here’s a simplified example (based on income only): parents have a combined income of $180,000, with three dependent children. Under the FM their EFC is approximately $42,000. At a private, elite college costing $60,000, the student would qualify for $18,000 a year in need based aid. But at a state university costing $20,000 per year, the same student would not qualify for aid.
One last thing to keep in mind – colleges are not obligated to meet all your child’s financial need. Colleges have limited financial aid budgets and tend to offer the most aid to those students who meet their specific enrollment goals (e.g. improve the women’s hockey program or the debate team). If the college does not meet all of your child’s needs, then you have been “gapped” and you are responsible for finding sources to fill the gap.
*The College Board: 2012 Trends in Student Aid