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Financial Aid: How To Assess Affordability

sather tower, campanile, UC Berkeley

As students hurry to complete their November college applications, many parents are focusing on another piece of the puzzle: how to pay for college. Most families look to the FAFSA (Free Application for Federal Student Aid) to answer their college affordability questions, waiting with anticipation for the form to generate a calculated EFC, or Expected Family Contribution. However, the computer-calculated EFC is often misleading, painting an inaccurate picture of what you will actually contribute toward the cost of college attendance. Today we’re breaking down the EFC and what it represents, while explaining the steps families can take to obtain a more reliable estimate of how much college will cost them.

Financial Aid Acronym Key:
EFC = Expected Family Contribution
FAFSA = Free Application for Federal Student Aid
NPC = Net Price Calculator
COA = Cost of Attendance

EFC Reporting:
The calculated EFC can be confusing because of the way it is presented, but it represents an amount in dollars.
For instance, an EFC of 0043421 represents $43,421.

Here is a link to a spreadsheet we feel does a very good job of estimating EFC and allows you to fool around with the inputs:

What's wrong with the EFC?

The EFC is calculated from tax and other financial data that you provide on the FAFSA, an online questionnaire that you fill out in the fall of your student’s senior year. The EFC is used by colleges to essentially estimate what the federal government thinks you can afford to pay each year based on your yearly income and overall financial strength. The FAFSA is also required to determine eligibility for Pell Grants, to obtain federal student or parent loans, and to assess if a student qualifies for work study.

Once you complete and file the FAFSA you will receive an email that includes your calculated EFC. Your EFC serves as one of several pieces of information that colleges use to determine how much money your child might receive by way of financial aid, which includes both grants and loans. Specifically, it determines what the government, and thus the colleges, define as your “financial need.” You can determine if you have financial need by subtracting your EFC from each college’s cost of attendance (COA):

COA = EFC - Financial Need

It is important to note, however, that the vast majority of families will not be offered any need-based financial aid other than the opportunity to take out federal student and parent loans. These families will be paying both their EFC and the remainder of the yearly cost of attendance, after subtracting the value of any merit aid.

Three steps to assess affordability

1. Determine your family budget

Start your college financial planning by deciding how much you’re willing or able to spend on college each year. Many families going through the college-application process for the first time will wait until they receive financial aid offers in spring of senior year before deciding how much they are willing or able to pay for college. Instead, it is best to determine up front what you’ll be able to afford, including how much you’re willing to take out in loans.

2. Understand the six sources of funding

There are essentially six sources of funding for higher education:

1) Cash paid directly by families;
2) Federal student and parent loans which are available to all;
3) Institutional grants, known as need-based aid, generally offered by selective colleges to meet all or part of a family’s financial need;
4) Merit scholarships, not based on need, offered primarily by private colleges as a discount to entice academically strong students to attend;
5) Merit scholarships awarded for high GPAs and scores at public universities, and
6) Outside scholarships that might be made available to students through their high schools or through community organizations.

Merit scholarship information for public universities is often very transparent, listed on the university’s admissions pages. Merit scholarship information is often not transparent at private colleges, doled out at the discretion of the college trying to meet its enrollment goals. It is also good to know that even at ‘meet need’ colleges, some of the aid they offer can be in the form of loans.

3. Use the Net Price Calculator

Every college’s website includes a Net Price Calculator (NPC).  An NPC is an online questionnaire that will show you how much students with similar financial and academic statistics paid in tuition in the previous academic year. NPCs differ from the FAFSA process by including in their estimate institutional need-based or merit-based aid they are likely to award your student, giving you a fairly accurate estimate of your yearly costs at that school. For example, many NPCs let you enter your child’s GPA, which can adjust the calculated amount to reflect any merit-based aid or other tuition discounting that your child might earn. For colleges that meet financial need (‘meet need colleges’) but do not award merit-based aid—generally colleges with large endowments, the NPC will assess your income and assets to estimate the amount of need-based aid your child is likely to receive.

As much as Net Price Calculators are an essential part of the process, they can be flawed. Some don’t include potential merit awards and others might not be updated from the previous year. Two start-up companies, Edmit and TuitionFit, are committed to helping families get a better assessment of their college costs by sharing crowdsourced institutional data and award letters with their clients.

Additional Note: A small group of highly selective colleges, often the same ones that "meet need" as defined above, require an additional evaluative financial questionnaire called the CSS Profile. The CSS Profile questions vary somewhat by college, depending on how the college chooses to calculate need. Colleges use the CSS Profile to calculate a new EFC to award aid that is coming directly from their institution in the form of grants.

After accomplishing these three steps, you should have a good idea of how much you will be expected to pay for your child to attend a given college. You can then compare this estimate with the amount you budgeted in Step 1. If your budget is higher than or similar to the expected cost of the college, then the college is a good financial fit. If your budget is lower than the expected cost, you will need to decide whether you are willing or able to assume debt for your child to attend the college. If your budget is substantially lower than the expected cost, the college may not be a good match financially.

With careful planning early in the process, wading through financial aid and merit aid offers in spring of your child’s senior year will be much simpler and less stressful. No matter where your student is in their college search, the steps you take to assess the likely cost of the colleges that your child is considering will help you be better prepared and prevent the disappointment of having to turn down college admissions offers in the spring due to cost.

We would like to thank Ava Slocum for her contributions to the development of this article.

Top: Sather Tower, also known as the Campanile, at UC Berkeley in 2012.

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