Student Financial Aid

Each September, high school seniors return to the classroom while parents brace themselves as they begin the process of applying for financial aid. For many of the wealthier families in America, applying for aid will be a waste of time. And for those that are less fortunate, the process can be quite rewarding.

In this article, we're going to help you get a feel for how much student aid you can expect. That process will include running through some scenarios that vary both household income levels as well as college costs. For each of these scenarios, we'll be using CollegeBoard's online calculator to provide you with an estimate of your Expected Family Contribution, or EFC.

College Costs

Additional Resources

As your children start to approach that age of independence - when their sent off to college - your friends with older children will start to share their stories of college costs and perhaps even information about the financial aid packages they've received. Those that are receiving a lot of student aid will boast about the generous aid package their child received from school, while those getting little or no financial help will complain about how little help they're getting and how expensive college costs are today.

In the beginning, these stories will do very little to pique your interests, but as your "little baby" enters high school, it will quickly occur to you that college is not very far off. And after that thought, this simple three-part equation will enter your brain:

College Tuition - Financial Aid = College Funds Needed

It's not too difficult to figure out how much college might cost you. In fact, we have several online college cost calculators that can help you to both project college expenses as well as help you to figure out how much money you need to save each year for college.

Applying for Financial Aid

The process of applying for financial aid is both straightforward and well documented. The amount of aid you'll receive is based on a set of rather complex formulas that consider the following variables:

Parent's Income
Parent's Assets
Student's Income
Student's Assets

From these four sets of inputs, the EFC formula will calculate both the parent's contribution as well as the student's contribution. The sum of these two values is the Expected Family Contribution.

As the formula would suggest, the higher the family's income and the more assets owned by the family, the higher the EFC. In the sections below, we're going to provide some practical examples of the EFC calculation to demonstrate how income and assets determine contributions.

Financial Aid Example 1

The first scenario we're going to examine involves the following:

Full Time Student
Four People in Household
Two Parents, One Child in College
Annual Household Income of $50,000
No Significant Cash or Investment Assets

In this example, the EFC results would be:

Institutional Methodology (IM) = $3,500
Federal Methodology (FM) = $3,000

In our first example, the expected family contribution would be around $3,250 per year.

Financial Aid Example 2

The second scenario we're going to examine involves the following:

Full Time Student
Four People in Household
Two Parents, One Child in College
Annual Household Income of $100,000
No Significant Cash or Investment Assets

In this example, the EFC results would be:

Institutional Methodology (IM) = $17,500
Federal Methodology (FM) = $12,500

In our second example, the expected family contribution would be around $15,000 per year. At this level of household income, we've nearly reached the annual cost of a state college or university.

Financial Aid Example 3

The third scenario we're going to examine involves the following:

Full Time Student
Four People in Household
Two Parents, One Child in College
Annual Household Income of $150,000
No Significant Cash or Investment Assets

In this example, the EFC results would be:

Institutional Methodology (IM) = $33,000
Federal Methodology (FM) = $25,500

In our third example, the expected family contribution would be around $29,000 per year. At this level of household income, we've nearly reached the annual cost of a private college or university.

Saving for College

We intentionally kept the above three examples simple. The reason we chose those three levels of income is that they demonstrate how quickly the EFC grows as household income grows. In addition, both the Institutional and Federal Methods consider savings when calculating contribution amounts. Even without any significant cash or investment savings, the EFC for individuals in higher income brackets grows rapidly.

Earlier we stated that we needed to examine three variables to understand the challenge of college costs:

College Tuition - Financial Aid = College Funds Needed

Using the information we've examined so far, we can translate this formula into the following form: The college savings we need is equal to the annual cost of the college or university minus our expected family contribution.

Let's revisit our second example above to see how this works.

State or Private Schools

With an annual household income of $100,000, our expected family contribution is around $15,000 per year. Furthermore, let's assume that the student plans to attend a state university that costs $18,000 per year. From our formula, we know:

$18,000 (Cost) -$15,000 (EFC) = $3,000 (Aid Received)

But what if that student decided they wanted to attend a private college or university that costs $28,000 per year? Our formula then tells us:

$28,000 (Cost) - $15,000 (EFC) = $13,000 (Aid Received)

The point we're demonstrating with these last two scenarios is that the EFC remains the same regardless of the cost of college. That is to say, once the cost of college exceeds the EFC, then each additional dollar of cost translates into a dollar of aid.

At the same time, you should recognize that the EFC is equal to the maximum amount of money you'll need to spend each year on your child's education. Estimating your EFC allows you to develop a more accurate college savings plan.

College Savings Calculators

Once you're ready to start on your college savings plan, we have a couple of online calculators that can help you develop that plan. Each of these tools allows you to play "what-if" scenarios so you're able to examine a full range of options:

Simple College Cost Calculator - this tool allows you to project today's college costs into the future.
College Fund Calculator - this calculator not only projects costs into the future, but also helps you to figure out how much money you'll need to save each year to pay for school.

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