College Aid
Written by Paolo Lapietra
In the midst of the holidays, high school students all around the country are meticulously planning their gift wish list. Between the newest Apple products, gaming devices, and other miscellaneous items, students should find room on their list to write “college tuition” in big bold letters. As we’re all well aware, college tuition is no small bill. According to FinAid, the average private college tuition costs $41,426 annually, while a state tuition costs $11,260 per year. With the average inflation rate for college tuition being right around 8%, these costs won’t be going down anytime soon. So, if you forgot to add college tuition to your list this year, what’s your next best action?
FASFA
The Free Application for Federal Student Aid (FAFSA) is an online form that every student should complete annually. Filling out the FAFSA form gives a student access to federal aid for the upcoming year. According to The College Board, each year, over 13 million students who file the FAFSA get more than $120 billion in grants, work-study, and low-interest loans from the U.S. Department of Education. $120 billion is a big chunk of change, so why isn’t every student filling out their FASFA?
A common misconception for students is that their parents make too much money to qualify for any financial aid. It is true that federal financial aid considers parental income, but it isn’t the only factor. Other factors in the equation include assets of both the student and the parents, and the number of children in the family that are currently in college.
FASFA Calculation
To calculate a student’s federal aid need, the Department of Education (DoE) likes to keep things simple. Essentially, the DoE takes the cost of attendance (COA) of the college the student will be attending and subtracts it from the expected family contribution (EFC).
The college in question will provide an estimate for the COA. The estimate includes everything a student would need: tuition, room & board, books, and any other school related expenses. Where things get a little tricky is calculating the EFC.
As I mentioned, the income of the student’s parents isn’t the only factor to consider; other factors include assets and the number of children in college. When looking at assets, the student’s assets and the parent’s assets are calculated differently. The calculation figures that 20% of the student’s assets and 5.4% of the parents’ assets should be used for college tuition in any given year. What’s the take-away here? It’s clearly more favorable to have assets in the parent’s name. If you’re a parent and want to save money for your child’s college, it’s best to invest in a 529 plan or a taxable account in your own name and avoid putting assets into custodial accounts. As for the other factor, the more children that are in college, the lower the EFC.
Another strategic option as a parent is to lower the EFC by lowering your assets. That sentence isn’t as ludicrous as you may think. The best way to lower your assets is by eliminating any debt that you may have. For instance, you may want to eliminate credit card debt, or pre-pay any outstanding loans. You can do so with any includable EFC assets that you may have, which I’ll list out below. One thing to keep in mind is that roughly $50,000 in family assets are excluded from the EFC calculation. Below is a chart that shows what is included/exempt from the calculation:
| Assets included for EFC | Assets exempt from EFC |
| ● Cash | ● Primary Home |
| ● Bank accounts | ● Qualified retirement accounts |
| ● Brokerage accounts | ● Life insurance policies |
| ● UGMAs and UTMAs | ● Annuities |
| ● 529 and Coverdell plans | ● Personal possessions |
| ● Investment Properties | |
| ● Trust Funds |
Aid
Regardless if you receive federal grants or loans, it’s important that you complete the FAFSA form. Many colleges and states require you to complete the FAFSA to qualify for any of their aid programs. The FAFSA application is available online starting October 1st of each year. Many colleges and states have a limited budget for the aid they can give to students, with some programs even being on a first-come, first-served based. So, if you or your child is planning on attending college next year and you haven’t filled out the FAFSA form, it’s time to log onto fafsa.gov and get it done!