Finance Blog

Saving for College and Expected Family Contribution

Written by Ilyce Glink on August 6, 2012 in Family Money  |   No comments

In The College Solution, Lynn O’Shaughnessy provides an easy-to-use roadmap that you can use to find the right colleges (not just the most hyped) and to dramatically reduce your costs. In this excerpt, learn more about saving for college and your family’s expected financial contribution. Read more about financial…

saving for collegeIn The College Solution, Lynn O’Shaughnessy provides an easy-to-use roadmap that you can use to find the right colleges (not just the most hyped) and to dramatically reduce your costs. In this excerpt, learn more about saving for college and your family’s expected financial contribution.

Read more about financial aid and your family’s expected financial contribution.

The formula does play favorites. The methodology, for instance, favors homeowners, aggressive retirement savers, small business owners, some teenagers of divorce, and rural Americans. Let’s take a look at some of these categories:

Home Ownership. Parents who own expensive houses, particularly on each coast, worry that they will be rejected for financial aid because of their home equity. The federal formula, however, doesn’t even ask if a family owns a primary residence. You could have paid cash for a stunning property in Palo Alto, California; Chevy Chase, Maryland; or the Upper Eastside in Manhattan, and it wouldn’t hurt your aid chances.

Cost of living. The federal methodology doesn’t take into consideration the cost of living, which penalizes families living in expensive cities or states. A family making $75,000 in Honolulu, which is the highest priced housing market in the country (a median home sells for $580,000), is expected to be able to cover college costs that same as someone living in Youngstown, Ohio, which is the nation’s cheapest major housing market (a median house costs $55,000).

Retirement accounts. The federal EFC formula also doesn’t care about the amount of money a family has stashed away in retirement accounts. You could have millions of dollars sitting in these retirement accounts and it wouldn’t impact your aid award.

Small Business. A family that owns a business with less than 100 full-time employees doesn’t have to divulge its net worth.

Divorce. The federal formula penalizes married couples. If the Harvard mom was divorced and her ex-husband was a schoolteacher who made significantly less money than her, it’s possible that her child could qualify for significant need-based financial aid. If the judge and the schoolteacher were married, however, it’s unlikely they would qualify for any need-based financial aid.

The federal financial aid formula only inquires about the finances of the custodial parent. For financial aid purposes, the custodial parent is the one whose residence the child lived at for more than 50% of the year from the date the financial aid form is filed. Let’s assume the judge is divorced. If her child lived with her 5 ½ months and the dad 6 ½ months, the father would fill out the federal aid application and would never even be asked about his ex-wife’s salary or assets. If the custodial parent remarries, the new spouse’s income and assets would also be used in financial aid calculations.

Child planning. Families sending twins or triplets to colleges are huge winners. The EFC drops considerably when more than one child is in college simultaneously. The EFC drops roughly 50% when two children are in school, and it shrinks even more with three college students. For instance, let’s say a family’s EFC was $30,000 when once while was in college, but the next year another starts as well. The EFC for each child would drop to about $15,000, which could qualify the students for significantly more financial aid.

There is no break, however, for families whose children are spaces four or more years apart. Thanks to the idiosyncrasies of the financial aid formula, parents who have one child in college at a time could end up paying far more than the parents who spaced their children closer together.

Buy The College Solution by Lynn O’Shaughnessy

No comments yet

Leave a Comment

Name :

Commenting guidelines

We welcome your interest and participation on this forum, but be aware that comments will be published at Equifax's sole discretion. Please don't use this blog to submit questions or concerns about your Equifax credit report or raise customer service issues. Instead, you should contact Equifax directly for all such matters and any attempts to do so in this forum will be promptly re-directed.

Some other factors to consider when commenting:
  1. Registration and privacy. While no registration is required to visit our forum, participants wishing to post a message must register by creating an account. All personal information provided by forum members incident to registration is governed by our Terms of Use and Privacy Policy.
  2. All comments are anonymous. We'll delete your name, e-mail address, and any other identifying information, including details about your investments.
  3. We can't post or respond to every comment - As much as we'd like to, we can't post every comment, nor can we guarantee that we will respond to each individual message. All questions or comments about your Equifax credit report or similar customer service issues should be handled by contacting Equifax directly.
  4. Don't offer specific legal, tax or financial advice. All of the materials on this Site are for information, education, and noncommercial purposes only and this forum is not intended as a means of expressing views or ideas regarding any specific legal, tax, or investment advice. While offering general rules of thumb is both permitted and encouraged, recommending specific ideas or strategies regarding investments, taxes, and related matters is prohibited.
  5. Credit Repair. This blog is not intended as a venue for the discussion or exchange of ideas regarding credit repair or other strategies intended to assist visitors and community members improve or otherwise modify their credit histories, ratings or scores.
  6. Stay on topic. Your comment should be concise and pertain to the specific post in question.
  7. Be respectful of the community. The use of profanity, offensive language, spam, and personal attacks will not be tolerated and egregious or repeat offenders will be banned from future participation. We encourage disagreement and healthy debate, but please refrain from personal attacks on our WordPresss and contributors.
  8. Finally: Participation in this forum may be terminated by Equifax immediately and without notice for failure to comply with any guidelines or Terms of Use. As such, you should familiarize yourself with all pertinent requirements prior to submitting any response through the blog or otherwise. All opinions expressed in this forum are solely those of the individual submitting the comment, and don't necessarily represent the views of Equifax or its management.

Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.

Stay Informed Sign up for our FREE Equifax email Newsletter