Plan for the Future

If you think this following statement applies to you: “my family makes too much money, we cannot qualify for any financial aid,” or, if you will be attending a college as a student in the fall of 2018, this article is for you!

The biggest misconception when it comes to college funding is: my parents make too much money, so I am not eligible for any funding. In fact, I think this is the number one reason why families and their students don’t receive as much money as they are entitled. The first step is to realize that institutions are responsible for distributing the Federal Government’s funding as well as their own endowment funds. Federal funding is a very small amount of the overall funding that you might be eligible for.

The main thing that we need to understand is that the colleges use two methods to determine who receives the money and how much money that student will receive based on:

1. Need Based Funding
2. Merit Based Funding

Unfortunately, most people only hear about need based funding, as in federal Pell grants, and do not understand that this is just a very small percentage of need based funding. Colleges themselves will give thousands of dollars to student who have financial need. This article addresses the need based funding. We will cover the merit based funding method in the next article.

Financial need is easy to calculate – right? It’s the Total Cost of Attendance (COA) minus your Expected Family Contribution (EFC). COA – EFC = Need!

While this is easy to understand, it does not show the complete picture of how financial aid is distributed. Historically, each school will meet a different percentage of the student’s need. The amount of need that the institution meets is based primarily on the amount of funds the institution has available. This is why private institutions, (with larger endowment funds), commonly meet a greater portion of the student’s need than public, (state-funded), schools.

While the basic formula is COA – EFC = Need, there is a huge variable: your EFC. The amount that a student and family are expected to “contribute” each year can vary by thousands of dollars. This is due to the way that financial information is gathered and how it is interpreted by each institution. In other words, if the student’s need is $20,000, School “A” may meet 100% of that need, while School “B” may meet only 60% of the student’s need.

There are two basic formulas used for gathering information and determining your EFC. One formula has been developed by the federal government and the other by the College Board. The government’s formula is used in the FAFSA and the College Board’s formula is incorporated into the CSS/Profile. All colleges require the FAFSA and approximately 350 of the nation’s most selective colleges also require the CSS/Profile in addition to the FAFSA.

After your original EFC is determined, (either from the FAFSA, the CSS/Profile, or a combination of both), it is each school’s job to determine how much money a family can actually contribute and how much money a student really needs to attend. The school’s Financial Aid Officer (FAO) makes that determination.

So how do they decide what your financial need is? The college’s FAO uses “professional judgment” to decide what amount of funding each student should receive. How the three building blocks of funding, (assets, income, and expenses), are evaluated has a huge impact on the amount and type of financial aid a student is offered.

After all the data has been collected, each school’s FAO then looks at their institution’s own “need” formula. Simply put: this is how bad the school wants an applicant based on their academic accomplishments and other similar qualifications. The FAO then has the “option” of changing the student’s award package as they see fit.

You need to fill out the FAFSA as soon as possible — it opened up for the 2018 school year on October 1st of this year, so you can begin the process of working with the colleges on your financial aid package. There is a lot of potential money to be had through need based funding from the colleges themselves.

For all Freshmen through Juniors, it is important to begin formulating a plan as early as possible to minimize your EFC and maximize your funding. While the idea of your family making too much money to qualify for financial aid is prevalent, you don’t have to fall into this trap and not receive the aid that is available.