“My family makes too much to qualify for financial aid.” Lots of parents believe this statement, but plenty of them are wrong. In reality, many families qualify for some sort of financial aid. This financial aid myth is a stubborn one because parents don’t understand how financial aid needs are determined.
Parents mistakenly believe that the value of their house, their retirement accounts and their college savings will automatically disqualify them from need-based aid. Retirement accounts, however, do not hurt a family’s chances for aid and home equity and taxable accounts usually don’t either. The likelihood of receiving need-based aid will rise with the price of the school. An affluent family that makes too much money to receive aid from an in-state public university could qualify for tens of thousands of dollars at expensive private schools.
Whether or not your child will qualify for financial aid will depend on something called the Expected Family Contribution. Your EFC, which is expressed as a dollar figure, is what colleges will expect a family to pay, at a minimum, for one school year. Your EFC will help colleges, as well as the federal and state governments, determine if you need help in paying for your child’s education. The smaller your EFC – it can be as low as $0 – the better the odds of a family receiving need-based aid. A family with an adjusted gross income of $24,000 or less will possess an automatic EFC of $0. That means the family has no ability to pay for college. In contrast, there is no ceiling on how high an EFC can be. The higher your income, the higher your EFC. I know a wealthy San Diego parent, for example, who told me that his family’s EFC was $108,000.
Families with a high EFC, who don’t want to pay full price, should be looking for schools that provide merit scholarships to rich students. The good news, if you’re in that category, is that most schools award these scholarships. Students with lower EFC’s should be looking for schools that provide generous need-based aid packages.
One of the most critical things that you can do as you explore college possibilities is to get an idea of what kind of costs you will face by obtaining a preliminary EFC. In the next post, you’ll learn where you can calculate your EFC. It’s easy.