“Wealthy”… “Financially successful”… Most people don't walk around saying "I'm so wealthy!", except for maybe Thurston Howell III on Gilligan’s Island.
We don’t perceive ourselves as being wealthy. But how are those words defined when we are talking about paying for college and financial aid? You may be surprised that how you define wealthy is not the same as how the federal government defines wealthy. What can you do to make college more affordable if it turns out you are deemed to be “wealthy”?
In this piece, we refer to wealthy as being a family with an EFC too high to qualify for federal financial aid based on need. We have talked many times about Expected Family Contribution (EFC) or the minimum dollar amount a family is expected to pay each year towards a college education. It is the “output” of the aid forms and calculations. Your data goes in and your child’s EFC comes out and is reported to the colleges’ aid departments that the child asks the data to be sent to on the aid forms.
The FAFSA and the CSS Profile have significant differences you need to be aware of, but both EFC formulas focus primarily on the assets and income of the parents and student, family size, and the number of dependent children enrolled in college in a given year to assess the family’s ability to pay for college using the income and assets that they have. For most families, the largest driver of a family EFC is parental income.
An example: A family of four with an annual adjusted gross income of $130,000 with one student in college is expected to pay $26,320 each year, just from income. That is before they penalize you for assessable assets. So if your college cost is less than this amount, as it is at most in-state public universities, you won’t qualify for any financial aid. Before you stop reading this article, bear in mind that the median household income nationwide in 2015 was $52,250. Relative to the general population you are “financially successful”. Nice work! (You can click here to see an EFC chart for your reference.)
So why bother filling out the FAFSA (Free Application for Federal Student Aid) if you aren’t going to qualify for aid? What’s the point?
Here are 6 reasons to jump in and complete the FAFSA:
1) If you want to qualify for merit aid, many colleges require that you complete the FAFSA. Pretty straightforward…have an academically talented student? You’ll need to complete the FAFSA to get merit aid/scholarships based on their academics.
2) Maybe you need a student loan for your child? The Unsubsidized Federal Direct Stafford Loan is NOT need based. Every student is eligible. In general, these loans offer the best terms. If you will need student loans, the completed FAFSA is required. (Need a student loan refresher? Student loans 101; How much student loan is too much?; and 6 steps to fight the student loan debt crisis)
3) Nothing is ever constant. What happens if a bread-winner loses their job or becomes disabled? What if parents get divorced? Suddenly the EFC is dramatically affected. Colleges have more flexibility to help if you already have a FAFSA on file. Financial aid administrators truly do want to help as much as they can, and by having a FAFSA on file they can utilize “professional judgment” due to the extenuating circumstance and seek additional grants or work study opportunities.
4) Another factor that will affect your “out of pocket cost” is the number of children you have attending college at the same time. The above example assumed you had two children, but only one child attending college. Many families have children that will be attending college at the same time. Keep in mind EFC is an expected FAMILY contribution. If you have two children in college at the same time, your EFC will be the same $26,320. However, each student’s EFC at the institution would be only $13,160. ($26,320 ÷ 2 = $13,160)
Completing the FAFSA every year of college enrollment ensures you don’t get overlooked as your family situation changes. Many families will not qualify with one in college, but often do when they have 2 or 3 kids in school at the same time. A sigh of relief if you have twins or triplets!!!
5) Your need will vary depending on the college you are attending, and how they determine your EFC. So with our example above the family is expected to pay $26,320 per year at a school that requires only the FAFSA. If the college’s costs exceed that amount, suddenly the family has a demonstrated need. If you are applying to schools that also require the CSS Profile, your EFC may be drastically different. (Learn more about the differences between FAFSA & CSS.)
6) Schools depend on “wealthy” students who’ll pay full price. This fact is true, and colleges are searching for applicants to make a balanced pool of enrollees—some who will need aid and some who will be able to pay. That needed balance can play in your favor for admissions if a school knows you will pay full price. You didn’t really think that every single person in super wealthy families was smart enough to attend Ivy League schools did you?
Knowing all this, you might be thinking the federal government views you as wealthy, but you don’t define yourself that way. You still need to find an excellent college your family can afford. What to do? Shift your focus to what you can do to reduce your out of pocket cost. Take a moment to watch this clip from our video resource library – “Scholarships for the Financially Successful”. And remember Capstone is here to help.