EFC With Two Kids in College at the Same Time Note that under both formulas, if parents have two children in college, the parent’s portion of the expected family contribution is not twice what it would be for one child. In fact, in the federal formula, the parent’s portion of the family contribution gets split equally (50/50) among the number of students in college. So if the parent’s have one child in college and have an earned income of $140,000, their EFC will be about $32,000 per year for that child. With two children in college, the parent’s EFC will get split 50/50 and applied to each child’s overall EFC, or $16,000 each. The CSS Profile applies a little more than half the parent’s contribution (60%) to each of two students. Bottom line: If you have more than one child attending a pricey private college, you may qualify for need-based aid even at a fairly high income level. Eligible For Aid at One College, But Not at Another A student’s eligibility for need-based aid is relative to the cost of attendance of each college the student is considering. The student may qualify for need-based aid at one college and not at another. Using the example above, based solely on the parent’s income alone, and forgetting all assets for the moment, parents earning $140,000 per year in income would have an EFC of approximately $32,000 per year under the federal formula with one child in college. At a private college costing $62,000 per year, the student would qualify for $30,000 per year in need-based student aid because the student’s EFC is $30,000 less than the college’s cost of attendance. Conversely, at the state university costing $28,000 per year, the student wouldn’t qualify for any need-based student aid because the student’s EFC is higher than the cost of attendance. Predicting The Financial Aid Award For the most part, even if a student qualifies for need-based aid it doesn’t mean that the college or university will meet 100% of the student’s need. And in most cases you won’t know what the student’s “aid package” will consist of until the student receives his/her financial aid award letter. Don’t get too caught up in trying to predict the exact makeup of a student’s aid package based on a bunch of statistics pertaining to the college’s historical aid awards. Rather, try to get an idea of what amount of aid the student is eligible for and focus on the most useful statistic, percentage of need met. Percentage of need met is a statistic that the majority of colleges release annually, and represents the average percentage of need that the college met for students that had need-based aid eligibility in the previous year’s incoming freshman class. For example, on average one college might only meet 70% of student’s need, and another college (like many of the elite private colleges) might meet 100% of need. That’s a very big difference in aid, especially over four years. The percentage of need met reflects all of the aid packaged by the college’s aid office on behalf of the students, including federal aid, state aid, and private scholarships and so on. Thus, it reflects all forms of aid, including merit aid, in one predictive statistic. Decoding Financial Aid Award Letters Once you start receiving financial aid awards from colleges you need to be careful to make sure they don’t have loans buried in the small print. Here is a great piece by Forbes own Maggie McGrath on how to decode financial aid award letters. How To Avoid The Disappearing College Aid Trap This post by Forbes Miriam Kerler highlights the real life bait and switch by colleges that lure students on campus with up-front grants then pull the grants in subsequent years, leaving students and families to somehow come up with funds to cover the shortfall, or force them to dropout. What To Do If Your Family Has Special Financial Circumstances There is no place on the FAFSA to explain special situations that you would like colleges to take under consideration when assessing your child’s need for financial aid. You should contact the financial aid offices of each college your child is applying to and have a written explanation ready to send however each college asks you to send it, usually by email or postal service. The CSS Profile, however, does have a dedicated space on the application to explain your special situation. First, this isn’t a place to beg it is a place to explain special circumstances like a family illness, divorce, separation, one-time spikes in income, job loss and other LEGITIMATE circumstances. Be concise and professional in your explanations and be prepared to provide additional detailed information the college financial aid office may want to best understand your situation. Your lack of planning to pay for college is NOT a special situation. How College Selection Impacts Financial Aid The next thing you can do with the percentage of need met is to apply the rule of thumb that if the student, from and admissions perspective, is a good candidate for admission, or the college wants the student for a particular reason (whatever that may be), the student is more likely to get an aid package that meets a higher percentage of need met than the published average, and might expect that aid package to contain more grants and scholarships than student loans and work-study, especially at private colleges where they have greater flexibility to discount their tuition (two posts on this here and here). If the student is in the middle or low end of the admissions pool, the college may not be all that interested in the student, but to help fill the college’s seats the student might get admitted anyway, but the student’s aid award may be a very poor one. Essentially, the college is saying, you can come, but you’re going to have to pay to enroll with little help from us. This is a clear example of how college selection and affordability are integrated, and the reason why knowing what EFC formula and aid forms a college requires is also critical. For example, a state university will most likely require only the FAFSA to be completed, and as noted above, the FAFSA information goes into the Federal Methodology formula for calculating the student’s EFC. An elite private college, by federal law, will require the FAFSA to be completed to determine the student’s eligibility for federal student aid, but will require the student to also complete the CSS Profile to determine the student’s need (eligibility) for its own institutional aid dollars. And since the two formulas calculate EFC differently, have different provisions for some circumstances, and in the case of the CSS Profile, may also require financial information from non-custodial parents as well as the parent with whom the child resides (if divorced or separated), the student’s aid eligibility could be much lower at one college versus another on the basis of what aid form and formula a college uses. Moreover, as you will read about below, merit aid is another form of financial aid, but merit aid awards are not based on the student’s EFC (family finances), it is based on the merits of the student. Some colleges offer academic merit aid and others do not. Got a smart kid who has the grades, he might be able to get the aid, but not at all colleges. See the 2014 list of Forbes Top Colleges. Merit Aid Merit aid is another form of student aid that is based on the student’s academic, athletic, music and other merits, not family finances. Therefore, any student can receive merit aid. The best things about merit aid are 1) merit awards are typically grants, scholarships or tuition discounts that don’t need to be repaid, unlike student loans and 2) students can be awarded merit aid regardless of the family’s overall income or how much the family has saved for college. Academic merit aid is typically based on the student’s grade point average (GPA) and standardized test scores (SAT and ACT), and occasionally on class rank. It is pretty black and white; if you have the grades – you get the aid. The one thing that astounds parents and students, often late in the college admissions process, is to find out that almost all of the elite colleges in the country do not offer academic merit aid. You get aid at those institutions only if you demonstrate a need for it, which means your EFC has to be less than the sticker price. Otherwise, you’ll be writing a check for sticker price. Student Gets Merit Aid But No Need-Based Aid If your child doesn’t qualify for need based financial aid, but is awarded merit aid, then your out-of-pocket cost will be the sticker price minus the merit aid award. For example, if the college costs $35,000 per year and your EFC is $40,000 per year, you will be expected to pay the “sticker price” of $35,000 per year minus your child’s $10,000 merit aid award, for an out-of-pocket cost of $25,000 per year. Why Merit Aid Reduces Need-Based Aid Eligibility However, if your child, for example, qualifies for need-based financial aid in the amount of $15,000 ($35,000 – $20,000 EFC = $15,000 of need), and receives a merit aid award of $10,000, in most cases the financial aid office of the college will use the merit aid award to help “meet the student’s demonstrated need,” thus reducing the student’s need from $15,000 to $5,000. It is important for you to understand that merit aid, state aid, local and private scholarships, etc, will all be used to first reduce or “meet” the student’s need, NOT to reduce your out-of-pocket cost. Put another way, if the college costs $35,000 per year and the student’s EFC is $20,000 per year, the student has demonstrated need of $15,000. But the student’s merit aid award of $10,000 will be used to meet the student’s demonstrated need of $15,000 instead of helping you cover the amount you are expected to contribute toward the cost (your EFC). So the merit aid award will reduce the student’s need, not your EFC, or out-of-pocket cost. The college may offer the student a $5,000 Stafford loan along with the merit aid award of $10,000 to meet the student’s $15,000 need, and you will still be expected to pay $20,000 per year. This is also true if your child receives any other form of outside aid, such as private scholarships, state grants, and so on; this aid will also be used to meet the student’s need first before it will reduce your out-of-pocket cost. The Out-of-Pocket Cost of College A family with a $30,000 EFC might be able to send their child to the expensive private college costing $65,000 per year for only $30,000 out of their pocket, the amount of the student’s expected contribution (EFC). If the college offers an aid package that covers 100% of the student’s need ($35,000), and it consists primarily of grants, then the family’s out-of-pocket cost for the elite private college truly becomes $30,000 per year instead of the $65,000 annual “sticker price.” Since the student doesn’t qualify for need-based aid or merit aid at the $28,000 per year state university, the family will have to write a check for the annual $28,000 sticker price. The student in this case, although not eligible for need-based aid, would still be eligible for an unsubsidized Stafford loan of $5,500 as a freshmen (up to $7,500 annually in later years), which would help cover part of the $28,000 out-of-pocket cost, but the student will have to repay the principal and interest after college. At the end of the college admissions and aid application process, you will arrive at a list of colleges to which the student has been accepted for admission, and have been given an official financial aid award letter by each of those institutions that explains the student’s eligibility for all of the aid that he/she is eligible for and/or has been awarded, including outside scholarships, state grants, student loans, work-study, etc. The aid office at each college “packages” all of this aid and sends the student an award letter explaining the aid package for each student. The award letter also includes the total cost of attendance to enroll for the upcoming academic year, including tuition, fees, room, board, books, travel and personal expenses. Thus, the out-of-pocket cost for each respective college will be the cost of attendance of each college minus the amount of the aid package at each college. If parents and/or students take on student loans to fund a given college, then the out-of-pocket cost increases to include the interest on that principal borrowed to fund that college. American Opportunity Tax Credit The American Opportunity Tax Credit is a tax credit that eligible taxpayers can claim when paying qualified college tuition and fee expenses. It is worth up to $2,500 per year per eligible child. I have written an extensive post on this credithere. While the credit reduces the amount of taxes a taxpayer owes dollar-for-dollar, it does not impact a student’s eligibility for college financial aid. Troy Onink is the CEO of Stratagee, a college planning consulting firm that helps parents determine their best strategy to pay for college. Need advice? Get an Hour With The Expert?