College Funding

STEP 3: Determining Expected Family Contribution

Determining Expected Family Contribution
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Determining Expected Family Contribution

Let's move on to Expected Family Contribution.

This is a number that represents a percentage of your resources.  They'll take into account a percentage of the parents' and student's income and assets as well.

So, there are two different methodologies as to how they calculate expected family contribution.  The first is the federal methodology.  This is for schools that typically just use the FAFSA in terms of their financial aid forms.  FAFSA, Free Application for Federal Student Aid, we'll get into this later.  But this is the federal methodology.

The second methodology is the institutional methodology.  This is used by a lot of private schools.  Some public schools use this but you just want to check by actually going on to their website looking under the financial aid section and checking to see if they use a CSS Profile as one of their financial aid forms.  This is a dead giveaway if they're an institutional methodology university.

The first part of this Expected Family Contribution number is the parents' income, and the way that they calculate the percentage that they expect the family to use to pay towards college from their income is tiered like taxes.  So at one point at $0.00 on every single dollar you earn.  The next level is $0.22 on every single dollar.  And the next level is $0.25, then $0.34, and at one point it's $0.47 on every single dollar.

It's worth it for you to run your Expected Family Contribution number through a few different calculators.

The next part is the student's income.  First, they'll have an income allowance of roughly a couple thousand dollars but just so you know, after a certain level, those counts $0.50 on every single dollar that the student earns.  They expect that if the student earns income, they should be providing a pretty decent percentage towards their education per year.

Parent assets are counted at different percentages than student assets in both the federal methodology and the institutional methodology.  So, let's go over that.  In the federal methodology, they're going to count the following types of assets under the parents' name.

Checking, savings, stocks, bonds, mutual funds, money market accounts, CDs, 529s, trusts and equity of any investment properties.  What they do not count as an asset in the federal methodology is the equity of a parent's primary residence and all retirement accounts i.e. 401Ks, IRAs, Roth IRAs, TSPs, TSAs, 403b, Value of life insurance and annuities.

So, pre-tax and after tax retirement accounts do not count in the financial aid formula.  But hold on before you actually go and call up your HR department and ask to increase your contribution towards retirement, just note this.  In the year that you're asking for financial aid, they're going to ask what your previous years' income was and how much you contributed into your pre-tax dollar retirement account like your 401K or your IRA.  They'll add that contribution back into your adjusted gross income to assess your total income.  It does not help to put money into an IRA or 401K or pre-tax dollar retirement account in order to shelter that income from the financial aid formula.

The institutional methodology which is used by schools that typically use that CSS Profile form.  They're going to count everything.  So, they're going to count your checking, savings, stocks, bonds, mutual funds, money market accounts, CDs, 529s, equity of your investment properties AND the equity of your primary residence to some degree and it can vary.  Again, what they do not count in this formula are your retirement accounts, pre-tax and after tax retirement accounts.

Please keep all this in mind because I find that a lot of times people would assume that they would get the same financial aid award from a lot of these schools but some schools are actually counting the equity of the primary residence which could actually throw off your expected family contribution or increase significantly. That about sums it up for Expected Family Contribution, but look in our resource section to calculate your expected family contribution using some of the links that we have.


Expected Family Contribution Calculators:

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