Have you ever had the joy of filling out the Free Application for Federal Student Aid (FAFSA)? It’s the form that potential college students fill out to see how much money they will “get”. Trying to figure out what it all means may cause you to throw something across the room. Hopefully the following things to consider will help ease some of the frustration:
1) The “Expected Family Contribution” (EFC) that the FAFSA formula spits out has zero to do with how much you can actually contribute.
Just because the government says you can afford a certain amount per year doesn’t mean you can. After all, the United States government is NOT the expert I would turn to when it comes to not spending more than you can afford. Just because the FAFSA says you can afford $10,000 per year for college, can you? I don’t know, only you can answer that. The point is to make the best decision for your family, not just go along with what the EFC is. It takes no special circumstances into consideration that you may have. It’s absurd, but true!
2) A multi-millionaire and your broke brother-in-law may have to pay the same amount.
Any money you have in a 401k, Traditional IRA, Roth IRA, etc. has no bearing on your EFC. This makes for a very strange scenario where two families with the same income, but drastically different amounts of money in retirement are expected to contribute the same amount for college. In other words, if Family A has $10 million in retirement accounts and Family B has $10, but both make $80,000 per year, they both may be expected to contribute $10,000 per year for college. It’s absurd, but true!
3) Heaven forbid you get a bonus or sell some stock!
If you have a one-time financial event while your kid is in college, it could greatly effect your EFC the following year. For example, if you happen to get a $10,000 bonus at work or sell $15,000 worth of stock to help cover the current year’s EFC, next year’s EFC will be higher. The formula counts that money as income and assumes you will get the same amount next year. It’s absurd, but true!
4) If your kid works hard and saves money, he is punished.
Just like many government “programs”, self sufficiency and hard work ends up costing you. If your son or daughter does a great job of saving and/or works hard while in college, it will raise your expected family contribution. Each year, 35% of your kid’s savings will be deducted from financial aid eligibility. So, if your child saved back money while in high school (or before) and has $10,000 in savings, $3,500 will be added to the EFC. That’s not all! Half of the income your student makes over $3,000 in a year will also be deducted from financial aid eligibility. So, earning $6,000 in income will cause another $1,500 to be added to the EFC. In this scenario, your family will be expected to contribute $5,000 more than the goober who sits home and plays video games all summer and has no idea what a savings account even is (all other things equal, of course). It’s absurd, but true!
5) At least we can get private scholarships to cover our EFC, right? Wrong!
There are thousands of private scholarships available for college. You know the ones where you fill out an application and submit an essay in hopes of some company or organization rewarding you a sweet scholarship. The thing that most people don’t realize is that it does not cover or reduce your EFC. You have to report those private scholarships on the FAFSA, so it really only helps the college save money. If the FAFSA formula expects you to contribute $5,000 out of pocket, then that is what it expects you to pay out of pocket. Private scholarships aren’t considered paying for it out of pocket. So, if it costs $10,000 a year to go to a particular college and your EFC is $5,000, then the college gives you “financial aid” for the other $5,000. If you have a $2,000 private scholarship, you still are expected to contribute $5,000 and the school only covers $3,000. It’s absurd, but true!
I hope you are starting to see the absurdity of the FAFSA. It can be a great help to some families, but it is like navigating through a minefield. I have met with too many people who are drowning in student loan debt and I am convinced that many times it comes from misunderstanding the FAFSA process. Although you may think it is impossible to go to college without help from the FAFSA, I hope to show you over the next several weeks just how to do that. You may think it’s absurd, but it is true!
Photo Source: Christopher S Penn