Financial Aid Tips from a MEFA Presenter
In the past, I have partnered with MEFA to present Financial Aid Night Seminars to local high schools. While these presentations were intended to be general and wide-ranging in content, one area seemed to generate the most interest and follow-up questions. The topic was differentiating the expected family contribution (EFC), as generated by the FAFSA, with net cost, or what the family will actually owe the college after financial aid is deducted from the bill.
In its most basic definition, the EFC is supposed to indicate the amount a family will be expected to pay toward the cost of college. There is a fairly complicated needs analysis process that determines this number, and the final result is the basis for any federal and state aid a student qualifies for. It is often used as the basis for awarding institutional aid. But the EFC does not necessarily correlate to the actual cost a family will incur for college; in fact, it is only coincidental if the EFC is even close to the actual cost. Unfortunately, the EFC will almost always be lower than a student's actual cost in most instances. The underlying reason for this is that few colleges are able to meet full demonstrated need. In an ideal financial aid world, a student's need, which is calculated as the full cost of attendance less the family's calculated financial contribution (EFC), should be fully funded by financial aid provided by the college. Unfortunately, there is no mandate that a student's need be fully met by college-funded financial aid. So when a college is either unwilling or simply unable to fully fund a student's need, the student has essentially been "gapped." For example, the FAFSA could generate an EFC of $10,000 for a particular family, but if a school cost $40,000 and only funded $20,000 in aid then there is still $10,000 in unmet need, or gap. The EFC is only truly meaningful if a college is willing and able to meet the associated need with college funds.
What students and families should be most concerned about is not their calculated EFC, but the net cost of each college under consideration. The net cost can't be determined until the school has completed the financial aid offer, and each school, for a variety of factors, will come up with different aid packages. It is up to the family to correctly determine the direct costs they are being charged (typically tuition, fees, room and board) and deduct grant and scholarship forms of aid in order to determine the amount that is due directly to the college. It is important to exclude loans and work-study from this calculation since loans still have to be repaid and work-study is not deducted from the bill. If it is then decided that the student will elect to borrow some or all of the loan(s) in offer, then this amount should be further deducted to arrive at the "out-of-pocket cost." Note that the net cost will be higher, but the loan portion of the cost is simply being delayed – at an additional cost based on the interest rate and length of repayment over time.
To further complicate matters, colleges who use the CSS Profile in addition to the FAFSA in order to award institutional funds are using a separate EFC that derives from a similar, but more in-depth, needs analysis assessment of a family's ability to pay for college. The good news is that many colleges who use the CSS PROFILE are more likely to meet full need based on the expected family contribution they derive from the College Board's needs analysis formula. The bad news is that the college may or may not share that particular number with you. In the end, it comes down simply to the net cost. In summary, don't stress about the EFC as reported on the FAFSA. Just focus on that offer!