College Financial Planning

Individuals who want to attend college but cannot afford the costs outright must find alternative funding through various types of financial aid. Many factors affect eligibility for federal financial aid; therefore, all students should apply for financial aid every year even if they think they do not otherwise qualify. 

FAFSA. The Free Application for Federal Student Aid (FAFSA) is the first step in the financial aid process. Students use the FAFSA to apply for federal student aid, such as grants, loans, and work-study. The FAFSA must be submitted for each year the student wants financial aid.

Income tax return. If the student (or parents) needs to file a 2013 income tax return with the IRS, it is recommended that it is completed before filling out the FAFSA.

Expected Family Contribution. The questions on the FAFSA are required to calculate the student’s Expected Family Contribution (EFC). The EFC measures the student’s family’s financial strength and is used to determine the student’s eligibility for federal student aid. The EFC is split between an expected amount contributed from the student (usually more) and an expected amount being contributed from the parents.

Student Aid Report. A student’s EFC will be listed on their Student Aid Report (SAR). The SAR summarizes the information submitted on the student’s FAFSA.

Financial need. Financial need is the difference between the EFC and the college’s cost of attendance (which can include living expenses), as determined by the college. The college will use the student’s EFC to prepare a financial aid package to help meet financial need.

Need analysis formula. To determine financial need, a need analysis formula measures the parents’ and student’s assets and income. Assets are measured as follows:

•    Assets in the student’s name are assessed at a maxi-mum rate of 20%, whereas parents’ assets are assessed at a maximum rate of 5.64%.

•    The assets of other children are not considered by the need analysis formula.

•    Specific types of property (automobiles, computers, furniture, books, clothing and school supplies, boats, and appliances) do not count as assets.

•    Retirement funds and pensions are generally not considered assets. 

•    Annuities and life insurance policies are generally not considered assets.

•    Small businesses owned and controlled by the stu-dent’s family are excluded as assets. However, a partnership where the family owns 50% of the business is not excluded.

•    Consumer debt (such as a credit card balance) is not counted against assets and income.

•    Only debt secured by property (mortgage on home or business loan for equipment) is counted against assets and income. 

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