One of the biggest financial challenges for many families, including affluent families, is paying for their children’s college education. What many of these affluent families don’t realize, and one of the ‘secrets’ to our higher education system, is that there are ways to structure your financial resources in a way that can dramatically reduce your overall cost of college education and increase the availability of grants and scholarships offered through the government, university, and other sources.
‘Expected Family Contribution’ (EFC) is a term that all college-bound families should become familiar with; essentially it is an estimate of the financial contribution the family is expected to make to their child’s education. EFC is calculated based on the information the family provides on the FAFSA (Free Application for Federal Student Aid). Generally speaking, the lower the EFC the lower the cost of college and the higher the chance of financial aid, grants, subsidized loans, etc. made available.
Strategies to Lower the EFC and Reduce the Cost of College Include:
- Reducing or repositioning income (particularly income of the student)
- Reducing ‘assessable’ assets (particularly student assets)
Repositioning ‘assessable’ assets to ‘non-assessable’ assets
- Understanding special circumstances in which Colleges and Universities can bring down your EFC including:
- Loss of Employment
- Separation or Divorce
- Death of Parent or Spouse
- Lump-Sum Income in the prior year (which is not typical)
Income and assets of the student count significantly more than income and assets in the parents’ names towards the EFC calculation. Therefore evaluating strategies to minimize income and assets in the student’s name is critical. In-fact, there are many mistakes families make which may either causes them to pay more for college or cause their children to miss out on the best possible education.
Common Mistakes When Applying & Paying for College
- Not calculating the ‘real’ cost for the universities they are considering applying for in advance of sending in applications.
- The ‘real’ cost includes additional expenses such as room and board, books, etc. as well as potential savings such as financial aid, scholarships, tuition adjustments, grants, subsidized loans, etc.
- Failing to do this in advance can cause families to avoid applying for some schools assuming they are too expensive and have the child miss out on this opportunity OR they may apply to a school assuming it is in their budget and find out later the cost is more than anticipated.
- Assuming public schools are more expensive than private schools and not comparing the ‘real’ cost.
- Many private universities offer significantly more scholarships, grants, and tuition discounts (which can be negotiated) to their students (including non-need-based) and distributed based on academic merit and in some cases by simply applying.
- In some cases, after including the additional aid and tuition discounts available through the private school, they can be closer to par or even less expensive than public schools.
- Not understanding the various grants, scholarships, tuition adjustments, etc. available specific to the school.
- Not applying to enough schools (at least 6-8) and not applying early (September or October).
- Applying to more schools increases the chance of successful appeal and increased financial aid for the college student.
- Many colleges award scholarships to students who submit their admission application forms at an early date.
- Assuming they won’t be eligible for financial aid and not filing the FAFSA
Not understanding the difference between the Federal Methodology of calculating the EFC vs. the Institutional Methodology
- Not knowing which methodology would apply based on the universities being applied for.
- In many cases, the Institutional Methodology of calculating the EFC is stricter and can therefore cause a family to pay more for that school than one that uses the Federal Methodology.
- Taking out the wrong types of loans
- Some types of loans are significantly higher cost than others
- I.e. Parent Plus loans have higher interest rates; may be better for the parents to utilize a Home Equity Line of Credit OR have the child take out lower interest-rate loans and have the parents make payments.
- Grandparents paying a child cash for tuition or paying the school directly
- This can cause a direct dollar-for-dollar reduction in aid / grants
Instead grandparents can consider something like buying a car and gifting it to the student (as the car is not an assessable asset in the EFC calculation)
- This can cause a direct dollar-for-dollar reduction in aid / grants
As you can likely see by now, this is a complex process. However, the value of doing this process in the best possible way can be significant both financially and in educational opportunities for the student. To achieve the CCPS designation (Certified College Planning Specialist) Ross Atefi went through in-depth training on this process and the strategies available so that I can best help my clients in this area.
The CCPS designation is issued through the National Institute of Certified College Planners (NICCP) (www.niccp.com) and this designation is the only recognized college financial planning certification organization in the financial industry. While there are college counselors that deal with the general issues of preparing for college, such as admissions, ACT/SAT prep, essay writing, college selection, and financial aid; NICCP members are licensed financial consultants qualified to share prudent tax, financial, cash-flow, and lending advice that can help families lower the cost of college and pay the tuition bill. We can also help you identify how the cost of college fits into your ‘big picture’ financial situation and develop a comprehensive plan.
Please let us know if you have any questions, we are happy to help!
CRN1728391-030717 Roberto J. Duran CFP®, ChFC®, CRPC® and Ross Atefi, AAMS, CRPC, CCPS are registered representatives and investment advisor representatives of Lincoln Financial Advisors Corp., a broker-dealer (member SIPC) and registered investment advisor, 18400 Von Karman Ave., Ste 550, Irvine CA 92612 offering insurance through Lincoln affiliates and other fine companies. This information should not be construed as legal or tax advice. You may want to consult a tax advisor regarding this information as it relates to your personal circumstances. The content of this material was provided to you by Lincoln Financial Advisors Corp. for its representatives and their clients. Insurance offered through Lincoln Marketing and Insurance Agency, LLC and Lincoln Associates Insurance Agency, Inc. and other fine companies.
Copyright 2018 Odyssey Wealth Design. Odyssey Wealth Design provides financial planning and wealth management to clients in Orange County, Irvine, Newport Beach, and around the country.