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college financial aid

Helping Clients Understand Their EFC

If you are at all interested in helping your clients shrink their college costs, this can be an equally important figure for you.

Before families seriously start exploring their college choices, they must generate a critically important financial figure, the Expected Family Contribution, which can direct them to the most likely sources of college money.

EFC is a dollar figure that indicates what a family should be able to pay for one year of college.

If you are at all interested in helping your clients shrink their college costs, this can be an equally important figure for you.

Here are five things you should know about EFCs:

1. An EFC can help determine if financial aid is a possibility.

Parents often wonder if their children will qualify for need-based financial aid. Affluent parents typically believe their teenagers won’t be eligible, and they often assume that there is an income cutoff.

Parents often want to know, if they have an income over a certain amount ($100,000, $150,000 or even $200,000), will they be disqualified for aid?

Income caps, however, don’t exist because there are too many variables, including: 

  • Price of the college
  • Financial aid policies of a college
  • Number of college students in a household
  • Size of household
  • Marital status of parents

While parents can be frustrated with this reality, it’s actually easy to determine their eligibility for financial aid if they use an online calculator to obtain their EFC.

You can help your clients and prospects use one of these calculators, which can be a great marketing opportunity for you.

2. What an EFC can tell your clients.

The greater a household’s nonretirement assets and income, the higher a family’s EFC will be and vice versa.

Families with an adjusted gross income of $25,000 or less have an automatic EFC of $0. That means that they can afford to pay nothing for college. Families with incomes in the $50,000s will typically have an EFC in the neighborhood of $3,000 to $4,000.

There is no cap on EFCs for wealthy families that have an EFC that exceeds the cost of an expensive private college.

Example No. 1

The affluent family’s EFC outstrips the cost of the school, so need-based aid would be impossible.

Cost of state university:  $24,000
EFC:   $35,000
Demonstrated financial need: $0

Example No. 2

The higher the EFC, the more likely the student should be looking for colleges that provide merit scholarships. In this example, the same family could be eligible for need-based aid at an expensive college.

Private university cost: $65,000
EFC: $35,000  
Demonstrated financial need:  $30,000

3. Use an EFC calculator.

It’s easy to generate a preliminary EFC by using the calculator on the College Board’s website.

When using an EFC calculator, parents have to supply information, such as: 

  • Adjusted gross income
  • Earnings from work
  • Untaxed income
  • Federal taxes paid
  • Nonretirement assets including 529 accounts

The calculator will actually generate two EFCs: One uses the federal methodology and the other uses the institutional methodology.

The federal methodology is linked to the Free Application for Federal Student Aid, FAFSA for short. Any family seeking financial aid must complete this application.

The institutional methodology is tied to the 205 undergraduate colleges that use the CSS Profile. These schools use the CSS Profile to determine which applicants will qualify for their own need-based aid.

When deciding whether a student will qualify for financial aid, a college will look at the applicant’s EFC.

4. EFCs are equally important when evaluating award letters.

Every financial aid letter should include the family’s EFC, but it’s not mandatory. If the EFC is missing from a college’s award letter, parents won’t be able to evaluate whether the offer is a good one or not.

Here’s an example.

Cost of the college: $60,000
Financial aid grant: $28,000
Family’s net cost: $32,000

It would be impossible to know if this a good award without knowing the EFC.

Let’s assume the family’s EFC was $30,000. This would be a great award because the family’s net price would only be $2,000 more than their EFC.   

Now let’s assume the family had an EFC of $5,000. This would be a terrible award because the formula had indicated that the family needed $55,000 in assistance.                  

Unfortunately, many colleges don’t include the family’s EFC in their award letters. If it’s missing, your clients need to ask the college for their EFC.

Parents need to know that it’s always possible to appeal an award letter. It will be easier to appeal when parents have that EFC.

5. Generating EFCs can represent a marketing opportunity.

An excellent way to engage prospects with teens and preteens is to offer to run an EFC calculator for them. Prospects would need to bring their income tax return and their nonretirement investment account statements to run it.

Using an EFC calculator can build a stronger relationship with clients and also provide a reason to reach out to your older clients’ grown children. 

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