We recently had a prospect ask if it was worth his time to complete the FAFSA.
He makes over $200,000 a year as a physician and has a soon to be 17-year-old applying to colleges. He also has two other children approaching college age and anticipates his children going to private schools.
My immediate answer was, “Absolutely!”
There are many factors that determine a family’s eligibility for financial aid, income being only one of them.
Sticker Price Of School
The sticker price of college is a primary factor in “need-based” financial aid determination, and here is why – your financial aid eligibility is based on the following formula: Sticker price – Expected Family Contribution
(EFC) = Financial Aid Eligibility.
EFC is the minimal amount a college will expect you to contribute towards your child’s education each year and is based on your family’s income and assets. That being said, the higher the sticker price, the greater the likelihood of qualifying for financial aid.
Let’s say your EFC turns out to be $30,000. If you were to apply to a public school with a price of $30,000 that would give you aid eligibility of 0: $30,000 (cost) - $30,000 (EFC) = 0.
Now let’s say you apply to a private school with a price tag of $60,000. After subtracting your EFC of $30,000, you come up with $30,000 in aid eligibility.
This is another reason why we encourage most families to not
ignore private schools just based on the sticker price.
It is not unusual for private schools to have comparable costs to public schools after taking into account the financial aid awards. In our prospect’s case, even with $200,000 in income, he still would have qualified for thousands of dollars in aid if he had applied to some private schools.
Need-Based Aid Versus Merit Aid
Need-based aid is based on the income and assets of the family. That being said, even if you do not qualify for need-based grants you would still need to complete the FAFSA in order to qualify for federal loans and work-study programs.
Additionally, the FAFSA is used to determine your eligibility for many state aid packages, eligibility for private scholarships and certain school awards.
Merit-based aid has nothing to do with your finances and is predicated on the abilities of your child, be it academics, music or athletics.
So, why still file the FAFSA?
A number of schools use the FAFSA to determine eligibility for their own institutional aid dollars. This is the money schools hand out from their endowments to attract desirable students. If a school wants your child, usually for academic achievements, they will try to entice them with merit aid, regardless of the family’s finances.
The prospect’s child has excellent grades and SAT scores, which most likely would have resulted in merit aid awards at some private schools. The parents also wanted the child to have some “skin” in the game by taking out a Stafford loan. I had to explain that, in order to qualify for federal loans or merit aid, he would be required to complete the FAFSA.
Number Of Children In College
An often-overlooked factor in the aid calculation is the number of children you will have in college at the same time.
Remember that your EFC will determine your need-based financial aid eligibility and the lower your EFC, the better the chances of qualifying for aid. Colleges will reduce a family’s EFC, sometimes substantially, if they have multiple children in school at the same time.
The prospect we were working with will eventually have multiple children in college at once and therefore be eligible for additional need-based financial aid that he never thought was possible.
As you can see, there are a number of reasons to file the FAFSA, regardless of your income. Optimizing your chances for financial aid is a pivotal part of paying for college. Not only will it help your children minimize student loans but it will also help protect your assets and income for what they were intended for – your retirement.
At Tushingham Wealth Strategies, our goal is to help you proactively oversee all of your financial affairs by serving as your “Personal CFO” and fiduciary, so that you may live your ideal life worry free. As part of our "Personal CFO" service we help families develop "late stage" college planning strategies so that they can save money on college, protect their retirement assets and help their children graduate with minimal student loans. This is why our “Personal CFO” services will help you integrate college and retirement planning into one strategy.