College Funding

Let’s break down college funding considerations by addressing six key concepts.

How much can you afford to spend on college?

99.9% of people should fill out the FAFSA. Why? Because it calculates your EFC, which stands for the “Expected Family Contribution.” Many assume they won’t qualify. However, most don’t realize the EFC may be required to apply for merit-based scholarships.

 Additionally, circumstances may change throughout a college education: divorce, death, disability – it’s essential to have the EFC on file!

When should you do this? In October the year before your student’s first year starts (i.e., Oct 22 if entering Sept 23). This formula looks at assets as of the date you file and income from the prior tax year.

This is a friendly reminder to ensure accounts are in the parent’s name, not the student’s. Let’s repeat: don’t put the 529 in the student’s name.  As a reminder, an UTMA is an asset of the student and is included in the calculation at an unfavorable rate. This is one of the primary reasons we don’t recommend UTMA/UGMA accounts.

Let’s address grandparents’ assets – if funds are sent directly to the school, this is considered untaxed income to the student, assessed at an unfavorable rate (50%) in the EFC formula. Therefore, use grandparent’s money for junior and senior year under CURRENT rules to avoid the 2-year look back. These rules will change starting with the 2024-2025 school year.

What’s included in the EFC?

  • Non-retirement assets = YES
  • Retirement assets = NO
    • Contributions to your retirement accounts get added back into the equation.
  • Every 529 is included on the EFC form regardless of the beneficiary. Remember, these are not student assets.
  • Real estate:
    • Home equity = NO
    • Vacation home / rental property = YES
    • If rental real estate is in an LLC, it may not be included – the guidance here is gray.
  • Small businesses = NO.
  • Crypto = YES.
  • Assets are as of the day you file.

What’s a CSS profile?

This calculation is required by select elite colleges (26 as of 2022) and may be required in addition to a FAFSA. There are two different calculation methods for the CSS. Here are some differences to highlight between the CSS and FAFSA:

  • Home equity is not in the equation on the FAFSA, but it may be considered on the CSS.
  • Assets in a student’s name may be included at different rates for the CSS.
  • Divorced? The custodial parent files the FAFSA. However, some schools may require the spouse’s information incorporated into the CSS.


Where you want to go vs. what you can afford

NOW is the time to quantify – don’t assume it will all add up and then realize on the backend that it doesn’t.  It’s also worth considering if your student will work during the school year or the summer to contribute to the overall cost.

How can you go shopping without knowing these factors?


How to find generous schools

Factors to consider:

  • Academics + Financial Aid Policy (of the institution) + Family Financials
  • Total Cost of College – Expected Family Contribution (EFC) = Financial Aid Need

Does your student qualify for merit-based aid? If so, it’s important to remember this type of aid typically applies for all four years. Need-based aid, on the other hand, may be in the form of “self-help” aid. Self-help aid may not reduce the cost of college but may help you qualify for student loans and work-study.

Changes are coming:

  • The Student Aid Index (SAI) will replace the EFC in the 2024-2025 school year. Expect a shorter form of 35 questions.
  • If you have multiple kids in school, the SAI no longer provides the additional benefit currently in place with the FAFSA.
  • Expect increased access to Pell Grants.
  • The expectations for divorced parents are changing.
  • Grandparent assets are no longer assessed!

Free resources:

Don’t assume you must go to a state school because of the cost. If you have a high need and high merit, a private institution may offer you enough to make it equatable from a cost perspective, if not cheaper!


What’s the out-of-pocket cost?

Hope is not a strategy! Types of scholarships:

  • Competitive – “We have X # to give.” A school looks at awarding this based on how this student will raise the school’s profile.
  • Grid/automatic – This is based on the student’s ACT/GPA; it’s a pre-determined scholarship based on established criteria.
  • Package – These are packages to compete with other universities attracting the same student demographic.

Remember, don’t shop for what you can’t afford. You can forecast what the gap is before the visits take place. Also, be mindful of managing student loan costs without robbing retirement.


Analyze the college funding gap

The type of the loan matters:

  • With a federal direct student loan strategy, you can take out up to $27K for four years (as of 2022). That includes subsidized (needs-based), and unsubsidized (not need-based), and interest accrues immediately.
    • These loans are in the student’s name, thereby establishing credit.
    • It’s a use-it-or-lose proposition. For example, take out $5.5K, $6.5K, $7.5K, $7.5K in the four years. Use it even if you have the funds and spread the 529 or other funding out over the four years. Then, you can pay it back early. This way, it helps avoid resorting to a high-interest private student loan by properly managing the funds available to you each year.
    • It’s typically a lower rate than a private loan.
  • Parent plus loan
    • These are easy to get, but interest rates are high.
    • Interest accrues immediately, and these are non-transferrable.
  • Private loans
    • These are not need-based, typically require a co-signer, and have a higher rate.
    • Remember, you may not qualify all four years and could end up in a pickle if expecting these in later years.

It’s worth considering what the student may make after graduation. Also, don’t overfund the 529. Instead, put excess $$ in a brokerage account – give yourself the flexibility.

A 529 can be used:

  • To pay up to $10K in student loans.
  • For trade school and apprenticeship programs.

If you’re cash-flowing college costs, consider doing it via the 529 if you receive a state tax deduction.

The American opportunities tax credit has a phase-out between $160K-180K in household income (as of 2022). So, for example, if you spend $4K, you can get up to $2.5K back as a credit. If you qualify for this, don’t use 529 assets (use non-529 assets for the $4K).

If your kids are young, it’s important to start the investment process!


Is an appeal necessary?

You can go back and ask for additional money. But this happens during the application process. Despite what some think, the school won’t take back what they’ve already offered you.

One school may ask for the letter you’ve received from another school if you’re trying to get them to match. However, the schools must be comparable.

If your situation changes (i.e., death, divorce, layoff), it’s worth submitting an appeal.


We’re happy to navigate this process with you. So don’t wait until the last minute – contact us today!