How to Lower Your EFC to Qualify for More College Financial Aid

When it comes to covering the costs of higher education, your Expected Family Contribution (EFC) is one of the main factors that comes into play. The US Department of Education describes the EFC as “an index used to determine your eligibility for federal student aid,” and the formula used to calculate it takes into account your family’s income, assets, and benefits.

To find out your EFC, start by completing the Free Application for Federal Student Aid (FAFSA), which must be filed by all students for each school year, regardless. After you complete the FAFSA, schools use the EFC to determine eligibility for federal aid and financial aid scholarships for students.

Generally speaking, families want a lower SCF because it means they can get more financial aid and therefore pay less for higher education. Fortunately, there are a handful of strategies that almost anyone can use to achieve this goal.

Keep your household income in mind

According to student loan expert Mark Kantrowitz, need-based financial aid is based on financial need, which is “the difference between the cost of attendance (COA) and the expected family contribution (EFC)”.

With this in mind, it may be a good idea to avoid artificially increasing your family income in the base year for the FAFSA, which is the previous year. For example, Kantrowitz says you can avoid taking capital gains that year or offset them with losses. Also avoid exercising stock options and defer workplace bonuses whenever possible.

In the meantime, don’t take distributions from retirement plans — not even a tax-free return of contributions from a Roth IRA, he says.

Keep your strengths in mind

Kantrowitz also says you need to keep in mind any assets you have, and how they impact your ability to qualify for financial aid. Generally speaking, this means minimizing your reportable assets as much as possible.

Examples of actions you can take in this area include spending assets to pay off debt you have. For example, you could spend money in an emergency fund to pay off high-interest credit card debt.

Kantrowitz also says it may make sense to mix assets between children and parents in some cases.

“Transfer the child’s assets to the parent by saving on behalf of the parent and spending the child’s assets first,” he says.

Be strategic with your investments

Wealth advisor Greg Middendorf, who is also a certified college planning specialist, adds that parents should be strategic in how they invest for the future, as some parental assets will not count against them when it comes to EFC. .

For example, parents should maximize savings in retirement accounts like 401(k)s and IRAs rather than investing their extra money in brokerage accounts when they can.

“Unlike money saved in your taxable brokerage accounts, money in your IRAs, 401(k), and other qualified accounts don’t count in the EFC,” he says.

Include grandparents in the planning

If grandparents want to help with college-related expenses, it’s a good idea to make sure they do so strategically as well.

For example, Middendorf says you can encourage grandparents to redirect their gifts to college-going grandkids to the Parents of the college student. This can help reduce the family’s EFC since the gift is not considered a student asset at this point, which has a greater impact on aid than parental assets.

“Grandparents could also simply deposit assets into a 529, which is valued at a much lower rate than direct donations,” Middendorf says.

In fact, 529 plans owned by grandparents will soon have no impact on the CEF.

Special circumstances may be a factor

There are additional factors to keep in mind when it comes to getting the most student financial aid, some of which may or may not apply to your situation. For example, Kantrowitz says students whose parents are divorced should live with the lower-income parent while in college. Also consider dependency status, as a change in dependency status can also have an impact, he says.

In the meantime, families going through special financial circumstances should file an appeal for more financial assistance, he says. These special circumstances can include anything that has changed the family’s ability to pay for education, such as a change in income or loss of employment, high unreimbursed medical bills, or high daycare costs for a child with special needs. specials or an aging parent.

Kantrowitz, who is a Forbes book contributor and author How to Apply for More College Financial Aidalso offers a free tip sheet on this topic.

Check your FAFSA

Financial advisor Danielle Miura of Spark Financials adds that no matter what, you should double-check all the numbers in your FAFSA before submitting it.

Government forms can be complicated, she says, so it might even be a good idea to have a student loan professional or high school counselor review your documents to see if your information is correct.

That said, you shouldn’t delay submitting your FAFSA either, as federal student grants and loans are awarded on a first-come, first-served basis.

Families should consider filing as early as possible for this reason, Miura says.

Also, never assume you don’t qualify for aid, and remember that many universities won’t offer scholarships without completed FAFSA forms.

Be aware of upcoming changes

That being said, you should also be aware that some of the strategies families are using to get more help now might not work in a few years. Indeed, sweeping changes are being made to the FAFSA for the 2024-25 school year, including replacing the Expected Family Contribution (EFC) with something called the Student Aid Index (SAI).

Changes you can expect when this happens include:

  • Federal Pell Grants Extended to More Students
  • Repeal of the lifetime limit for the periods during which a borrower can receive subsidized loans up to 150% of the duration of the program
  • Removed the number of family members in college from the calculation
  • Allows a minimum SAI of -$1,500

You can learn more about the FAFSA Simplification Act and how the changes will be implemented on the US Department of Education website.

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