Factors Affecting Financial Aid

Financial aid is money that is given, paid, or loaned to a student to help pay for college or vocational training. There are several factors that affect the amount of aid a student receives, including:

Expected Family Contribution (EFC) is the amount of money your family is expected to pay toward the cost of education. Usually, the lower your EFC, the more financial aid you will receive. Factors such as family size, number of children in college, and income are used to calculate your EFC.

There are three formulas used to calculate the EFC: one for dependent students, one for independent students with dependents other than a spouse, and one for independent students without dependents other than a spouse.

Once your FAFSA form has been filed and processed, you will receive a Student Aid Report (SAR) with your official EFC number (this information is also sent to the schools listed on your FAFSA form). Your financial aid administrator (FAA) will then determine your financial need, which is defined as the difference between the cost of attending college and your EFC.

Other factors used to calculate your EFC include:

•  Available income - you can determine your available income by adding untaxed income to your adjusted gross income, and then subtracting the value of certain education benefits, taxes, and income protections. Your available income will be automatically calculated for you when you file your FAFSA form. This formula subtracts all taxes – state, federal, and Social Security.

•  Dependency status – Most students entering college straight out of high school are considered dependents. This means that the family is expected to contribute financially to the student's education. In exceptional cases when individuals in this situation can be considered independent students, only their income and assets will be considered, resulting in a significantly larger financial aid package.

•  Student and parent assets – For purposes of the EFC, your assets include the present value of everything in your bank account and stock portfolio. If you or your family owns a business, your assets include the net worth of those holdings. The financial aid formula does not consider the value of your house or retirement accounts as assets, nor does the formula include non-liquid assets. Assets normally included are checking and savings account, stocks, bonds, and mutual funds.

•  Sources of income – One of the largest factors affecting your financial aid is your income. “Income” can come in several forms including primary employment, sale of stocks or funds, bank account interest, rental property, and other sources of cash. The aid formula uses the adjusted gross income (AGI) reported on your annual tax return. In addition to your salary, other factors included in the formula are money from Social Security, veteran benefits, child support, earned income credit, child tax credit, payments to savings or pension plans, deductions to retirement plans, worker's compensation, and welfare. Once all of these factors are added up, the government deducts the Hope and Lifetime Learning tax credits, federal work-study income, fellowships, and scholarships reported as income from your adjusted gross income. The result of these calculations equals your total income for the expected family contribution. 

Strategies for maximizing aid

To have the largest impact on your eligibility for financial aid, save as much money as possible in your parent's name. Pay off credit card and loan balances. If possible, have multiple people in a household in college at the same time – the more family members simultaneously enrolled in college, the more aid will be available to each. Spend down assets and income first, and accelerate necessary expenses to reduce available cash. Maximize capital gains and contributions to your retirement fund, and minimize your educational debt.

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