College costs continue to rise which financial aid inflation has been flat. Since 2011 four-year public university tuition has increased 28%. In that same period, total financial aid has decreased by 1%. According to the National Association of Student Financial Aid Administrators June 2020 poll, 78% of Colleges polled are not planning to lower tuition to reduce financial aid applications. In the same survey, 90% of Colleges surveyed expect an increase in financial aid applications due to COVID-19.


Paying for College: Expectation vs. Reality


According to Sallie Mae: How America Pays for College 2020, families pay more than expected out of their pocket. While families expected financial aid to cover 41% of the costs, the reality is financial aid only covered 26% of the costs. That leaves families to close the gap with loans or savings. 


The reality is “institutional aid,” or free grants and scholarships provided by the college, typically pay for a small portion of college expenses, and many families do not qualify. In 2019-2020 48% of college students received need-based grants, with an average award of $6,030. In that same period, 58% of students received merit-based scholarships, with the average amount being $7,923. In both cases, the awards would only cover a small amount of the total cost of education. According to Finaid.org, only 0.3% of students receive enough grants and scholarships to cover the entire cost of education.


Estimated Family Contribution


After institutional aid, which has unique eligibility at each school, there is Federal aid. Federal financial aid eligibility is based on the Expected Family Contribution (ECF). The ECF looks at the general household financial situation, taking into account both the parent’s and the student’s income and assets.

EFC is not the amount your family will pay for college or get in federal financial aid. It’s a number used to calculate how much financial aid a student is eligible to receive. Families may be expected to pay more than their EFC.

For students, the EFC counts 50% of their earned income above the protected amount of $6,970 and 20% of all assets in bank accounts, CDs, Custodial accounts, and investment accounts.

For parents, the EFC counts 22-47% of adjusted gross income above the protected amount (which depends on several factors, including household size and the number of family members in college) and up to 5.64% of all non-retirement assets. Income has a more significant impact on EFC than assets. This presents an issue for many high-income earners who often hit peak earning years as their children begin college.


The Power of a Plan


Families who start saving earlier set their children up for success. Creating a plan is about creating flexibility for your family, opportunities for your children, and peace of mind for you. We are here to support people like you throughout your financial journey. Start planning today with Pleasant Street Wealth Advisors.


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