From the moment a child is born, the college planning clock begins. In the early years, the planning focus is primarily on the financial aspects of college planning. This includes putting aside funds in college savings accounts in the most tax efficient manner and balancing college and retirement savings. Upon the student reaching high school, the college planning focus becomes more strategic. This entails career coaching, college selection, SAT/ACT preparation, college application essays, resume-building, and financial aid applications.
Our focus at Blom & Associates is two-fold and encompasses both financial and strategic pathways. We seek to do everything possible to minimize "extra costs" in the financial planning years by saving or investing in advance of the college years. In the strategic planning years, the objective is to minimize "extra years" a student might spend in college through academic and career preparation. To minimize out-of-pocket costs on college, we firmly believe the best college plan will focus on BOTH pathways to pursue the best outcome.
WHEN IS THE RIGHT TIME TO START PLANNING?
If your child was just born, you can begin the process now. If your student is in high school, it's not too late and you should begin the process NOW. Even families who are late to the game can minimize costs through strategic college selection and planning for financial aid. Procrastination is a human tendency, but deferring planning only results in increased college expenses later.
HOW DOES FINANCIAL AID WORK?
Financial aid is a general term used to describe any funds provided to the student by the college, the government, or another party such as a scholarship donor. There are essentiallytwo basic types of financial aid.
Need-based aid is contingent on family finances (parent and student income and assets).
Merit-based aid is NOT based on family finances. Merit aid may be based on factors such as academics, talent, ethnicity, geographic location, major, etc.
The financial aid process begins with a needs-assessment to determine if a family qualifies for need-based aid. This is done by having a family complete a needs-assessment form, beginning with the Free Application for Federal Student Aid (FAFSA). Some selective private colleges may require additional needs-assessment forms like the CSS Profile to award the colleges own institutional aid.
THE EXPECTED FAMILY CONTRIBUTION (EFC)
The objective of a needs-assessment form is to determine the Expected Family Contribution(EFC). The EFC is a dollar amount that represents what a family should be able to pay, at a minimum, for one year of a child's college education. Each needs-analysis form has different formulas to arrive at the EFC. If a family only completes the FAFSA (a federal form in which the formula is determined by Congress), the EFC essentially represents what Uncle Sam thinks you and your family can afford to pay, at a minimum, for college.
An impoverished family will have a low EFC (can be as low as $0). The wealthier the family, the larger the EFC will be (there is no cap on how high the EFC can be). The EFC is THE MOST IMPORTANT figure a family needs to know before applying for financial aid for the first time. Unfortunately, the vast majority of families never find out their EFC until they've completed the FAFSA.
HOW TO USE THE EFC
There is a simple formula used to determine a family's financial need:
By subtracting the EFC from the published Cost of Attendance of a particular school (tuition, room & board, fees, books, transportation, and miscellaneous expenses), a family can determine if they will have a demonstrated financial need at that school.
Example 1 (Family EFC: $35,000)
Example 2 (Family EFC: $35,000)
In example 1, the Cost of Attendance of the school is greater than the Expected Family Contribution, resulting in a demonstrated financial need of $24,000. If the student was accepted to the school, the student would receive a financial aid package and would receive $24,000 in need-based aid to bridge the gap between the minimum expected contribution of the family and the cost of attendance of the school.
In example 2, the Cost of Attendance of the school is less than the Expected Family Contribution. Since the EFC is higher than the Cost of Attendance at this school, the student would not qualify for need-based aid.
MY INCOME & ASSETS ARE TOO HIGH. WHY BOTHER?
This can be a costly assumption to make. First, the EFC formulas are not an exact science. A number of factors can be used in determining a family's EFC, including:
Number of people in household
Marital status of parents
Number of children in college
Parents' adjusted gross income
Parent's income taxes paid
Student's adjusted gross income
Student's income taxes paid
Cash, savings, checking for parent(s) and child
Non-retirement investments for parent(s) and child
In addition, other variables can dramatically impact aid eligibility
The parents are divorced or separated
Parents have two or more children in college simultaneously
The students are aiming for extremely expensive colleges
The students will only apply to state universities
Parents are house rich, but cash poor
Therefore, there is no income cut-off figure that will automatically disqualify a family from financial assistance. Even if you think you will not qualify, APPLY FOR FINANCIAL AID. You may be surprised to find that you qualify in some situations. In addition, some schools (although this is rare) do not award their merit scholarships unless the FAFSA has been completed.
THE BIG PICTURE FOR AFFLUENT FAMILIES
College planning is NOT just for low and middle-income earners. Affluent families should still be proactive at making college more affordable! This becomes especially important when you consider college is often paid for with after-tax dollars.
In addition, many affluent families have invested a tremendous amount of time and money toward raising their children. Many will purposefully buy homes in great school districts, send their children to private schools, as well as pay for tutoring, sports, music lessons, and numerous other activities. Even so, college (especially considering tax implications) is still a big-ticket expense and requires the same amount of due diligence you would ascribe to any other major purchase.
It's not uncommon to feel overwhelmed by how much is involved in college planning. Missteps along the way can unintentionally increase costs, but the the good news is you don't have to do this alone, nor do you have to become a college planning expert. Just like a family portrait where you struggle to get all the kids ready for that special picture, you want to present the best financial aid portrait the moment the college and financial aid camera snaps. I have all the tools in place to help you work smart and help your children pursue a college education without jeopardizing your retirement, or an arm and a leg for that matter, in the process.
Common Parent Questions
How does our income impact financial aid?
Are any of our assets jeopardizing or reducing our financial aid eligibility?
Is it possible to lower my EFC?
Can we reasonably reposition ourselves to qualify for more aid or lower our out-of-pocket expenses on college?
My student doesn't know what they want to do - how can I help them?
Are there some schools that are more generous than others?
In light of our circumstances, what types of colleges should we be looking at?
I invite you to have a conversation with me about the above at no cost to you other than your time.
Explore your specific college plans with Michael over a no-cost initial consultation.
At our appointment, I will help you:
Generate your Expected Family Contribution (EFC)
Answer any of your specific college questions
Provide feedback on your current plan
Discuss school's you and your child are considering
Provide feedback on areas to improve your plan and if applicable, opportunities where I can be of further help.
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Blom & Associates, Inc. | 3340 Tully Road, Suite B-4, Modesto, CA 95350 | Phone: 209.857.5207 | Fax: 209.857.5098
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