Did You Know You Were Wealthy?
By Joe Messinger, CFP®
December 3, 2021
Wealthy. Financially successful. Most people don’t walk around saying: I’m so wealthy! — unless you’re a Kardashian or something.
For the most part, the average investor doesn’t perceive themselves as being wealthy.
But how are those words defined when we are talking about paying for college and financial aid?
You may be surprised that how you define “being wealthy” is not the same as how the federal government defines it. Unfortunately, for many families, they find out too late in the financial aid process that they’re “wealthy” (who knew?!), and that they don’t qualify for aid.
So, what can you do to make college more affordable if it turns out you are deemed to be wealthy?
In this piece, we refer to “wealthy” as having an EFC too high to qualify for federal financial aid based on need.
We have talked many times about Expected Family Contribution (EFC) or the minimum dollar amount a family is expected to pay each year towards a college education. It is the “output” of the aid forms and calculations. Your data goes in, and your child’s EFC comes out and is reported to the colleges’ aid departments that the child asks the data to be sent to on the aid forms.
The FAFSA and the CSS Profile have significant differences you need to be aware of, but both EFC formulas focus primarily on the assets and income of the parents and student, family size, and a few other key details. For most families, the largest driver of a family EFC is parental income.
Calculating Your EFC
For most families, their student will be a dependent when applying for financial aid. In these cases, you can use this 2021-2022 EFC Formula worksheet (for dependent students, the worksheet starts on Page 9 of the workbook). The worksheet will ask questions such as:
- Parents’ adjusted gross income
- Taxable income
- Allowances against parents’ income
- Students’ income
- Allowances against students’ income
- And more
Want to calculate your EFC the easy way? Our College Money Report™ is a free tool that helps you do an apples-to-apples cost comparison of your student’s top colleges.
Completing the FAFSA
So, why bother filling out the FAFSA (Free Application for Federal Student Aid) if you aren’t going to qualify for aid? What’s the point?
Here are 5 reasons to complete the FAFSA, even if your family won’t qualify for need-based financial aid:
- If you want to qualify for merit aid, many colleges require that you complete the FAFSA. Pretty straightforward…have an academically talented student? You’ll need to complete the FAFSA to get merit aid/scholarships based on their academics.
- Maybe you need a student loan for your child? The Unsubsidized Federal Direct Stafford Loan is NOT need-based. Every student is eligible. In general, these loans offer the best terms. If you will need student loans, the completed FAFSA is required.
- Nothing is ever constant. What happens if a breadwinner loses their job or becomes disabled? What if parents get divorced? Suddenly the EFC is dramatically affected. Colleges have more flexibility to help if you already have a FAFSA on file. Financial aid administrators truly do want to help as much as they can, and by having a FAFSA on file they can utilize “professional judgment” due to the extenuating circumstance and seek additional grants or work-study opportunities.
- Your need will vary depending on the college you are attending, and how they determine your EFC. Remember – use our College Money Report™ to estimate your expected out-of-pocket costs before of applying.
- Schools depend on “wealthy” students who’ll pay full price. This fact is true, and colleges are searching for applicants to make a balanced pool of enrollees—some who will need aid and some who will be able to pay. That needed balance can play in your favor for admissions if a school knows you will pay full price.
Seek Professional Guidance
Did you just recently find out that you’re wealthy by the federal government’s standards?
Even if it doesn’t feel like it at the moment, you’ve made significant progress toward your goals and overall financial wellness.
When it comes to finding ways to pay for college for your students, working with a professional team of fee-only financial planners can help. Reach out to Capstone Wealth Partners today to learn how we can assist in creating a plan to pay for college without sacrificing your other financial and lifestyle goals.
Updated December 2021