Should you be Filing a FAFSA?

4_students_walkingIt’s the new year and for parents of high school seniors and college-aged kids, it signifies the arrival of this year’s FAFSA. For those of you unfamiliar with the term, FAFSA is the Free Application for Federal Student Aid. It is the tool that helps determine a family’s eligibility for federal grants, loans and work study as mandated by the Higher Education Opportunity Act. Essentially, the completion of the FAFSA allows the government to use your tax returns to determine what your Expected Family Contribution to your child’s education should be and what type of aid you may qualify for.

So how does this process work? First, using your 2012 tax return, complete the FAFSA application on line. This should take about 15-30 minutes. Once you submit it, you will immediately receive your Expected Family Contribution (EFC). Your EFC is the amount of money, based on your reported income and finances, that you are EXPECTED to contribute to your child’s education. The EFC does take into account multiple kids in college, although they must each fill out a FAFSA. Your household income determines the EFC, but for multiple kids, that number will be divided amongst each kid and their individual FAFSA will reflect a lower number than a family with the same income and variables with only one student in college. In determining your out of pocket expense for college, the concept of an EFC is fairly simple to understand once you realize what it really means. Assume the FAFSA declares that your EFC is 15k. This means that you are expected to come up with the first $15k of your child’s college expenses. In NC, that means you are footing the entire tuition bill, however, depending on which UNC you are attending, you may have additional expenses up to 22k to cover. Completing the FAFSA lets the college know that you are looking for help covering that last 7k. How the college chooses to handle this is up to them. However, for state institutions, you can generally expect to be offered some type of loan to cover that additional cost.

So how does this work for private colleges? Assume your child applied to a school like Davidson or Duke, both of whom claim to meet 100% of financial need. With estimated sticker prices above 50K, the EFC, in this case 15k, is deducted from the 50k, leaving a balance of 35k. Assuming the schools follow through with their claims, your child would then have the remaining balance covered by some combination of grants, loans or work study. In NC, UNC Chapel Hill is the only state school that guarantees 100% of your need be met. Depending on your circumstance, and their coffers, you can be offered anything including loans, grants and work study. With the rising cost a both public and private college education, it is advisable for families whose income are under 250k to complete the FAFSA. It’s important to note that even if you don’t expect to qualify for money, the FAFSA is also required to obtain Stafford Loans – low interest loans backed by the Department of Education.

While the financial aid process can often appear overwhelming, the notion of EFC is fairly clear and will give you a good idea of what you can expect in aid. So before you declare that you child must attend a community college or particular in-state college, take the time to explore your options. You may find the price of a private college to be as attainable as the state schools.