How can I lower my EFC for college?

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 Q. What can I do to lower my Expected Family Contribution for college?

A. The Expected Family Contribution (EFC) is a way for colleges and universities to assess your family’s financial situation.

Factors that are considered include family income, certain investment assets, the number of people in your household, and in some cases, home equity, said Alison Williams, a certified financial planner with Stonegate Wealth Management in Oakland.

To make it a little confusing, different institutions use different formulas for the EFC calculation. Some count your home as an asset, and some don’t.

If you own a home, institutions that use the federal formula for EFC calculation will likely present you with a more favorable figure, Williams said.

“This method relies predominantly on the information provided on your Free Application for Federal Student Aid (FAFSA),” she said. “Those that use the Institutional formula rely on information from the financial aid application service of the College Board, which includes home equity as an asset.”

This has the potential to increase your net worth and subsequently leave you with a high EFC, she said.

While your assets are important in the calculation, the largest factor in the EFC is income, said Peter McKenna, a certtified financial planner with Highland Financial in Riverdale.

“Between 22 and 47 percent of parental income is considered available to pay for college,” he said. “Student income above $3,750 is counted at 50 percent.”

That means that a family with $150,000 of income and no assets would be expected to contribute over $40,000 per year towards college ($150,000 x 27% = $40,000), McKenna said.

In addition to the income-based components of the EFC, there are asset-based components.

McKenna said 529 plans, brokerage accounts and emergency funds are considered parental assets, while UTMAs (Uniform Gift to Minors Act accounts) and child’s savings accounts are the student’s assets.

Retirement plan assets are excluded.

“After a small allowance based on the age of the oldest parent, 6 percent of parental assets are considered available for education,” McKenna said. “Twenty percent of student assets are considered available.”

He said student assets hurt the formula more than parental assets, but if you are not close to being eligible, there isn’t much value in re-positioning these assets to the parent’s name.

McKenna said what we think we can afford for college and the calculated EFC are usually vastly different. You can try this calculator from SavingForCollege.com to estimate your EFC.

On the idea of making changes to your assets in an attempt to lower your EFC, McKenna said you should be very leery of anyone trying to “sell” you an investment or insurance product that purports to lower your EFC.

“While there are legitimate ways to prepare for college funding, they need to be done years in advance and they typically come with significant cost and restrictions on how and when you can use the money,” he said. “Tread very carefully.”

Williams agrees, saying there isn’t much else you can do intentionally to lower your EFC.

“Some institutions will reassess in the case of an appeal due to unusual circumstances; examples are loss of employment, divorce, parent/spouse death, or excessive medical expenses not covered by insurance,” she said. “What is going to be important if you have a high EFC is looking into/applying for scholarships and considering schools with a strong merit-awards policy.”

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NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.