Students qualify for financial aid based on the results of a federal form called the FAFSA. The FAFSA generates a number called the Expected Family Contribution (EFC). A high EFC indicates low financial need and prompts colleges to offer a lower financial package. One of the factors that raises a family’s EFC is student income. Can a student earn too much, and lose their financial aid? While unlikely they could lose all of it, they certainly can increase their EFC and therefore lower their financial aid.
A previous post “A tale of 3 families” described 3 fictional families with identical incomes, but different money and spending habits. Their numbers were plugged into a FAFSA calculator, and the EFC were predicted for the 3 families. I planned on using sweet spots to expose glaring differences in the outcomes, but was a little frustrated with unexpected results. If you did not catch that post, you might want to read it first.
While researching for the 3 families post, I viewed a video that did a solid job explaining the EFC calculations simply. The frustrating part was how the outcomes from the FAFSA calculator did not match the information presented in the video. The first fact from the video was that after 4800$ of student income, all money was expected to be contributed to college at a rate of 50%. The 4800$ threshold is referred to as an allowance. The formula bothered me because I was picturing two kids with similar jobs. The first earns 4800$ without adding to his family’s EFC. A second kid works hard, puts in extra hours and earns 6800$. By earning an extra 2000$ above the allowance, that student has just raised their family’s EFC by 1000$, resulting in a smaller financial aid offer for the family.
My 3 families scenario had experimented with students earning 150$ a week, which is about 7200$. Income of 7200$ is above the 4800$ allowance, but when I put the numbers into the FAFSA calculator, there wasn’t an increase in the EFC. After double-checking and referring back to the video, I realized there wasn’t a date to be found anywhere on the site. Could the allowance have risen to over 7200$ since the video was made?
I turned to google again, and looked for current numbers, and found a few pages discussing changes in the allowance. They were several years old, and the number was larger than the allowance of 4800$ but nowhere near 7200$. After being unable to find any recent information, I resorted to digging through the 36 page FAFSA pdf file. There it was on page 10, the current allowance is 6420$ for the 2016/17 school year.
This was the direct source, and I am still confused, frustrated, and a little angry. Income of 7200$ is above the allowance, but still had no effect. After kicking the cat and yelling at the kids, I sat back down tried to focus, and look for what I had missed. I noticed two boxes above the allowance that refer to tables that generate numbers that are added together. There is an additional social security allowance of 7.6% and there is an additional state of Virginia allowance of 5% for a total of 12.6%. By the time a Virginia student earns 6400$, they get another 806$ of allowance, and by the time they earn that extra 806$, they will have earned another 102$. A student can earn 6400+806+102 for a total of about 7310$ before they are expected to begin contributing to the family EFC. After they have reached 6420$ + 12.6% of earnings, then any additional income raises the EFC at a 50% rate.
At the end of the tale of 3 families post, I advised parents to do their homework. Doing my homework was pretty tough for this father, and I have always picked up numbers and patterns with ease. The 36 page FAFSA document is not that bad in comparison to tax code, but that is no complement.
I also want to be perfectly clear that the numbers presented are valid only for the current year. Current year describes 2016, using 2015 taxes on the FAFSA to generate an EFC for the 2017-18 school year. I do realize the previous sentence was far from clear, but it was the best I could do in these circumstances. I also realize that just like the helpful video I watched, this post will age, and lose accuracy each year.
The FAFSA and tax code are similar because they will change every year. Politicians are always playing around with allowances, deduction and percentages, and it is not surprising they can move these allowances up and down, without making headlines. Nobody would understand the headline. Many people don’t know what FAFSA and EFC are, much less paying attention to fluctuations in student income allowances.
I chose to delve into student income for this post, but that is just 1 of 4 important factors. The calculations are pretty straightforward for a second factor student assets. Once the money is earned and kept in bank accounts in the student’s name, the student will be expected to contribute 20% of all savings toward college. A youth savings account is great tool for teaching kids to manage money, but if savings are in a student account at FAFSA time, every 100$ in the account will increase the EFC by 20$.
It may not be practical to control or manipulate student income with respect to the FAFSA. There is also a strange lag in the consequences. As we finish 2016, this year’s income will be used on the FAFSA in Oct of 2017 to generate an EFC for the 2018/19 school year. All the details of that years FAFSA formulas and calculations haven’t even been decided yet. For students already in college, jobs and income during their junior and senior year, will not affect their EFC because they will be out of college. I need a little break before attempting to delve into the remaining 2 factors, parent income and parent assets.