Never overpay for college

EFC: Deductible or True Cost?

EFCOn the surface, the term “Expected Family Contribution,” seems to have an obvious definition. Logically, one would think the Expected Family Contribution or EFC would signify what a family can afford to pay for school. Thus, it would appear that the EFC would represent a true cost for college and provide families a number to plan for.

However, this could not be further from the truth as the EFC is really a deductible that for many families does not come close to the real cost of college. The reality is that the real formula to determine the cost of college is EFC + Unmet Need.

The EFC essentially tells families what they will be expected to pay before the actual college or university has its say. For example, let’s pretend a college is $25,000 per year and a family has the minimum EFC, which is zero. The family isn’t going to just pay nothing for school, their true cost is determined by how much financial aid the college will actually provide. If the school will cover 75% of the need which is the full $25,000, than the family is responsible for $6,250.

However, this doesn’t tell the full story as the family also must come up with or borrow the amount of need met that is not covered in grants or scholarships. This means that in the example above, 75% of the $25,000 is covered in financial aid but much of financial aid for families is offered in loans.

Any amount of the $18,570 that is not covered by grants and scholarships get added to the family’s bottom line. Hence we have the formula, EFC ($25,000 in this example) + the Unmet Need (in this case the $6,250 + whatever amount is not covered in grants and scholarships) = the true cost of college.

Planning becomes even more complicated by the fact that the EFC can go up or down every school year. A family cannot plan to pay the same amount in year one as they will in year four and often the cost of college goes up due to increased tuition and less financial aid available.

This is why is it is important to do the work on the front end when looking at colleges. Understanding what is truly available and getting an idea of your potential EFC is are both necessary to plan effectively.

Nothing is obvious though and families should be very careful when trying to determine exactly what the damage is going to be for their student’s education.