As I covered in Part 2, you now know the steps involved in figuring out your college selection process, and your selected college will drive how much you have to pay. Now we’re really going to dig into #2 here today, how much colleges think you can pay, and what are the components in how they come to that conclusion.

Let’s start with a vocabulary lesson. Just like taxes, the words used are important, and a vocabulary all their own.

Vocabulary word	Explanation
COA, Cost of Attendance	A college’s sticker price. Just like at the car dealer, don’t think this is what you have to pay. But unlike the car dealer’s, haggling usually isn’t the answer.
EFC, Expected Family Contribution	What colleges think you can pay annually. Usually feels like way more than is feasible. Different possible formulas are used, based on the school you applied to.
SAI, Student Aid Index	What the EFC, Expected Family Contribution, will be called as of the 2022 FAFSA, which is for college students for the 2023-2024 academic year
Need	How much a family’s EFC is less than a college’s COA. COA minus EFC
Merit-Based Scholarship	A discount based on good academic performance, as measured by standardized test scores (SAT/ACT), and GPA.
Net Cost	Cost of Attendance minus Grants and Scholarships

Each college has their sticker price, their cost of attendance. Just like at the car dealership, your goal is to pay less than sticker price.

Your expected family contribution, the amount of money colleges think you can afford, is generally based on four different categories:

1. How much the parents have for assets
2. How much income the parents make
3. How much the student has for assets
4. How much income the students make.

You’d think that, if you saved more money ahead of time, you’d be in good standing to pay for your child’s college. Or because your student earned more money, they would be better off. But because colleges count income and assets on a sliding percentage based scale, your family can actually find itself calculated as being able to hand over up to 50% of that additional income, or 20% of saved assets, PER YEAR. And if those assets are in a trust for the child, such as a life insurance payout from a deceased parent that is not available for cash flowing college because it’s locked until say age 35, they will still be assessed at 20% per year on the value of the trust.

Now, suppose your student did well in high school, and earned a $3000 dependent scholarship through your employer. You’d think that counts for your side of the ledger, right? Money the student earned should count towards what you’re contributing? Sorry to disappoint, but that’s not how it works. Any and all scholarships the student earns count towards the college’s side of the ledger, reducing how much financial aid they offer.

Now that I’ve shown you that it’s not an intuitive process, I’m afraid I have to make it worse. There are actually 2 formulas, the Federal formula from the FAFSA, and the Institutional formula from the CSS Profile; and a 3rd general category from a number of high profile private schools where each school creates its own unique formula. Fortunately most schools use the FAFSA, and you can find a list of schools that use the Institutional formula here.

Thankfully, I do have some good news. There is some financial relief in the form of the expected family contribution being split among the family members, any year multiple family members are attending college simultaneously. This means if you are calculated to be able to afford $50,000/year, and you had two kids 2 years apart, then your payment would look like this:

School year	EFC	Child A	Child B
2015-2016	$50,000	$50,000
2016-2017	$50,000	$50,000
2017-2018	$50,000	$25,000	$25,000
2018-2019	$50,000	$25,000	$25,000
2019-2020	$50,000		$50,000
2020-2021	$50,000		$50,000
Total paid	$300,000

Instead of being expected to pay $50,000 * 4 * 2 = $400,000. Literally a $100,000 after-tax savings, simply by having spaced your children close together. The bad news? This part is going away, see the section at the bottom with the upcoming changes.

Unfortunately, while you can calculate your family’s EFC through the Federal (FAFSA) or Institutional (CSS Profile) methods, that’s still not the whole picture. Colleges also have a range of percent of need that they will meet with scholarships (which don’t have to be paid back) instead of with loans (which do have to be paid back). For instance, Harvard is well known to be very generous when students have demonstrated need, and they aim to cover 100% of need with scholarships. Therefore it can actually be a far cheaper total cost of attendance for a family of lesser means to have their child attend Harvard, than even their in-state public college of good reputation down the road. Some colleges won’t even try to meet your needs, leaving you to have to resort to private loans if you choose to attend. And many colleges are in between, offering federal loans.

There are only three ways to have an idea of how much an individual college would expect you to fund through cash or loans:

1. Scrounge through websites and call Financial Aid offices for every college your student is considering attending.
2. Work with a financial professional who has access to a database that has all of this information at their fingertips, and can even model how that amount would change through income changes, asset allocation changes, and merit indicators such as ACT or SAT score or GPA.
3. Apply to a large number of schools of varying statuses (eg not all in-state public colleges), wait until you receive the financial aid letters, and then cross your fingers one of them comes in affordable.

Changes ahead

Note: The Consolidated Appropriations Act of 2021 has made some changes to the FAFSA as of 2022, for those in college for the 2023-2024 academic year, and all of those implications aren’t understood yet. We know it includes the following:

• A re-name of the EFC (expected family contribution) to the SAI (Student Aid Index).
• The discount from having multiple students in college at once will evaporate. If your EFC had been $50k as a total for Child A and Child B in college at the same time, with the implementation of the SAI your new SAI will be $50k for Child A and $50k for Child B, or a $400,000 total college bill instead of the $300,000 in the table above.
• The FAFSA form will be simplified, especially for those families with limited income.

Conclusion

Now you know in general how colleges calculate how much they think you can pay. Up next in this series, Part 4, how planning ahead can arrange your assets so they’re less subject being included in the college funding calculations.