Students seeking financial aid should begin the process early to assist in determining factors such as their EFC, CSS Profile (College Scholarship Service Profile), and SAR (Student Aid Report). Each contributes to the financial aid process and is needed to measure a student’s eligibility for federal assistance.
Because the EFC is based on four main verifiable factors (parent’s income, parent’s assets, student’s income, and student’s assets) and provides for caps in asset protection, there is little that can be done to lower a prospective student’s EFC when ready to enter college.
Since a parent’s income is often the main source of the entire family’s income, students should be divested and have no or little income. Unlike parents, students are not afforded asset protection allowance. A parent’s assets are calculated by a formula that yields approximately $1,000 per year multiplied by the oldest parent’s age and is assessed at a limit of 5.6 percent (for instance, a parent that is 50 years of age and has $75,000 in college savings, the assessment would be 5.6 percent of $20,000 or $1,120.) While students are assessed 20 percent on assets, meaning a savings account holding $10,000 will be assessed $2,000.
Consequently, families should begin planning early with a 529 plan (26 U.S.C. § 529) and take advantage of the tax free savings offered and be assessed at the parent’s rate of 5.6 percent, rather than the student’s 20 percent assessment. Students with UGMA or UTMA (Uniform Gifts to Minors Account or Uniform Transfers to Minors Account) may not be able to transfer the funds to a 529 plan and families should consult a financial advisor or attorney regarding advice.
While a student’s assets are factored in at 20 percent, there is an income protection allowance that is granted. Students with an EFC under $4,617 may also apply for a PELL grant and should likewise seek the advice of a financial aid counselor.