Why does the EFC come as a shock to many parents?

by Grace

Parents who fill out the Free Application for Federal Student Aid, or FAFSA, are often shocked by how much the federal government thinks they can afford to pay for college when they receive their official “Expected Family Contribution,” or EFC.

According to Kim Clark at USNews Education, some fundamental aspects of the federal formula for calculating the affordability of college are the reason for the shock.

1. Outdated budget estimates. The Education Department bases its estimate of what families can afford today on a government budget for a “family maintaining a lower standard of living” in 1967. That budget has been adjusted for inflation every year. But it has not been adjusted for changes in family spending patterns. During the 1960s, fewer wives worked, for example, so families spent much less on child care. The antiquated budget also can’t account for modern technological expenses such as cell phones, computers, or internet access.

2. No regional adjustments. The government doesn’t account for the different costs of living in different cities. The Council for Community and Economic Research, which produces widely used data for tracking cost of living, estimates that living in New York City, for example, costs more than twice as much than living in, say, Pueblo, Colo. Yet the federal government assumes Brooklyn, N.Y., families paying, say, $2,000 a month for a three-bedroom apartment can afford to spend as much on college as similar families with comparable income paying only $1,000 for a similar home in lower-cost communities.

3. Unrealistic family spending assumptions. The government’s formula doesn’t make any accommodation for parents whose disposable income is reduced because of their own student loan bills, even though a growing number of parents are still paying off their own student loans as their kids enter college.

These policies mean the EFC is “at best, a very harsh assessment of families’ ability to pay,” says Mark Kantrowitz, publisher of FinAid.org. At worst, he says, it is “somewhat unrealistic…and archaic.”

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8 Responses to “Why does the EFC come as a shock to many parents?”

  1. And it’s only gotten worse.

  2. Among my least favorite people on earth are parents who refuse to fill out a FAFSA for kids who would otherwise get funding. I’ve heard that story so many times that I’ve begun to wonder if it’s not just laziness and if it might not be the case that these parents have some sort of funny business going on with their federal income taxes, for instance, not having filed for a number of years.

  3. Amy, I think part of it is the common misconception held by many parents that they won’t qualify for financial aid. They don’t think they’re “poor” enough. Another reason is probably what you pointed out, but it may stem from simply wishing not to divulge financial information for any number of reasons, not the least of which is the simple desire for privacy in that area.

    In some cases, parents understand that their kid’s chances for admission might be hurt at a need-aware college. I posted about it -“… a student who does not need financial aid may have an edge in getting accepted over an otherwise equally qualified student.” All of this can get very complicated.

    http://costofcollege.wordpress.com/2011/10/19/terminology-how-colleges-use-financial-need-in-admissions-decisions/

  4. “Another reason is probably what you pointed out, but it may stem from simply wishing not to divulge financial information for any number of reasons, not the least of which is the simple desire for privacy in that area.”

    If they are paying taxes, the IRS already has the same information on file, not to mention possible state income tax systems.

    Oh, and I particularly dislike the combination of won’t-do-FAFSA and won’t-help-pay, which is really cutting your kid off at the knees.

    That’s interesting about need-aware college admissions. Am I right in thinking that the better schools do need-blind admissions?

  5. Not necessarily the better schools, but perhaps the better schools who have generous financial aid policies that will ensure that not too many admitted students turn them down because they can’t afford the price. The schools are all thinking about their yields, so they don’t want to run the risk of bumping up number of students who decide to go elsewhere.

    The financial aid system is as dysfunctional as the whole admissions process, IMO. Some of the worst cases of won’t-help-pay are families with divorced parents, but they’re also sometimes the most egregious cases of unfair awards. Sometimes it’s easier to manipulate the numbers when a non-custodial parent is the one making gobs of money, but it may not show up in some of the calculation methods.

  6. I’ve not done the FAFSA yet (I will in January), but I have looked at some college “net cost” calculators. So far, they seem to have come up with about the same estimate of what I could pay that I came up with. Of course, my being able to pay that much is based on having saved 10% of my gross salary in a college savings plan every year since my son was born. People who bought cars or took vacations instead of putting all their spare money into savings may not be able to afford as much.

  7. “People who bought cars or took vacations instead of putting all their spare money into savings may not be able to afford as much.”

    Yup. Very few families are saving 10% of gross salary for education. In many cases, they’re choosing vacations and other types of discretionary spending instead. Of course, many middle-income families are not taking those vacations, but still cannot afford to save much for college.

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