Paying for College 101: What Will Your Family Contribution Be?

This is the fourth post in a series entitled “Paying for College 101: What You Need to Know about Financial Aid” by Myra Baas Smith, Executive Director of Financial Aid Services at the College Board.

The time has come to talk about the most misunderstood element of financial aid – the “family contribution.”  The “family contribution” – sometimes called EFC (expected family contribution) – is not what you may be able to contribute to the cost of college, what a school believes you will be able to contribute, or even what you will actually end up paying toward the cost of college.

The family contribution is actually a derived value that compares your ability to pay all or part of the cost of college in relation to all other families just like yours as well as those with more resources and those with less. The calculation is then used to award financial aid based on your relative need for assistance with paying for college.

The family contribution calculation assumes that the family has the primary responsibility to pay for college expenses and is composed of two basic elements: a parent contribution and a student contribution.  Each amount is derived from information provided by you on your financial aid application.  This includes information about family income, assets and expenses, in addition to other factors such as the size of your family and the age of the parents.  All of these elements go into determining the relative financial strength of your family.

When you file a FAFSA, the information is used to calculate a federal EFC that determines your eligibility for federal grants and loans as well as many state financial aid programs.  Financial aid eligibility for college-funded aid may also be based on the FAFSA data, or may be based on information provided on the PROFILE or an institutional aid application.

Financial aid professionals can talk for days about the methodology used to calculate a family contribution.  I’m not going to do that here.  Instead I am going to highlight what you need to know about the family contribution – and that is actually pretty simple.

• The family contribution is the amount a family can contribute based on the analysis of data you provide on the FAFSA or the PROFILE.  As noted above, it is a starting point for determining an aid award, not the actual end result

• The calculated family contribution is for one year of college.  To know the full cost, you need to multiply, not divide!

• Calculation of a family contribution is normally used to award “need-based aid” rather than aid based on merit criteria.

• The family contribution used to determine eligibility for federal aid, such as Pell Grants, should be the same at every college.  When it isn’t, it is probably a factor of timing in the process of verifying application information.

• The family contribution used to determine eligibility for college-funded aid can vary from college to college.  This is because colleges may use different applications and calculations.  Some colleges may choose to include all or part of a family’s home equity in their calculation or they may factor in additional expenses a family has for medical or dental care. Some may expect the student to earn money over the summer to put toward college costs, and others may not.

• Even if the family contribution is the same, each college’s aid award will probably differ, based on the cost of the college, the aid available, and the college’s awarding policy.

• Not all colleges will tell you the family contribution figure in an aid award letter.  They don’t do this to hide something from you, but rather to help you focus on the financial aid derived from that calculation and how it affects your actual net cost of college.

There are online calculators that you can use to get an idea of your family contribution.  The College Board offers both a federal and institutional methodology calculator on their website. Use these with great care—remembering that the family contribution is the beginning and not the end of knowing what you will pay for a year of college.

The concept of family contribution is so widely misunderstood that colleges will soon be required to provide information to families that discloses not the family contribution, but rather the “net price”- or what you can think of as the “real” family contribution.  The net price calculation takes the cost of attending a particular school, calculates an estimated or average financial aid award for you, and then subtracts any grant or scholarship assistance from the cost to disclose a net price/cost.  The family contribution computation is still in play and is used to build the award, but the intent of the net price calculation is to help you get an apples- to- apples cost comparison in a much more transparent manner.  You should begin to see these calculators on college websites within the next year, and I will fill you in on some of the details and functionality in a later blog.

This brings us to the fifth thing you need to know – what is included in the cost of college, and just as importantly, what isn’t.  My next post will discuss the various elements in the cost of college and how the sticker price may not be the real price.