college

College aid rules can be confusing

Don TaylorQuestionDear Dr. Don,
For quite some time, I've seen comments that for financial aid purposes, parent assets (including 529 plan money) are assessed at a maximum 5.64 percent.

However, I have looked at the expected family contribution formula and done some calculations, and I do not see 5.64 percent anywhere on the parents' side of the formula -- not in the work sheets or the tables. Can you tell me how this works to get 5.64 percent? I just don't see it.
-- Brad Baccalaureate

AnswerDear Brad,
Like you, I spent some time with the work sheets and tables. It's important to note that there's actually a range of values for the parents' expected contribution from savings and income.

SavingforCollege.com, a Bankrate company, provides a nice discussion of the expected family contribution, or EFC, by breaking it down by expected student contributions and expected parent contributions, presented below:

In order to determine the investment mix that offers the most favorable impact on your child's federal financial aid eligibility, let's first look at how the formula for computing EFC works. The formula counts the following financial resources as being available to pay college expenses:

  • 20 percent of a student's assets (money, investments, business interests and real estate).
  • 50 percent of a student's income (after certain allowances).
  • 2.6 percent to 5.6 percent of a parent's assets (money, investments, certain business interests and real estate, based on a sliding income scale and after certain allowances).
  • 22 percent to 47 percent of a parent's income (based on a sliding income scale and after certain allowances).

So, parents and students are expected to contribute to college costs from a combination of savings and income in determining the EFC. It's the difference between the costs of attendance and EFC plus resources that provides the estimate of the student's financial need.

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