<p>Just wondering. It's certainly easy to manipulate checking account and investments on your FAFSA- just liquidate and cash out. It's much harder to 'massage' salary and compensation, which leads me to believe that the EFC is calculated more on salary. Is this true? Also, is there any adjustment for a high cost of living area?</p>
<p>Pardon my elementary questions...I'm in shock at how high our EFC is! :(</p>
<p>Liquidating assets still leaves cash, which is reported just like any other asset (checking, savings, brokerage account) on FAFSA. There’s no net difference when “cashing out” a reportable investment.</p>
<p>Having said that, the formula is fairly straightforward. There’s an income protection allowance that’s dependent on number of household members and students in college. There are allowances for taxes and social security. The allowances are subtracted from AGI to determine available income.</p>
<p>For parental assets, again there’s an asset protection allowance that’s dependent on the age of the older parent, above which 5.6% of the asset value is assessed to compute the parents’ contribution from assets.</p>
<p>Income normally has a much greater effect on EFC than assets.</p>
<p>Here’s the formula: <a href=“http://ifap.ed.gov/efcformulaguide/attachments/111408EFCFormulaGuide0910.pdf[/url]”>http://ifap.ed.gov/efcformulaguide/attachments/111408EFCFormulaGuide0910.pdf</a></p>
<p>Everyone is suprised by the EFC. It isn’t what you think you can aford it is just a formula to give out limited money. The formula is heavily based upon on income. Once you get by a couple of allowances (base number, income taxes, SS) they take about 45-47% of all income above that number to be used in EFC. Assets work the same way, there is an allowance based upon age. The balance is included as vballmom stated (5.6%)</p>
<p>minimomx3 – you are not alone in being shocked by your EFC. vballmom is right, it won’t help to liquidate and cash out your assets because you’ll still have the money somewhere that you will have to report.</p>
<p>I can’t verify this but I have heard that the calculation does not do a good job of taking into account cost of living.</p>
<p>The calculation doesn’t include cost of living at all; it’s simply not a factor for FAFSA. The link I gave above will answer all these questions and more.</p>
<p>FAFSA always reminds me of the joke about the simplified IRS tax form:</p>
<ol>
<li> How much did you make?</li>
<li> How much do you have left?</li>
<li> Send it in.</li>
</ol>
<p>
Oh dear. Then you are left with a capital gain that increases your income as well as capital gains tax.</p>
<p>vballmom – I meant to thank you for the link in my earlier post. I’ve been looking for it.</p>
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<p>Not really, who wants to liquidate investment that are doing well, real estate that’s been in their family, etc? People talk about paying down their mortgage which turned out to be a bad strategy for many who thought they’d easily get second mortgages if they needed the cash.</p>
<p>Then there’s the issue of what to do with the liquidated cash. Keep it in a safe deposit box making no interest and lie? </p>
<p>I think most, therefore, make peace with sending their kids to colleges they can afford.</p>
<p>
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<p>There’s a mutual fund being sold on the cheap called Madoff Securities. I really think it might be a real moneymaker, and it’s all perfectly legit!</p>
<p>Keep in mind that all the formulas assume you have been saving for college, so your EFC is to be paid out of savings and income. If you have not saved don’t expect to be awarded more aid.</p>
<p>mimimomx3, you can always try running a FAFSA estimator with just salary, ignoring your checking account and any countable assets (i.e. not including qualified retirement accounts like IRAs or 401ks). Most parents report that their EFC is 25-33% of their pretax household income.</p>
<p>And yes, we were in shock as well the first time we saw the number. Surely this must be for all four years, we thought in our innocence. Take heart in that you’re not alone.</p>
<p>*And yes, we were in shock as well the first time we saw the number. Surely this must be for all four years, we thought in our innocence. Take heart in that you’re not alone. *</p>
<p>Thanks- for some reason that does make me feel better!</p>
<p>I echo the sentiments of those who were surprised by the EFC on the FAFSA. As an older person (61), I would have thought that would provide more asset protection when calculating the EFC. however, it appears that pre-tax income is the determining factor, and 30% of pre-tax income was right where the EFC number fell.</p>
<p>*As an older person (61), I would have thought that would provide more asset protection when calculating the EFC. *</p>
<p>LOL…It probably figures that you’ve had 40 years to save for your future kids’ college. </p>
<p>It’s always shocking, and there’s nothing really to gain by “massaging” much. Once you’re past any free money (for lowish incomes), expect loans in your FA packages unless your child goes to a no-loan school or a school that gives out many grants.</p>
<p>We knew our EFC would be ridiculous, so we looked for great merit scholarships. Now we can help our kids with med school and law school.</p>
<p>^^^ I feel your pain. Our EFC is also high and obviously based on pre-tax income. They seem to expect us to buy the equivalent of a NEW car every year for the next 4. It’s outrageous.</p>
<p>Hopefully, your child applied to a couple “financial safeties” because in this economy I don’t think any of us is sure what those financial aid letters will say come spring.</p>
<p>. . . . “I feel your pain.” Yes, given this economy, middle to upper-middle income families must make some smart choices. Our S has applied to some financial safety schools and has already been accepted at University of Pittsburgh in our home state. He would prefer other, more expensive out-of-sate private schools, which he is waiting on. It’s a real challenge for families to balance the right fit for students with the financial realities so many people are facing.</p>
<p>^^^</p>
<p>Glad to hear that your son has some financial safety schools. :)</p>
<p>Did he receive any merit scholarships from any of his schools?</p>
<p>Yes, S has received some merit-based aid from some of the schools to which he has been accepted. There are a few other schools that we are waiting on, including 2 or 3 he is really interested in (Rochester, Oberlin, Emerson College)</p>
<p>^^^</p>
<p>I think Rochester can be quite good with merit money. However, realize that merit money doesn’t reduce EFC. Merit reduces loans in the FA package. A merit scholarship would have to be quite large to exceed the need and help with EFC.</p>
<p>For instance, if the FA package includes a $10k Plus loan (or a $10k gap) and your child is given a $10k merit, the school would replace the plus loan (or gap) with the merit.</p>
<p>^^^</p>
<p>I probably wasn’t too clear in my explanation above. Perhaps others could better explain.</p>