According to the U.S. Department of Education, more than half the students attending college get some financial aid. It may come in the form of grants, scholarships, work-study, or loans. But, in the end, the primary responsibility of covering college costs remains with students and their families … a fact very much apparent to many families now evaluating their financial aid award letters. These families are deciding how to cope with their expected family contribution (EFC), which every school computes as part of the award process, and their financial need.
Your EFC is the amount of money your family is expected to pay toward your college education for one year. The calculation is based on family income, assets, family size, and number of students in college (as reported on the FAFSA). The figure appears on your Student Aid Report.
Your school uses your EFC to determine your financial need: Financial need is the difference between the cost of attending that college and your EFC. The calculation can vary from school to school; all schools use a federally approved formula but some also use institutional formulas to calculate EFCs. If the cost of attendance is $15,000 and your EFC is $5,000, your financial need is $10,000.
If you're faced with a daunting EFC, what do you do? If you have any special circumstances that might affect your ability to cover your contribution (e.g., a layoff, disability, or other unanticipated expenses), talk with your financial aid officer immediately and discuss your options.
Fortunately, the formula that determines your EFC does not assume you have your contribution sitting in the bank (or under your mattress). Simply put, it is the amount you should be able to pay. And there are many ways you can do it. But some methods make more sense than others.
For example, borrowing to cover your EFC may be more financially sound than using retirement funds, depleting savings accounts, or running up credit card balances. Currently, the interest rate on a new Federal PLUS Loan (a loan for parents who wish to borrow for their undergraduate children) is fixed at 8.5%.
Some parents may find the repayment terms on a Federal PLUS Loan as appealing as the rate. The yearly borrowing limit is equal to the cost of attendance minus other financial aid received—making it a low-cost option that can cover your entire EFC. With flexible repayment options and up to 10 years to repay, this loan can minimize the impact on your monthly budget. For more information, check out the Lifecycle of a PLUS Loan or pre-qualify for a PLUS Loan now.
If you can manage your EFC, your financial aid office can help you afford even the most expensive college.