The government uses an antiquated family budget, and no regional cost of living adjustments
"Where do they think we'll get this money from?"
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.
Those who have investigated exactly how the government calculates the EFC say there's a reason: The formula is so unrealistic and so old -- it's loosely based on a family budget from 1967 -- that it isn't surprising that many 21st Century families are flabbergasted.
Although the number the government computers calculate is called the "Expected Family Contribution," that turns out not to be the amount most families have to spend on their children's college. Colleges can and do calculate their own versions of a family's EFC. But the federal EFC is important because it determines who gets federal financial aid such as Pell Grants and low-interest student loans, as well as many state, community, and private scholarships. And many colleges use it as a starting point before determining each student's financial aid package, which results in his or her own unique net price of attendance.
For the 2010-11 academic year, the government will give an EFC of $0 and the maximum Pell Grant of
That means a middle class family of four with an adjusted gross income of about
Many financial aid administrators defend the stingy EFC formula, saying neither schools nor governments can afford to give aid to students from families who haven't saved for college because they've chosen to spend on things like bigger-than-necessary houses, new cars, or iPhones.
But independent financial aid analysts say three government EFC policies can penalize even frugal families:
1. Outdated budget estimates.
2. No regional adjustments.
The government doesn't account for the different costs of living in different cities.
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
Making the EFC even harsher is the grim reality that most colleges, especially public universities, don't have enough grant money these days to ensure that every student only has to pay the official EFC. Students fill those financial gaps with loans, extra work, or "merit aid," such as scholarships awarded because of grades or special skills.
Federal officials note they have made some improvements to the EFC in the last couple years by, for example, raising the ceiling for the amount a student or family can earn and still receive an EFC of $0 from about
In addition, in 2009, the government told colleges to lower the EFCs of students who appealed for extra aid because they had expenses or family problems that weren't accounted for in the standard form, such as unusually high medical expenses or the loss of a job.
And since colleges are free to calculate their own EFCs for their own aid money, some colleges (generally elite, wealthy universities) give enough scholarships to ensure that some students -- especially those with top grades or other special talents -- pay less than their federal EFC.
The government has also ordered colleges to post on their websites "net price calculators" so students and parents
can estimate how much they are actually likely to pay. Many colleges, including
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