More on Expected Family Contribution (and a "Black Hat" tip)

In a previous post, I started to discuss the main factors that comprise Expected Family Contribution (EFC), the Department of Education’s formulaic way to determine how much you can afford to pay for one year of college.

Today I want to round out the discussion.

Although income and assets are the main factors people focus on when discussing eligibility for financial aid, parent’s age and number of kids in college are also important factors in the EFC formula.

The older parent’s age affects the Asset Protection Allowance and the Income Protection Allowance. Each allowance represents an amount that is not “penalized” under the formulas.

The income protection allowance shelters, or exempts, a small amount of income (usually $17,000-$28,000, depending on factors such as family size, number of kids in college, among others).

The Asset Protection Allowance exempts a certain amount of assets held by parents.  Here’s an example.  A 48 year old parent can have approximately $48,000 of assets in his own name without it boosting his EFC.  (It’s roughly – not precisely – $1,000 per year of the older parent.) Every dollar above that limit is penalized, or assessed at 5.64%.

So if this parent has $148,000 in his name, his EFC will increase by $5,640 (5.64% of 100K, not 5.64% of 148K).

Another parent is 60 years old.  His Asset Protection Allowance is approximately $60,000.  So if he had $148,000, he would be assessed on only $88,000.

The public policy behind this rule seems to be that, the older you are, the less you should be expected to contribute to college.

This, along with the rule that exempts retirement assets from the formulas, are two, well-conceived aspects of the financial aid formulas.

Before you get too excited, however (and honestly, who could blame you?), I want to remind you that your contributions to your retirement plan in the “Base Year” – commonly the year before your child enters college – are considered income and is added to your Adjusted Gross Income for financial aid purposes.

So once the money is in the retirement account, it’s exempt (you “save” the 5.64% penalty), but you’ll “pay” a higher price – up to a 47% income penalty – when you contribute.

Last comment:  there is no Asset Protection Allowance for child assets, they are penalized from the first dollar, at 20%.

One strategy my clients and I consider frequently is whether it pays to shift assets from a child’s name to a parent.  It’s compelling, since we’re really talking about reducing a penalty from 20% to 5.64%, or even zero (if the client assets are under the Asset Protection Allowance).

Consult an expert, because you have to factor in potential penalties involved with moving child assets.  (I offer free 20 minute phone consultations, six slots per week, and comprehensive consultations for $450.)

The last factor I promised I’d mention is number of children in school.  This is a significant consideration, because an additional child in college will cut your EFC dramatically.

Let’s say you have one child in college, but another one in high school, two years younger.  In your older child’s sophomore year in college, your EFC is $30,000.

The following year, your income, assets and so forth stay the same. But now you have two children in college.

Your EFC will be approximately $15,000, or 50% of when you had only one child in college. in other words, you’ve doubled your eligibility.

Here’s a sneaky strategy that a handful of my clients consider each year – enrolling a sibling in community college.

My client, Martin, had a son who wanted to transfer to Boston University, but was awed/disgusted by BU’s price tag.  With an Adjusted Gross Income in the mid $200,000 range (this may sound like a lot of money but it doesn’t go too far on Long Island), BU would laugh his financial aid application out the door.

However, Martin’s college-bound kid had two siblings – an older sister and a younger brother.

The older sister had attended college before, but was taking time off for personal reasons.

The younger brother was still in high school.

My suggestion:  enroll the daughter in a local state university, and the younger, high school-aged brother in a community college.

These moves had the effect of dropping the Estimated Family Contribution from $60,000 to a more manageable $22,000, practically tripling his eligibility.

Is this strategy fail safe?  Of course not.  BU had every right to ask questions about where the siblings were attending college, and it did.

But when the dust settled, Martin received a need-based award of $11,000 per year.  Not too shabby!

Andrew Lockwood, J.D.
Lockwood College Consulting
497 South Oyster Bay Road
Plainview, New York 11803


Please, forward this information to your friends/family members/co-workers with college-bound teens.  They’ll thank you!




None of the ideas or strategies in this or any communication should be construed as specific, personal advice. The ideas expressed herein are general in nature, not specific to the reader’s situation. Some of the strategies or tactics may not work as well as the examples referenced herein.  Others may work better than what was described.  Please seek an independent tax or other adviser’s opinion.

About Andy – Andy is an attorney-turned-“late stage” college finance and admissions consultant.  Because of his own horrible experiences with student debt ($100,000 plus between Wesleyan University and St. John’s University Law School, where he was trained to write disclaimers like these!), he dedicated his career to helping other children – and parents, avoid needlessly relying on loans and otherwise overpaying for college.  See his websites for more information.