When college students go through the financial aid process, a formula is used to determine an expected family contribution (EFC). The EFC formula is based on these inputs: parents’ income, parents’ assets, student’s income, and student’s assets. If you send your child to a college where the total cost is $25,000 and your EFC is calculated to be $18,000, the student might get $7,000 in financial aid. However, if your EFC is $10,000, the student might get $15,000 in aid.
Therefore, lowering your EFC can increase the college financial aid award to your student. In the EFC formula, students’ assets are assessed at 20 percent. If a student has $24,000 in assets, for example, $4,800 (20 percent of $24,000) will be counted towards the EFC for the coming school year.
On the other hand, parents’ assets are assessed no higher than 5.64 percent. If you were to hold that $24,000 in assets in your own name, only $1,354 will count towards the EFC. In this hypothetical example, the student’s financial aid might be increased by $3,446: the difference in between $4,800 and $1,354. Consequently, saving for college in the parents’ names may increase your family’s financial aid award.
