Flaws in FAFSA contributions
The gap between the family contribution and what the average middle-class income can afford is widening
Calculations don’t accurately reflect what middle-income families can afford.
Like millions of other parents, Julie Phipps filled out the federal form last November that determined her collegebound daughter was eligible for financial aid. She also learned how much the federal government figured her family could contribute to the bill: $14,000.
That figure, known as the expected family contribution, was generated immediately after she completed the Free Application for Federal Student Aid, or FAFSA. But with every dollar from their solidly middle-class income already accounted for, Phipps, 53, said she and her husband, Andy, were stunned at what they were expected to pay.
That was just the start.
The real shock came later, when they learned that the expected contribution was only about half of what their daughter’s chosen school expected the family to pay. “If we were paying our expected family contribution, we would be thrilled,” said Phipps, of South Portland,
Maine. “But we are paying twice our expected family contribution, so it means absolutely 100 percent nothing.”
Now that the latest FAFSA is out — it became available
Oct. 1 — millions of families are plugging in their numbers. The form is the first step to unlocking any potential federal financial aid, including grants, loans and work-study jobs, as well as aid from states and some colleges.
But it also generates their expected family contribution, or EFC — a number that can easily be misleading. It’s often higher than many households can afford, and yet in many cases, like the Phipps family’s, it’s still not enough.
“For a long time, there has been this growing chasm between the need-analysis formula and accurately reflecting a student and their family’s ability to pay for college,” said Justin Draeger, president of the National Association of Student Financial Aid Administrators, which has members at nearly 3,000 schools.
The gap has grown wider not just because of the exponential rise in college prices, but also because of the EFC formula. The formula, which stretches across 36 pages, often assumes families have far more income available to pay for college than they actually do, financial aid experts said, particularly in high-cost areas. The reason lies in its basic assumptions: that a family of four, for example, can subsist on less than $30,000, no matter where they live.“Students have a lot more need than we are recognizing,” said Eddy Conroy, an assistant director at the Hope Center for Community, College and Justice at Temple University. “But the system isn’t really capturing that properly.”
Colleges use the EFC to determine a student’s financial need — the difference between the college’s cost of attendance and the family’s expected contribution. Then, schools come up with a financial aid package. (About 400 schools, mostly private colleges, also use another formula, known as the CSS Profile, to determine institutional aid.)
But unless a student attends a college that promises to meet 100 percent of his or her need — and the vast majority do not — students and their families will probably pay more than what the FAFSA estimates.
Phipps and her husband agreed that an art school would be the best fit for Isabella, who wants a career in animation. Specialized schools can be expensive, even when they’re public: The cost of attendance at the school where she’s now a freshman, the Massachusetts College of
Art and Design, was about $55,400 for out-ofstate students. A program offering a discount to New England residents knocked the price down to a bit over $47,000. A $14,000 expected family contribution meant the Phippses were eligible for an aid package of about $33,000.
They got $16,700 — a $10,200 grant from the college, $1,000 for a workstudy program and $5,500 in subsidized and unsubsidized federal loans, the maximum for first-year students.
That left a hole of roughly $31,000 — or about double their EFC.
“We basically have given her every ounce, every bit of savings,” Julie Phipps said.
She said their daughter was a dedicated worker and saved $5,000 by working at a movie theater, which went straight to school costs. And Andy Phipps, who works as a contract specialist for an insurance company, took a second job driving a limousine at night.
Julie Phipps does not work but receives disability because of an autoimmune disorder, and she dipped into their emergency fund two years ago to cover medical bills from a mastectomy. The couple took out a home equity line of credit to cover other unexpected expenses that may arise, like the $6,000 in braces they just learned their 13-yearold son needs.
The EFC calculation does not take all of those kinds of expenses into account (though colleges can be asked to consider special circumstances) nor does it adjust for the cost of living in different areas. And its assumptions for the costs of food, clothing and shelter are unrealistically low for even the cheapest places in the country.
For a family of four, the so-called income protection allowance — or the amount shielded from the formula — is $29,340. For a single parent with one child in college, it’s a mere $19,080.
“It’s a very harsh assessment of the ability to pay,” said Mark Kantrowitz, a financial-aid expert and publisher of Savingforcollege.com. “The assumptions they are using to calculate all of this have no connection to reality.”
The income protection allowance is subtracted from the family’s adjusted gross income, along with some other items (like taxes), while other items are added back (retirement savings contributions, for example). The final figure is the family’s so-called adjusted available income.
Using a progressive table similar to tax brackets, the formula assumes parents should dedicate anywhere from 22 percent to 47 percent of that amount to college costs each year. Many middle-class families and above are assessed at 47 percent.
(Families earning less than $26,000 a year can qualify for an “automatic zero” EFC, if they meet certain requirements.)
The formula also considers parents’ and students’ assets — and some allowances have actually become less generous over the years. Retirement savings and home equity are excluded from the federal formula, but the amount of other savings that parents can shield has plummeted over the past decade.
Take, for example, a 48year-old parent, the median age of a person with collegeage children: That parent was able to shelter $52,400 from the formula in 2009-10; now, the parent can shield only $6,000. Kantrowitz said that meant a parent with at least $52,000 saved would have an EFC that is about $2,600 higher now than a decade ago.
House Democrats proposed several tweaks to the needanalysis formula in a giant bill introduced last month, which would update the Higher Education Act of 1965 for the first time in a decade. The bill would enable more families to qualify for an EFC of zero by increasing the income threshold to $37,000 from $26,000.
The bill would also shield more of a student’s income from the formula, according to aides for Rep. Robert C. Scott, D-Va., chairman of the House Committee on Education and Labor. But parents with dependent children wouldn’t receive anything extra when it came to sheltering income.
Adjusting the federal formula, however, goes only so far. Even if families’ expected contributions decrease, the gulf between that figure and the cost of attendance will only widen.
“It will not be enough to just get the formula right,” said Jessica L. Thompson, director of policy and planning for the Institute for College Access & Success, a nonprofit advocacy group. “To truly bring college costs within realistic reach will require much broader federal investments in financial aid and in public colleges.”