Financial Aid - How it works- What You Should Do

No one wants parents to go broke sending their children to school or have students graduate with enormous debt.

Most schools are non-profit institutions whose primary mission is to educate students. They realize that tuition costs are out of reach for most families and more and more students need financial aid.

Even though every school awards some percentage of their student body financial aid, the financial aid system is rigid, complex and counter intuitive. It takes a lot of planning and determination to achieve the desired results. You must conform to all the deadlines and application requirements. It is up to you to bend to the system and organize your finances to your advantage. The earlier you start preparing, the better the results.

The first questions most parents want to know is, do we qualify?

It is imperative for parents to know, before they apply for a tuition reduction, what the financial aid system will calculate their capacity to be. The term for this critical piece of information is your ESTIMATED FAMILY CONTRIBUTION or your EFC. This is the number calculated by a third party, hired by the school, to determine which families applying for financial aid meet the school’s qualifications for a tuition reduction. Learning how that number is calculated and what things you can do to affect the result can have huge benefits. It is important to appreciate that in the end it is a person, or committee, that decides how much financial aid to award, not a computer. The EFC is just a benchmark; the goal is to have the financial aid committee understand how much you really can afford to pay.

A financial aid supported tuition is the only transaction where you must expose all your resources before they tell you what they will charge you. Your EFC is the key driver in the process. Every school will require an EFC calculation before they offer an award. 

The third parties that provide this service are:

For colleges;

FASFA (Free Application for Federal Student Aid

CSS Profil

For elementary and high schools;




They all require parents to fill out a detailed questionnaire, which includes income, and asset information. They run all the data through their formula to calculate your EFC.

The formula is complex with over 18 variables all affecting the results differently. For discussion purposes, let’s look at the four most basic and significant components: Parents Income, Parents Assets, Student Income and Student Assets.

Each component is weighted differently

Parent’s Income (AGI) - on a sliding scale from 14 % to 47%

Parent’s Assets @ roughly 6%

Student Income at 50%

Student Assets at 25%

Knowing just this much can help you organize your finances to your advantage.

Generate the lowest possible Adjusted Gross Income (AGI)

Minimize any assets or income in the student’s name.

It is important to realize that your EFC is for the whole family. Therefore, it is advantageous to have more than one person in the family attending college at the same time.

The other question parents often ask is, if they indicate that they will be applying for financial aid, will it affect their child’s chances of being accepted?

The answer is maybe. It depends on the school’s capacity to adjust the tuition. The key question is; can you afford to pay the full cost? If not, then it is very important that you say so from the beginning. The process is much more difficult and potentially less successful if you apply for financial aid after being accepted.

If you read a school’s mission statement, you will find that most schools want to build a diversified community, which includes economic diversity. Most schools also aspire to having a ‘need blind’ academic acceptance policy. This means that the schools with large endowments, often the ones with the highest tuitions, have the means of adjusting the cost of attending in order to accommodate a broad range of capacities to pay. It may be less costly for a middle-income family to send their student to a school with the highest tuition.

It is useful to know that the academic application process is independent of the financial aid process. The academic application is a one-time event but financial aid must be applied for every year They are two different departments. Once a school decides to accept a student, they send the file to the financial aid office to determine what can be arranged with the parents to cover the cost of attending.

Once you know your EFC, you will have an idea if you are eligible for a tuition reduction. If not, you will have to plan to cover the full cost of attending on your own.Either way, when confronting these high tuition costs for the first time, parents realize it is time to start some real financial / retirement planning.

Financial aid strategies are primarily retirement strategies. The objective is to survive the ‘education widow’ having preserved what you can for retirement.

Taking the time now to think about how your assists are allocated will affect your financial aid eligibility and your resulting retirement savings. Life Insurance policies and remortgaging of real estate before starting the financial aid process are legitimate strategies for protecting your retirement. It is worth noting that even though 529 Tuition Savings Accounts provide a useful tax strategy (by providing interest free growth) they can be detrimental to getting financial aid because they are consider a parent asset.

If this article generates more questions than answers for you, please do not hesitate to reach out for clarification. We are here to help, advise and support.

Let no child be denied and education because of money

Pierre Jospé


Here are some links to additional resources and articles.

Maximize Your College Financial Aid by Thomas P. Brooks


The Middleclass financial squeeze

News & World Report

Financial Aid Navigator website