By Gerna Benz
Special to the Herald
College loan debt is ranked second in all consumer debt, second only to mortgages. The outstanding student loan debt is nearly $1.3 trillion and continues to grow and there are 7 million borrowers that are currently in default of their student loans. The importance in knowing these figures is to help motivate parents and students to learn proactive strategies that they can employ in their own college planning endeavors. For over 12 years, we have been teaching parents that in choosing a best fit college for your student, everything is related to everything. This mantra means – depending on the academic merit of your student, will determine the possible admission to a school, which will determine the possibility of scholarship consideration, which will determine the final gap in the cost of attendance a parent will need to pay to send their student to that school.
The most important piece in solving the cost for college puzzle is to “know your number.” Parents can use multiple resources in determining what their number is. When we refer to “knowing your number,” we are referring to a family’s expected family contribution or EFC which is a dollar index the government imposes based on the income and asset valuations of the family household. The number is determined by a myriad variables ranging from number in household, age of the oldest parent, adjusted gross income, number in college and much more.
Many of the college websites will have calculators you can use to determine what your expected family contribution is at that school. It’s also imperative to know what methodology the college uses in computing your EFC. For example, more than 2,000 universities subscribe to the Federal Methodology which assesses more income, less assets. On the other hand, only roughly 400 universities subscribe to the Institutional Methodology which assesses more assets, less income. A family’s financial profile has a huge impact on what schools they should consider since many times it’s less expensive to go to a $65,000 private university than a $20,000 public university.
A bar napkin example in computing your EFC is relatively simple. For every dollar of adjusted gross income, roughly 20 percent is assessed in computing your EFC and for every dollar of non-retirement assets above your asset protection allowance, 5.64 percent is added on top of your income index. Know your number and reduce your overall cost for college!
If you would like more information, please register for our College Funding Workshop being held at the Benicia Library Wednesday Oct. 11 from 6:30 p.m. to 7:30 p.m. The library is lcoated at 150 East L St. Please call 510-686-7979 ext. 2 or sign up at firstname.lastname@example.org.
Gerna Benz is a college planning specialist with Bay Area College Planners.