Have you ever really looked at the financial aid formulas?

Colleges are always talking about how they meet demonstrated need, either through grants or loans, but no one ever talks about whether the calculation of “demonstrated need” is a credible one or not.

It all hinges on the Expected Family Contribution — if you’re just out of high school, your family is expected to provide a significant portion of your tuition and expenses.  How much?

In case you’ve been wondering, here are the official federal financial aid formulas for the “expected family contribution”.  Here’s the math:

First, parent’s income:

The AAI, or total parents’ income (including contributions to 401k) less deductions for federal, state, and Social Security taxes and an “income protection allowance” which presumably represents basic living costs — 29,740 for a family of 5 with one college student, and a range of 16 – 35K for family sizes of 2 to 6 — is multiplied by a set of marginal rates much like the tax table rates:

AAI up to $14,600 — 22%
thereafter up to $18,400 — 25%
up to $22,100 — 29%
up to $25,900 — 34%
up to $29,600 — 40%
above $29,600 – 47%

Second, parents’ assets:

total all assets except for the house and pension savings (this differs for some private colleges, who add in home equity), subtract an “asset protection allowance” (ranges from $46,600 at age 50, $53,400 age 55, 71,000 age 65), and multiply by 12%.

Third, student’s income:

total income less tax allowances and a 6,000 “income protection allowance” multiplied by 50%.

Fourth, student’s assets:

total assets times 20%.

Which all means that it feels very easy for a middle-class family that saves diligently to reach a very high EFC, without actually having enough assets and income to feel comfortable forking over that much for college.  In some cases, the family will suck it up and take out supplemental loans; in other cases, no matter what the calculator tells them they can afford, they’ll just decline to fund the kid’s tuition, and that kid then has no recourse — financial aid offices have little to offer but the business card of a private loan officer, since subsidized loans (or even guaranteed loans, I think) are only available to cover “demonstrated need.”