Funding college can be a life-long journey filled with long-term impacts. In an effort to reduce debt, parents rely on financial aid to fund their student’s college as much as possible. Filling out the FAFSA can be confusing and nerve-wracking. Parents often turn to College Careers Consulting for advice about which personal and student assets affect FAFSA.

We asked our Financial Expert, Adam Sarno, to help us understand how student versus parent assets are calculated when applying for FAFSA.

Q: What is EFC?

EFC stands for Expected Family Contribution. It is the amount a family can afford to spend to fund their student’s college according to the government.

Q: What percentage of assets are counted towards the EFC amount?

20% of assets/accounts owned by the student and up to 5.6% of unprotected assets/accounts owned by parents are counted towards EFC.

Q: Can you give us a breakdown?

What’s counted (unprotected) in EFC:

  • Equity in secondary OR investment property (Parent asset)

  • Cash/Cash equivalents such as checking/savings accounts (Parent and/or student asset)

  • UTMA/UGMA accounts – 20% of assets counted towards FAFSA (Student Asset)

  • Interest, dividends, capital gains from mutual funds/UTMA/UGMA accounts owned by the student are counted as student income and assessed at 50% (Student Asset)

  • Mutual Funds (Parent/Student asset held in non-retirement accounts by parents or students)

  • 529 College Savings Plans (Parent asset) – up to 5.6% can count

What’s not counted (protected) in EFC:

  • Retirement Accounts

  • Equity in the primary home

  • Family-owned businesses – (If the business is less than 100 employees AND 50%+ owned by the family)

  • Cash values of insurance policies and annuities

  • Assets owned by others (i.e. 529 owned by grandparents) Please note: Advance planning is needed when grandparents pay for college from 529

Q: What are your thoughts about parents who tap into their retirement fund their student’s college?

Any time people tap into their retirement savings there are a lot of long-lasting negative impacts. It’s really something that can be avoided by financial planning early on and defining realistic goals, for both, retirement and paying for their children’s education.

Q: In your opinion what is the best way to fund college without going into debt?

As you know, I’ve found the 529 to be a great savings vehicle and something I discuss with everyone who has the goal of paying for their children’s or grandchildren’s college.

Q: Often parents are worried that a 529 plan can negatively impact their student’s ability to get financial aid. Thoughts?

The fact is that in most cases, a 529 plan will have a minimal effect on the amount of aid a student receives.

Adam Sarno is a financial advisor at Merrill Lynch Wealth Management.

Want a complimentary financial plan & educational analysis? Contact Adam at: 847-605-4434

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