Understanding the Financial Need Equation
If you are applying for student loans and other financial aid, then you are going to receive an awards package that is based on your needs and student loan tax benefits. When you get this award package, you might be a bit confused about what it all means and why your amount might differ from the amounts of some of your friends. The reason behind this is cause you all have different needs, and these needs are calculated by a financial need equation. The result of your personal financial situation will determine what aid you are offered.
All students who apply for financial aid are going to go through the same calculations to determine EFC, or expected family contribution. This is the amount of money that your family is expected to be able to put towards your education. For all students, this number is going to be very different because it will be based on personal, financial details. When calculating this number, two things are going to be looked at: your parents' expected contribution and your own expected contribution. Sometimes, these two things are grouped together as family contribution.
If you are an independent student, then your parents' contribution will not be calculated at all. What your EFC ends up being is going to be based on the money that you have and earn. If you don't have a full-time job or access to funds in some other way, then you can count on your EFC being pretty low. In either case, your EFC is going to be subtracted from the expected costs of your education and then this be considered to determine what your financial need is. Keep in mind that your need is not always going to equal what the exact costs of your postsecondary education will be.
What Determines EFC
When calculating EFC there is certain information about you and your family members that will be counted. For starters, there is going to be a consideration of available assets. While your family's primary residence will not be included in this list of assets, there are a good number of things that will be. If you have a vacation home, then this will definitely count. Other things that can be included as available assets are family businesses with over 100 employees, investments, current cash, savings, and checking accounts, as well as education IRAs.
In addition to available assets, available income is also going to be calculated. This is where both your parents and your education will be looked at closely to see what exactly is available for educational expenses. There will be certain offsets that are taken into account when considering this amount, so don't think that all of your income will be expected to be used. If you have other students in the family, then this will be taken into account when available income is calculated and used in the financial need equation.
Understanding Your Awards
If you are having trouble understanding the financial need equation as well as the awards that you have been offered, then you may want to talk to a financial aid counselor. These experienced individuals are going to have the knowledge necessary to explain things to you where it all makes sense. Once you have a good understanding of how things work, then you can make better decisions regarding which loans you apply for and which awards that you end up accepting. Don't make the mistake of not finding out as much as you can about the financial need equation before you agree to anything.
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