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FAFSA Says How Much You Can Pay for College. It’s Often Wrong.
By Tara Siegel Bernard
New York Times
November 15, 2019

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Colleges use the E.F.C. to determine a student’s financial need — the difference between the college’s cost of attendance and the family’s expected contribution.

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For a family of four, the so-called income protection allowance — or the amount shielded from the formula — is $29,340. For a single parent with one child in college, it’s a mere $19,080.

“It’s a very harsh assessment of the ability to pay,” said Mark Kantrowitz, a financial-aid expert and publisher of Savingforcollege.com. “The assumptions they are using to calculate all of this have no connection to reality.”

The income protection allowance is subtracted from the family’s adjusted gross income, along with some other items (like taxes), while other items are added back (retirement savings contributions, for example). The final figure is the family’s so-called adjusted available income.

Using a progressive table similar to tax brackets, the formula assumes parents should dedicate anywhere from 22 percent to 47 percent of that amount to college costs each year. Many middle-class families and above are assessed at 47 percent.

(Families earning less than $26,000 a year can qualify for an “automatic zero” E.F.C., if they meet certain requirements.)

The formula also considers parents’ and students’ assets — and some allowances have actually become less generous over the years. Retirement savings and home equity are excluded from the federal formula, but the amount of other savings that parents can shield has plummeted over the past decade.

Take, for example, a 48-year-old parent, the median age of a person with college-age children: That parent was able to shelter $52,400 from the formula in 2009-10; now, the parent can shield only $6,000. Mr. Kantrowitz said that meant a parent with at least $52,000 saved would have an E.F.C. that is about $2,600 higher now than a decade ago.

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In an idealized case where a college reduces grant aid dollar-for-dollar as the Expected Family Contribution, a family that has a marginal EFC rate of 47% effectively faces a "college income tax" of 47% on top of Federal and state income taxes. The "income protection allowance" of $29K is low in general and very unrealistic if the family has a mortgage, as most do.