Freshman and Sophomores – Know your Expected Family Contribution Now
College planning too early can result in fatigue. The best college planning for an underclassman is earning As and Bs in rigorous courses. However, students and parents should evaluate their Expected Family Contribution beginning second semester freshman year.
Calculating your Expected Family Contribution (EFC) and Institutional Methodology (IM)
Your EFC/IM is the number colleges will use to calculate if you are eligible for need grants. You can use the College Board’s Expected Family Contribution Calculator to gain insight into your student’s eligibility for financial aid.
Because the methodology reviews reported income two years prior, the base year calculation includes the income earned during your high school student’s first semester freshman and second semester sophomore year.
Class of 2021 – Income reported in 2019
Class of 2022 – Income reported in 2020
Class of 2023 – Income reported in 2021
Income Positioning
Defer receiving employment bonuses until after December 31 of the base year.
Avoid selling investments that will have taxable capital gains or interest, such as mutual funds, stocks, or savings bonds until after December 31 of the base year.
To avoid taking an untimely distribution from an appreciated investment, consider collateralizing the assets instead.
Sell investments that can be taken at a loss during the base year.
Avoid pension and individual retirement account (IRA) distributions in the base year, if possible.
If you are on an expense account, ask your employer to reimburse you directly so that any reimbursement amounts do not artificially inflate your income.
Accelerate necessary expenses before filing the FAFSA. Carve out $4,000 in tuition and textbook expenses to be paid with cash or loans to maximize the American Opportunity Tax Credit (AOTC). Tax-free distributions from a college savings plan cannot be used to qualify for the AOTC.
Asset Positioning – Assets are reported as of the FAFSA/CSS Profile filing date. Assets that are not included in the federal calculation are:
Annuities
Cash value life insurance