Need-Based Financial Aid

Let’s drill down a little bit further on need-based financial aid. As a refresher, that’s the cost of attendance minus EFC Equals need ( COA – EFC = Need). If our EFC is less than the cost of attendance at any given college, we could be eligible for need-based financial aid.

The 3 Different Types of EFC’s

Now, to further complicate matters, there’s actually three different types of Expected Family Contribution. These are numbers that any given college will use. The three primary types of EFCs are:

  • The Federal Methodology (FM)
  • The Institutional Methodology (IM)
  • The Consensus Methodology (CM)

Nearly all public schools, and  most private schools, use the federal methodology. However there are a few important exceptions to this rule to keep in mind when applying.

Learn more about the 3 different types of EFCs ( Expected Family Contribution): The 3 Different Types of Expected Family Contribution Explained

The Federal Methodology

There are a couple of things to point out here and a couple of big differences between that methodology (FM) and the other two  (IM/CM). The biggest ones, in our opinion, is the fact that the Federal Methodology does not consider home equity to be an asset in the equation. So when they’re coming up with the EFC, that they’re assigning to your family, they’re not even going to inquire about home equity. We going to make sure we do not include this home equity asset on the FAFSA. The amount of equity that we have in our primary residence, it does not come up at all on the FAFSA, whereas it does, at most colleges in the institutional and consensus methodologies.

The other factor that we need to be aware of, is if you are a two-household family, if you are divorced, or if you are separated, the Federal methodology will only look at the income and assets of the household of the custodial parent(s). Now, if the custodial parent is remarried, they’re also going to include that step-parent in the methodology. So those are two of the big differences that are unique to the federal methodology.

Learn more about the Federal Methodology: Understanding the Expected Family Contribution in FAFSA

The Institutional Methodology

As I alluded to, most of the colleges that fit in this category are a lot of the more popular, competitive, private colleges. These schools consider home equity fair game, for lack of a better term. If you own your home, and you have any equity in it, that’s going to be considered just like your checking account, your savings account, or your brokerage account, to varying degrees. There are some differences from one college to the next in terms of how much they actually consider your home equity.

Still, this is critical information to keep in mind when evaluating what schools your child wants to apply to. If you have considerable home equity and don’t want that to impact your financial aid, doing research ahead of time by leveraging our free MyCAP tool can help you to evaluate whether or not that will sway the amount of aid you receive at certain institutions.

Learn more about what you can do if you do not qualify for need-based financial aid: When Your Expected Family Contribution is Too High

The Consensus Methodology

The Consensus Methodology tends to be used by the most competitive colleges (from an admission standpoint). They are a little bit different from the Institutional Methodology in that a lot of them consider home equity (not all of them), but for the most part, they put less emphasis on that. And it’s usually tied to the amount of house household income in terms of how much they actually hold that against you.

The other big difference is that both the public schools (FM methodology) and most of the private schools (IM Methodology) schools put a lot of emphasis on any savings in the student’s name. So if there are custodial accounts (UTMA or UGMA),  any money in the student’s name, FM/IM schools are going to put a lot of emphasis on the balances of those accounts….. much more so than they will on the parents. Whereas the CM schools,  (Consensus Methodology schools),  don’t hold the money in the student’s name against you with that same intensity that those other methodologies (FM/IM) use.

Learn more about how home equity affects need-based financial aid: How Home Equity Affects The CSS Profile

This process can be incredibly confusing for families. That’s why we’re here!

When you rely on the MyCAP technology, you don’t have to be an expected family contribution expert.

You don’t have to know all of this! All you have to do is plug your information into the MyCAP platform, and our data and experts are going to tell you exactly how much aid these schools are going to give you (or what gap in financing you can expect for your family). We’re going to tell you what methodology each of these colleges uses for determining expected family contribution and financial aid distribution, and walk you through how to search for scholarships and private financial aid to bridge the gap.

Have questions keeping you up at night? We’re here to help! Join our FREE Office Hours webinar every other week. This is a live event hosted by a CAP expert designed to answer any and all college planning questions. Register for Office Hours Here: Office Hours Sign Up