The EFC and COA: A College Pricing Primer

My dad always had an interesting perspective on pricing that was out of line with the product being offered. On my very first trip to New York City with him, I was incredulous that a bagel at the hotel cost $12 (and this was MANY moons ago). He laughed and told me that price in this case had nothing to do with what I would receive for $12 – it was just an arbitrary number assigned to that puny, little bagel. Of course, my dad ventured down to a little bodega and bought a respectable bagel along with a strong cup of coffee for much less than $12.

Sticker shock didn’t end with an over-priced bagel; he saw an even crazier version of pricing when organizing our family’s first ski trip. One of his friends suggested to prepare for the financial shock of the trip, that my dad should get a stack of $100 bills and practice throwing them into a toilet and flushing. Once he could do that without wincing, he would be ready to embark on a family ski vacation. Instead, my dad researched, budgeted, and planned for a trip that was fun, memorable, and affordable.

These stories are not far off from the sticker shock that families are experiencing with today’s college tuition rates. It seems that some Bill Martin (my dad) pragmatism about pricing is needed for families with high school students preparing for their college searches. No one should have to practice flushing $100 bills (figuratively, of course) to prepare for the invoice from your child’s school.

There are some things you can do while your student is in high school to get the entire family considering the cost and value of different colleges that might make an appearance on your final college list.

Estimating Your EFC

First, DO NOT wait until October 1 of your student’s senior year to get a handle on the results of your FAFSA (Free Application for Federal Student Aid). Filling out your FAFSA will result in an EFC (Expected Family Contribution). This is the amount that colleges will expect students and their families to pay out-of-pocket to attend school. This amount can range from $0 to well over the cost of the most expensive private school depending on your family’s financial situation.

And, to make things more complicated than they already are, all of this is changing in the 2022-23 admissions cycle. The FAFSA will be streamlined with fewer questions and the EFC will be renamed SAI or Student Aid Index. Stay tuned to our blog for more information about this adjustment as there will be some changes in how this number is calculated. Colleges will still use the SAI in the same manner as the EFC for computing financial aid packages, and the numbers are similar enough that the EFC will be a good guide for now.

Finding your estimated EFC while your student is in their sophomore or junior year of high school is an important step in understanding how much you will be expected to spend for college. Just a ballpark EFC figure will help you plan for your college list.

So, you wonder, how can I find my EFC now if the FAFSA application does not open until October 1 of my child’s senior year? This is where the EFC Calculator comes in. The College Board has one that I highly recommend here, and you can also use one provided by the U.S. Department of Education here. For those of you like me who want to gather all the data possible, completing both calculators and comparing results will help you get an even better idea about what your EFC might be. Note that when you use the Department of Education calculator that your EFC will be in small type with no dollar sign or commas separating the hundred’s spots. It will not look like a cost, but, believe me, it is!

Finding the COA of a College

However, knowing your EFC is just a small part of this battle. You need to know how colleges use it. Just as the name implies, this is the amount that the college will expect you to pay from your savings and income toward your college costs each year. Each college will deduct your EFC from the Cost of Attending (which you will sometimes see listed as COA) to calculate your family’s financial need. The COA consists of direct costs including tuition, housing, meal plans, and fees as well as indirect costs including transportation, personal expenses, and books at a particular school.

This equation is important: COA – EFC = Financial Need. Financial Need is the dollar figure schools will use to generate a financial aid package for your student.

You can locate the COA of a particular school through a Google search. Type in “Cost of Attending” followed by the name of the college you are interested in reviewing. I did this for Emory, and here is what my search produced. The COA there for the 2021/22 school year is $75,654-$76,054. These are pretty typical figures for a private, liberal-arts college.

Suppose a family has an EFC of $18,000 which they found by completing the EFC estimator. Now they can complete the equation for Emory. $75,654 – $18,000 = $57,654. That figure – $57,654 – is the family’s demonstrated financial need. For a family considering Emory, it is important to know that Emory is not committed to meeting full financial need, and the maximum amount of direct student loans (with their low interest rates and some with deferred interest) is $5,500 for freshmen and only $3,500 of that will be subsidized with interest deferred until after graduation. In this example, the family is likely to be responsible for more than $18,000 annually to attend Emory – and this is after student loans and any merit-based aid the school may offer.

Like Emory, most colleges are not committed to meeting full financial need, and it is a rare college indeed that will meet full need through scholarships and grants (that do not require repayment). Part of the financial need may be met through offers of Direct Student Loans and Parent Plus Loans in the financial aid package.

Some families cannot afford their EFC, much less any amount over the EFC and may have to take out even more expensive private loans to make up the gap between the COA and the financial aid package. This is where loans mount up and trouble can start.

Student Loan Debt

As a graduate student, I had friends and acquaintances who had over $100,000 in student loan debt. I hoped these were just isolated incidences and that students and their families were not regularly racking up six-figure debt for higher education. I am learning that this happens with regularity and the results can be devastating. These recent articles from the Washington Post and The Guardian reveal the hardships that not just students, but also their parents, face as a result of over-extending themselves with student loans.

Yet, the prices of colleges continue to rise. CBS News just ran this story listing the 50 most expensive schools in the United States. The COAs in this list range from $74,570 per year to $81,531 per year. For four years, these schools are priced $298,280 to $326,124 before financial aid is applied. This is a huge investment for a family. Taking out loans to cover part or all of the cost should be carefully considered.

Starting early with serious thought about how much you can afford to pay for college and the amount of aid you might expect will help inform the creation of your college list. At Bell & Arch Consulting, I help you and your family determine a list of great fit colleges that meet your needs academically, socially, and financially. With over 3,900 school in the U.S. to choose from, you can have an amazing college experience that also allows you to maintain your financial health. Contact me for a free consultation at [email protected].

Plan wisely!