A young father recently said, “I’m not saving for college. Everybody knows that anything I save will just make my kids ineligible for government grants!”
There’s some truth to this. The Expected Family Contribution (EFC) is what Washington believes the student and his family can afford to spend on a year at college. It also determines the student’s eligibility for need-based grants. And assets such as savings and investment accounts can enlarge the EFC.
This year, the government’s only large-scale grant program, Federal Pell Grants, is reserved for students with EFCs of $6,094 or less so, if savings or other assets would push an EFC above this amount, the student would become ineligible for federal grants.
Still, there are excellent reasons to save for college:
1. Savings and investments don’t add that much to the EFC. For every $100 a parent owns in assets, just $5.60 count toward the EFC, and the EFC includes only $20 out of every $100 in student-owned assets.
2. Even children with small-dollar savings accounts designated for college are three times more likely attend college and 4.5 time more likely to graduate. These ratios rise as the amounts in college savings accounts grow.
3. Federal grants are already inadequate for financially needy students. The maximum Pell Grant covers just 23.5% of 2018-19 costs at the average state college or university, so even with that maximum Pell award, your student will still need another $19,800 to make ends meet.
4. This problem will only get worse. Student costs are expected to rise sharply over the next several years — partly because inflation has reemerged and partly because legislatures keep forcing tuition increases by downsizing college appropriations. At the same time, Washington’s massive tax cuts for corporations and the wealthy are increasing the pressure cut spending on domestic programs such as Pell Grants.
What does all this mean? Don’t save for college and, if your student does qualify for federal grants, they’ll cover a smaller and smaller share of his college costs. As a result, he (and you) may have to borrow more and more in the student loans that make up 61% of all federal student aid. And since interest rates on these loans are rising, it’s increasingly costly to borrow for college.
There are many ways to amass the money your child will need for postsecondary education. But no matter how you do it, even just a little bit of saving and investing for college is a winning strategy, and a way to reduce your child’s dependence on educational debt.
Contact College Affordability Solutions for a free consultation if you’re looking for ways to make college more affordable for you or your student.