Real-Life Case Study | Online College Planning

How a very typical family successfully saved $14,520 on college: a real-life case study

To understand how a reallocation strategy might impact you, let’s walk through a typical and practical example.

The scenario and data below display the before and after of the projected out-of-pocket impact for ONE STUDENT looking to attend a smaller private college in Maryland.

The Family Facts:

Family of four:	Father-age 44 Mother-age 47 Twins age 17 (High School Juniors) Daughter 14 (High School Freshman)
$156,000	W2 Earnings (parent’s total income)
$132,000	Non-retirement assets (checking & savings, a CD, a college 529 account)
$118,000	Primary Residence Equity
$3,800	Student Income
$1,800	Student Assets
$2,400	Siblings Assets

To understand how a reallocation strategy might impact you, let’s walk through a typical and practical example.

The scenario and data below display the before and after of the projected out-of-pocket impact for ONE STUDENT looking to attend a smaller private college in Maryland.

Below is the report generated from the above financial information showing the EFC.

Family and Financial Aid Estimates
Expected Family Contribution Amount (EFC)	$19,168
Does the family qualify for financial aid at Hood College?	Yes
Could the family qualify for additional financial aid by implementing college planning strategies?	Yes
Financial Aid Eligibility Amount	$26, 420

The report illustrates that their EFC is $19,168 and indicates an opportunity to:

a) QUALIFY for financial aid at Hood College and…
b) to potentially INCREASE that qualification using one or more financial aid strategies.

Moreover, the total Financial Aid Eligibility at Hood College is $26,420. This is NOT an indicator of the anticipated amount of aid they will receive. It is simply the starting point from which total financial aid is calculated.

Below is another segment of the report that shows Hood College’s COA or Cost of Attendance.

School Information
Hood College
4-year/6-year Graduation Rate	66%/71%
Current one-year Cost of Attendance (COA)	$53,040
Current Room and Board Cost	$12,200

The segment above shows that the COA for Hood College is $53,040. This is the sum of all tuition and fees, room, and board, books and transportation as well as miscellaneous expenses typically incurred by the average Hood College student.

When considering ANY college, their graduation rate should be used to help determine how long it might take for the average student to complete a degree program, and thus influence the total amount budgeted for college funding.

Now that it is established that our sample family is expected to be able to pay $19,168 for their student who wants to go to Hood College, we need to find out how Hood College is likely to respond to our NEED.

Need is simply the difference between the COA of a college and a family’s EFC. In this case, NEED is determined to be the difference between $53,040 and $19,168 or $33,872.

While it would be optimal if every college will meet 100% of a family’s NEED, the reality is that every college is likely to respond differently. As a result, your college planning success is dependent on the capacity to predict and respond to the type and total amount of help they offer.

First, colleges determine what percentage of any family’s NEED they will help with. Next, they will determine what TYPE and COMBINATION of aid they will offer.

Fortunately, we can track nearly every college’s history of financial aid to help you predict their future behavior.

Financial Aid Info and Stats for Hood College*
Financial aid forms required by Hood College	FAFSA
Average amount of financial need met	78%
Gift Aid %	75%
Self Help %	25%

In the case of HOOD college, we have determined that they are likely to help our family with 78% of their need. Of the two types of help that can be offered, Hood College will offer 75% in Gift Aid (money that does NOT need to be repaid) and 25% in the form of loans or work-study.

With the above information, we can now predict that Hood College will help this family with 78% of their $33,872 NEED. In other words, they will provide financial aid in the amount of $26,420. However, there is one more vital step that must be performed before we have a clear understanding of TOTAL OUT OF POCKET EXPENSE.

The family modeled is initially expected to pay $19,168, which is their EFC. Since Hood College will only help them with 78% of their need, responsibility for the other 22% falls solely to the family. Taking their NEED of $33,872 and multiplying it by 22% results in $7,452 of Unmet NEED which is added to our family’s EFC to bring their new total responsibility to $26,620 ($19,168 + $7,452).

Similar to most colleges, Hood College offers 25% of the NEED that they MEET in Self Help (Loans and Work Study). Because loans must be repaid, that too must be added back into the family’s projected total out of pocket expense. Since Hood College is addressing $26,420 (NEED MET) we multiply that number by 25% to determine the number of loans that the family will be taking on in the form of financial aid assistance — which in this case totals to $6,605.

After all calculations, our sample family will be expected to pay:

EFC $19,168 plus unmet NEED of $7,452 plus Self Help Aid or $6,605 for a total out of pocket of $33,225.

BUT what is the impact of the reallocation strategy, eligibility for which we were alerted to in the report (shown again below)?

Family and Financial Aid Estimates
Expected family Contribution Amount (EFC)	$19,168
Does the family qualify for financial aid at Hood College?	Yes
Could the family qualify for additional financial aid by implementing college planning strategies?	Yes
Financial Aid Eligibility Amount	$26, 420

Based on the financial data used for this case, the family has $132,000 of non-retirement assets. And every family is allowed to have what is called an APA or ASSET PROTECTION ALLOWANCE. This is an amount of money (non-retirement assets) that is not factored into the financial aid formula.

If a family exceeds their APA, every additional dollar above that limit begins to reduce financial aid eligibility. In the case above, it was determined that of their $132,000 of reported assets, they had a need for immediate liquidity of just $22,000. In other words, $110,000 was available to reallocate to increase financial aid eligibility.

Before taking ANY reallocation steps, it is always advisable to have a good understanding of the probable outcome of doing so. In our case, a report was run with the exact same input data as used previously, with the exception being that only $22,000 of assets were reported.

The resulting financial aid eligibility showed the following:

Family and Financial Aid Estimates
Expected Family Contribution Amount (EFC)	$16, 066
Does the family qualify for financial aid at Hood College?	Yes
Could the family qualify for additional financial aid by implementing college planning strategies?	Yes
Financial Aid Eligibility Amount	$28,839

The family’s EFC had been reduced from $19,168 to $16,066.

Using the same calculations as above, Hood College will help with 78% of the family’s OPTIMIZED need or $28,839. But, Hood College would not assist with 22% of their NEED which in this case would be $8,134 (.22 x $36,974) — and 25% of the help they provide will be in loans or work-study representing $7,210.

Total out of pocket expense after reallocation would be:

Optimized EFC $16,066 plus unmet NEED of $8,134 plus Self Help Aid or $7,210 for a total out of pocket of: $31,410.

Without EFC Optimization and reallocation, the family had an out-of-pocket projection of $33,225. This strategy would save the family $1,815 per year with a projected 4-year savings of $7,260.

Of particular note, in this case, the family had two children in college simultaneously. If the other student selected a college with similar NEED response and Aid allocation, the total savings would be approximately twice as much at $14,520.

REMEMBER: any reallocation strategy should consider the likely impact based on historical data representing a college or university’s response to NEED. The costs, penalties, opportunity costs and other factors should also be determined and discussed prior to implementation.

Summary of proper planning and implementation

Our robust reporting ability provides both the financial professional and the family the tools necessary to both calculate the opportunity and the impact of allocation strategies for the purpose of financial aid improvement.

Successful reallocation strategies typically use assets not considered in financial aid eligibility. When a competitive rate of return, security and predictability are desired features, insurance products, such as annuities and cash value life insurance contracts, are well-suited for this purpose.

Properly structured, a cash value life insurance contract could increase financial aid eligibility as illustrated and simultaneously provide a modest return on the entire principal as well while adding the additional benefit of liquidity, control and death benefit, further insulating the family from the impact of lost income due to the death of a parent who was anticipated to be contributing to the college funding from future income.

An annuity — properly-structured and including a careful evaluation of costs and restrictions — can provide a greater opportunity for growth, but may reduce liquidity. The achievement of the goal improved financial aid eligibility, however, would be assured in either the case using cash value life insurance or an annuity.