It All Starts Here: How Much Can Families Afford?
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Once upon a time, in the quaint town of Eduville, there were two families: the Oranges and the Blues. Both families dreamed of sending their children to Eduville Academy, a school known for its exceptional education and vibrant community. However, the financial situations of the two families were quite different, posing a challenge for the school's financial aid office.
The Orange Family
The Oranges were a middle-income family. Mr. Orange worked as a manager at a local factory, earning a steady income of $80,000 per year. Mrs. Orange worked part-time as a freelance graphic designer, contributing an additional $20,000 to the family's annual income. They had two children: one entering high school and another in middle school. The Oranges owned their home, valued at $250,000, with $50,000 remaining on their mortgage. They also had savings of $30,000 and retirement accounts worth $150,000.
The Blue Family
The Blues, on the other hand, faced more financial challenges. Mr. Blue worked as a school teacher, earning $90,000 annually. Mrs. Blue had recently lost her job and was currently unemployed, leaving the family with a single income. They had three children, with one entering high school and two in elementary school. The Blues rented their home and had minimal savings, only $5,000, and no significant assets.
The Challenge
As the financial aid office of Eduville Academy reviewed the applications, the question arose: How do you determine a fair and equitable award for each family? Both families were in need, but their financial situations were quite different. This is where the concept of Expected Family Contribution (EFC) comes into play.
Expected Family Contribution (EFC) or Family Suggested Tuition (FST)
To kick off our data series, we start with the most fundamental question: How will you decide how much financial aid to offer a family when there are so many financial factors involved in figuring out what will be affordable?
In higher education, the term used to represent the amount of money a family is able to pay in tuition to attend your school is often referred to as the Expected Family Contribution (EFC). At Clarity, we use the term Family Suggested Tuition (FST). Both are a measure used to assess a family's financial capabilities. It considers the family's income, assets, expenses, household size, and the number of children attending tuition-paying schools. The lower the FST, the higher the family's financial need, and thus, they are likely to receive more financial aid.
Calculating FST
Here is a very high-level look at the calculation that is generally used to determine a financial aid award amount:
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Financial aid is determined by adding income and a percent of assets, subtracting expenses and taxes, and finding how much discretionary income a family has for a given year. Then, you take a percentage of that value and voila, you now know how much a family can contribute to their tuition. Correct? If only it were that simple…
The Challenge for Financial Aid Directors
As a financial aid director, you are tasked with evaluating the stories of families like the Oranges and the Blues and making fair and equitable decisions about financial aid award amounts. Your school looks to you to ensure that the limited FA funds are distributed in a way that supports those who need it most, allowing more students to access quality education regardless of their financial background.
Every school, however, operates within its unique context, characterized by distinct missions, budgets, financial needs, enrollment targets, and priorities. Crafting the right financial aid policy thus requires thoughtful strategy. Luckily, Clarity provides all of its client schools with a dedicated Client Success Manager who brings years of experience in financial aid to schools. Our experts are here to help you develop and implement the right financial aid policy tailored to your school's specific circumstances, ensuring that your resources are used effectively and equitably to support your educational mission.
In the next blog in this data series, we will explore the most critical number every financial aid officer needs to know to keep the school’s doors open.
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