Article by Cyndy McDonald MA/PPS
Imagine sitting in a financial planner’s office. It’s 2009. Today you are discussing with your planner how to save for college for your children. Your financial planner has several options for you to consider. He also tells you the FAFSA, the form you use to report income and assets when your children are ready to go to college, has a built in allowance for you to save for college. In 2009-10, the savings allowance for a family of four would cover three years of college costs for your oldest child. You sigh with relief.
Fast forward eleven years- to 2020-2021. You are back in the financial planner’s office, this time for your next child. He informs you the current FAFSA built in allowance for savings has dropped. For next year, the FAFSA savings allowance would barely cover one year of community college, let alone four year private college costs. You gasp with shock! You wonder, “What happened”?
Saving Allowance Sharp Decline
I have been tracking the EFC calculations for over twenty years. It was very evident that something was drastically different when I started calculating the 2020-2021 EFC. I went back to 2017 to see what the asset protection allowances were, and how they compared to now. I evaluated the asset protection for both single parent and two parent households. Interestingly, the asset level from 2017 to 2018 increased, then in 2019 it started dropping.
At age 65,two parents had the maximum savings asset of $33,600 in 2018. In 2019, that savings allowance dropped 44%, to a maximum of $18,900. In 2020, the savings allowance has dropped again, a whopping 50%, to $9400. This is a 72% drop in over three years. Single parents fared far worse in the allowance protections.
A single parent, age 65, had a maximum savings allowance of $29,600 in 2017. In 2018, it dropped $10,100 to $19,500. In 2019, it dropped another $10,000, to $9,500. In 2020, it is down to $3000. From $29,600 to $3000 in four years. That is a 90% drop over four years! How can single parents even hope to save some for their children’s college and not have it count against them? Nowhere in the country is $3000 enough to even get a child started in college!
Numbers Speak for Themselves
I am sharing charts I created, showing the asset protection allowances from 2017-2020, for both two parent and one parent families. You will see the sharp contrast in allowances each year, and how the single parent allowance has steadily and significantly dropped each year. The tables have allowances for each age of the parent, but for the tables I divided the ages into 5 year increments, to illustrate the differences between the age of the parent, and the years between 2018-2020. There are six age increments on the charts, from age 40 to age 65. (40,45,50,55,60,65). View published chart here.
Trending toward Future Asset Elimination
According to financial aid experts such as Mark Kantrowitz, “if current trends continue, the asset protection allowance will disappear completely in just one more year, by the 2021-2022 FAFSA.” This makes it more imperative for families, and those advising them, to know and understand how a family’s EFC is calculated, and what factors are driving the calculation. Is it income? Assets? Both? These answers can help families be prepared as they face the challenge of paying for college education for their children.