Inside the Black Box of Financial Aid

Today is Halloween, and when it comes to paying for college, nothing can seem scarier than completing the FAFSA (Free Application for Federal Student Aid), the form students use to apply for financial aid at most colleges in the United States.

Many people perceive the FAFSA as a “black box”: a complex algorithm whose inner workings are mysterious and unknowable to the people it impacts. Black boxes are alienating. Powerful. Frightening.

I work at an engineering college, and the concept of the black box seems to be in vogue these days. But long before encountering the term, I remember learning about mathematical functions in fifth grade. I’d always been good at math, but when it came to functions, nothing made sense anymore. Homework time, once so delightful to my curious nerd heart, was now marked by anxiety and dread. I’ll never forget the worksheets because they were covered in cartoon pictures of machines, which looked something like this:

Picture of Function Generation Machine

What my well-meaning teacher was trying to help us understand is that functions are simply rules. Like any good rule system, they have inputs and outputs, and the inputs directly determine the outputs according to predictable patterns. But I couldn’t see this. I was fixated on that picture, on its spinning gears, clicking levers, and other parts I couldn’t even identify. It seemed to me that when you entered a number on one end of the function, it was only through incomprehensible magic in some deep, dark corner of the machine that the right answer would emerge from the other end. I didn’t understand what happened inside the machine. The math itself was lost on me.

It’s easy to feel the same way about the FAFSA, which naturally feels much more high-stakes than my middle school homework. We’re asked to enter our private financial information (the same information we’re usually taught not to share with others), and then some computer at the federal government runs a formula, and out pops the Expected Family Contribution (EFC). Something many people don’t understand is that the EFC is a measure of your family’s financial strength. The primary responsibility when it comes to paying for college lies with the student and their family, and colleges and the government use the EFC to determine how to allocate the limited financial aid resources they have available. The EFC does not, however, represent what you will actually pay for college because every college uses the EFC differently; a student only gets one EFC, but that EFC will result in different amounts and types of financial aid at different colleges based on their costs, financial aid philosophy and policies, resources, and more.

By the time we fill out the FAFSA, there’s nothing we can do to change what the outcome will be. But actually understanding how the formula works can help to alleviate some of the confusion and fear, so let’s take a look inside in the box.

When completing the FAFSA, a student’s EFC is determined by the following inputs:

-          Parental income (check here to see which parent(s) are required to report information on the FAFSA). This includes both taxed and untaxed income. Parental income is typically the most heavily weighed factor, and it applies to dependent students only.

-          Some parental assets, including cash/savings/checking, investments, and the net worth of a large business or farm. As with parental income, parental assets are only reported for dependent students.

o   The net worth of your car, your primary home, and the value of a small business or farm (100 or fewer employees) are not reported.

-          The student’s income and assets (and for independent students, their spouse’s) are also included.

-          The household size, as well as the number of dependents in college.

-          A variety of allowances to protect your income and assets. It would not be reasonable to expect families and students to put 100% of their resources towards paying for college. These allowances ensure that enough resources are protected to cover your family’s living expenses, taxes in your state, emergencies, and more.

Note: Any debt that the parent(s) or student has (such as credit card debt, student loan debt, etc.) is not considered.

The formula itself is publicly available for anyone to access (https://ifap.ed.gov/efcformulaguide/attachments/1920EFCFormulaGuide.pdf), but it’s not exactly a user-friendly guide, so we hope that the above summary gives you an idea of what to expect.

The best way to learn more, though, is to take matters into your own hands. If you plan to enter college during the 2019-2020 school year, you can complete the FAFSA now. Olin’s deadline to receive the FAFSA is February 15 for new students. If you will be applying in a future year, a college’s Net Price Calculator is a great way to get an initial estimate.

We ask that you engage with this process first-hand, because something we’ve observed over the years is that most of the confusion and misconceptions people have about the FAFSA stem from listening to other people’s financial aid experiences. Every family’s financial situation is different, and the reason the FAFSA utilizes such a complex formula is to account for those differences. But listening to or repeating stories about our friends/neighbors/mail carriers can unintentionally have the effect of making us think that what happened to someone else is what will happen to us. This happens all the time, and it is harmful.

Above all, remember that financial aid offices are here to help you with this process, so don’t get spooked and contact us with your questions!

Posted in: Alia, All Admission Staff Blogs, FAQs