Two kids are getting ready to go to college.
Kid A has a job with the city making $10,000 per year and has saved $20,000 to help pay for college.
Kid A's parents have 6 kids, and 3 are going to college right now. They have also saved by putting away $10,000 in a 529 for Kid A that has grown to $20,000. They have struggled long and hard to make that money available for their child.
Kid B had a job but quit his senior year. He has $40,000 saved up but had it moved to his grandparents name.
Kid B's parents have 1 kid. They have $1.2 Million in 401k's and IRA's and have $3.4 in cash value life insurance. Kid B's grandparent's are wealthy and have a 529 plan for Kid B in the amount of $50,000.
Kid A and Kid B go to the same school and Kid B gets a pell grant and other need based scholarships, Kid A gets nothing, his Expected Family Contribution is higher than Kid B's.
How?
This is all about knowing the rules of the game. Kid B's more wealthy parents are more likely to have access to a financial planner who knows how to hide assets. Yes in theory the calculation behind EFC are supposed to benefit the poor and they do, only those poor that plan poorly. They have to plan poorly in a specific way, by not having any savings and the student not having any income. If they plan poorly but do everything in their power to prepare (saving and getting a job), then they lose out on "aid". Classic welfare trap. The smart poor would save but move assets to a grandparent's name or other trusted individual and do other "shifting" tactics. The problem is the smart poor don't remain poor so a small minority of individuals would actually take advantage of this.
Those who have thought this out have 3 decisions:
1) Don't take personal responsibility and take a chance aid will be sufficient
2) Take personal responsibility but don't plan and hurt how much aid you receive
3) Take personal responsibility, plan, and don't remain in poverty.
Sadly, most of the poor have no idea of the regulations and political web and don't take advantage of programs to help them out of poverty.
