What Tootsie Rolls and Financial Aid Have in Common

Much to the chagrin of dentists everywhere, Tootsie Roll has been a staple of the candy business for a very long time.  This article talks about the Tootsie Roll Company being a very secretive organization.  And we thought it was just the CIA that operates in relative secrecy!  Tootsie Roll doesn’t give tours, they don’t give interviews to analysts and they don’t operate with much transparency.  It’s as if they have some magical mystery formulas that they don’t want the rest of us to know.  That reminds of an email that I saw from a friend at work this week…

We were talking about and emailing back and forth about planning for college.  One of the most important parts of planning for college is the financial aid process.   With the cost of college rising much faster than the cost of other goods and services over the last decade, financial aid is becoming more and more important to families.  So…if it’s so important to families trying to put their children through college, you’d think that information about the financial aid process would be readily available and very easy to understand so that families have very clear guidance about how best to prepare financially for college.  You’d think that, but you’d be wrong!

When you start the financial aid process, you fill out a government form called the FAFSA (Free Application for Federal Student Aid).  You enter a lot of personal information so that the Department of Education can estimate how much you can afford to pay for the next year of school for your kids.  That estimate is called the Expected Family Contribution (EFC).  The EFC is based on your income, your assets, your child’s income, your child’s assets, the number of people in your family, the number of college students in your family, and the cost of the college the child is attending, as well as other factors.

I am asked frequently about strategies to maximize financial aid or minimize the EFC, and I will discuss that in another blog soon.  But like Tootsie Roll’s operations, the “secret sauce” of the EFC is no easy thing to find.  I looked!  And looked!  And looked some more!  Eventually I found a very long document (~40 pages written in Governmentese) that shed some light on it.  But it was by no means an easy find nor was it an easy read and most importantly it wasn’t a comprehensive explanation.  It made a few IRS tax calculation worksheets that I’ve used seem fairly easy by comparison.  I find this to be a little disconcerting.  For a topic so important to so many families, there should be an easier way to get access to the formula/moving parts.

I would love to be able to build an Excel spreadsheet that can show parents how the EFC and financial aid will be impacted by saving in their name, saving in the child’s name, paying off debts and increasing their savings or any other financial decision.  But as long as the EFC formula has a little bit of “secret sauce” built into it, I won’t be able to build it the way I’d like it to be.  I will just have to, without my handy dandy spreadsheet, share the information that I have gathered from reading about financial aid strategies, talking to parents who have gone through the process, talking with financial aid counselors and people in the financial planning industry.  And that’s what I’ll do next Friday!  Until then, I think I’ll taunt my kids (who are wearing braces now and can’t have them) by having a Tootsie Roll in front of them and thinking about college funding strategies…

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