The expected family contribution, also known as the EFC, is a measure of the family’s financial strength. It is based on the financial and demographic information reported on financial aid application forms, such as the Free Application for Federal Student Aid (FAFSA) and the CSS/Financial Aid PROFILE.
A student may have more than one EFC. The EFC that is based on the FAFSA is calculated by a federal financial aid formula known as the Federal Methodology (FM). This EFC is used to determine eligibility for need-based aid from the federal and state governments and most colleges and universities. Some colleges use a second EFC based on the PROFILE or the college’s own financial aid forms for awarding financial aid from the college’s own resources. This EFC is based on an Institutional Methodology (IM), and may vary from college to college. There may be significant differences between the FM EFC and the IM EFC.
The FM EFC is listed on the Student Aid Report (SAR) after the student files the FAFSA.
Actual Family Contribution May Exceed the EFC
Despite the name, most families will contribute more than the EFC to the cost of their student’s college education. Financial aid is based on the student’s demonstrated financial need, which is the difference between the cost of attendance and the expected family contribution. Some colleges do not meet the student’s full demonstrated financial need, leaving unmet need for the family to pay in addition to the EFC. Most colleges include loans in the financial aid package, which have to be repaid, usually with interest, by the family. On average, the net price of a year of college, after subtracting all grants from the cost of attendance, is almost two-thirds greater than the EFC.
A better measure of the family’s true college costs is the net price. The net price is the difference between the cost of attendance and just gift aid. Gift aid includes grants, scholarships and other money that does not need to be repaid.
How the EFC Affects Financial Aid
The philosophy of financial aid involves separating school-specific information, such as the college’s cost of attendance, from the determination of college affordability. The EFC is a measurement of the family’s ability to pay that is independent of a college’s costs.
The family’s demonstrated financial need is then calculated as the difference between the college’s cost of attendance and the expected family contribution. This is the amount of money the family needs to be able to pay for college.
Eligibility for need-based financial aid is often based on demonstrated financial need.
Eligibility for some forms of financial aid, such as the Federal Pell Grant, is based on just the EFC.
How to Calculate the EFC
Calculating the EFC is complicated, involving detailed formulas. A financial aid calculator may be used to estimate the EFC and to explore the impact of changes in the family’s situation. The U.S. Department of Education also publishes annual worksheets that can be used to calculate the EFC by hand.
The EFC is based on the following data elements:
- Student Income
- Student Assets
- Parent Income (if the student is a dependent student)
- Parent Assets (if the student is a dependent student)
- Spouse Income (if the student is married)
- Spouse Assets (if the student is married)
- Household Size
- Number of Family Members in College (excluding the parents)
- Age of the Older Parent
- Student Characteristics Used to Determine the Student’s Dependency Status
The general approach of financial aid formulas is to assess a portion of the family’s discretionary income and discretionary assets. Discretionary income is the portion of total income that remains after mandatory expenses, such as allowances for taxes and allowances for basic living expenses, are subtracted. Total income includes taxable income, usually based on adjusted gross income (AGI), plus untaxed income and benefits.
The expected family contribution (EFC) is the sum of the Parent Contribution (PC) and the Student Contribution (SC).
EFC = PC + SC
The parent contribution is based on the sum of a portion of the parent’s available income (after subtracting the allowances from total income) and a portion of the parent’s reportable assets, divided by the number of children in college. Increasing the number of children in college can have a big impact on the EFC. The FAFSA uses a bracketed scale for assessing parent income, ranging from 22% to 47% of available income.
A portion of parent assets are sheltered, based on the age of the older parent. Typically, the asset protection allowance is about $30,000 to $60,000 for most parents of college-age children. Parent assets are assessed by the FAFSA on a bracketed scale, ranging from 2.64% to 5.64%.
Parent assets may be ignored entirely on the FAFSA, if the parents qualify for the simplified needs test. To be eligible for the simplified needs test, the parent Adjusted Gross Income (AGI) must be less than $50,000 and the parents must either be eligible to file an IRS Form 1040A or 1040EZ or someone in the household must have received certain means-tested federal benefit programs, such as Supplemental Security Income (SSI), Supplemental Nutrition Assistance Program (SNAP), Special Supplemental Nutrition Program for Women, Infants and Children (WIC), Temporary Assistance for Needy Families (TANF) or the Free and Reduced Price School Lunch, in the last two calendar years.
The student contribution is based on the sum of a portion of the student’s available income and a portion of the net worth of the student’s assets. The student contribution from income on the FAFSA is 50% of the student’s income (not counting income from need-based work-study programs) above an asset protection allowance that shelters about $6,000 of the income of a dependent student. The student contribution from assets on the FAFSA is 20% of the net worth of the student’s reportable assets.