Financial Aid Formulas and EFC Calculators

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Financial aid formulas seem like magic to most families. A few weeks or months after the student and his/her family files the Free Application for Federal Student Aid (FAFSA) and other financial aid application forms, the college or university financial aid office sends the student a financial aid award letter that lists a mix of grants, scholarships, student employment, loans and other forms of financial aid. How the colleges and universities determine a student’s eligibility for need-based financial aid is a mystery for most families. The answer starts off simple, but becomes more complicated as one digs deeper into the need analysis formulas.

Need-based financial aid is based on demonstrated financial need. Financial need is defined as the difference between the college’s cost of attendance (COA) and the expected family contribution (EFC). Accordingly, a student may demonstrate greater financial need with a lower EFC or by enrolling at a higher-cost college.

A college’s packaging philosophy determines how the college financial aid administrator assembles a financial aid package to meet the student’s demonstrated financial need.

There are two main types of financial aid, gift aid and self-help aid:

  • Gift aid is money that does not need to be repaid, such as grants and scholarships.
  • Self-help aid includes education loans and student employment. Student loans must be repaid, usually with interest. Student employment must be earned.

The college’s packaging philosophy provides a collection of strategies for allocating each type of aid to each student, subject to limitations on available funds and the college’s goals.

Financial Aid Calculators and EFC Estimators

Given the complexity of financial aid formulas, few families are able to calculate estimates of their student’s eligibility for need-based financial aid by hand. Instead, there are a variety of financial aid calculators and other tools that students and parents can use to calculate an estimate of the student’s EFC and financial aid eligibility. These tools are useful for playing “what if” games, where the family explores how changes in income and assets, the number of children in college and other factors affect the amount of financial aid for which the student is eligible.

Examples of EFC estimators include the Expected Family Contribution (EFC) calculator from College Toolkit and FAFSA4caster from the U.S. Department of Education. While some people may refer to the FAFSA4caster as a FAFSA calculator or FAFSA estimator, it does not use the same need analysis formula as the FAFSA. Students and parents who want to do a “hand calculation” and gain a deeper understanding of need analysis can use the EFC Formula Guide.

Since October 29, 2011, all colleges and universities received Title IV federal student aid must provide a net price calculator on their web sites. The net price calculator provides an estimate of the student’s net price. The net price is the difference between the cost of attendance and just the grants and other gift aid, a good measure of the family’s real college cost.

A related resource is the U.S. Department of Education’s College Navigator tool, which provides average net price figures for various income ranges. This is a less personalized approach to net price, but can give the family a sense as to which colleges are more or less affordable.

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