Expected Family Contribution and How it Relates Financial Aid
You have heard that your expected family contribution (EFC) is the key to understanding how much need-based financial aid you will be offered. But what does that really mean? We want to break down the definition of EFC, review the major factors in the EFC formula, and map out how it is used to determine eligibility for need-based aid.
An expected family contribution is an index number that colleges' financial aid offices use to determine how much need-based financial aid you would receive if you were to attend their school. EFC is meant to be the measure of a family's financial strength to pay toward college costs.This index number is calculated using a formula established by the US Department of Education based on your completed FAFSA. The family’s household size, number of kids in the family going to college, taxed and untaxed income, assets, and benefits like unemployment or Social Security are used to determine the EFC.
How an EFC is Calculated
The expected family contribution can be calculated to be as low as $0 to as high as over six figures. For dependent students, the factors that affect the EFC calculation the most are parent’s income and assets. EFC formula does take into account an income protection allowance and an asset protection allowance which varies based on your household size and number of kids in college. As much as 47% of parent available income can be seen as available to help pay for a single year in college. Although the calculation protects almost $20,000 of parental assets, a portion of any assets beyond the asset protection allowance is seen as being available to pay for college. In fact, the EFC formula typically calculates to the tune of 5.64% of parent assets are available to pay for a single year of college.
Even student income and assets are used to calculate the EFC. For dependent students, the EFC formula assumes that 50% of the student’s income over around $6,500 is available to pay for a single year of college costs. Plus, 20% of the student’s current assets are deemed as being available to pay for college.
The federal government’s EFC formula is complicated to say the least. Luckily, you don’t have to use their worksheets to calculate to gauge what your EFC will be. If you are interested in determining your EFC before you apply for college, the College Funding Coach offers a free EFC Calculator.
How Need Based Aid if Offered
To determine your eligibility for financial need used to offer need-based financial aid, the college uses a calculated cost of attendance (COA) and subtracts the expected family contribution. Typically, the lower your EFC, the more need-based financial aid you'll be offered. For those families with EFC below approximately $5,700 in the 2020-21 academic year, most will be offered a Federal Pell Grant. Colleges also can offer need-based Federal Work-study and Federal Direct Subsidized Student Loans. Colleges may also offer state and institutional need-based aid as well.
Just know that often there is not enough need-based aid to go around. Less than 100 colleges meet 100% of financial need for students although most use a modified Institutional Methodology (“IM”) expected family contribution (EFC). The IM EFC may include tax-deferred income and add back losses. Plus, the IM EFC considers home equity, family farm value, trusts, and some other assets excluded from the federal EFC formula.
If you are concerned that a college may not award you enough need-based aid to cover your EFC, then explore your options for the college’s merit-based aid and scholarships from community organizations.
Colleen MacDonald Krumwiede is a financial aid and paying for college expert with over a decade of financial aid experience at Stanford GSB, Caltech, and Pomona College and another decade at educational finance and technology companies servicing higher education. She guides go-to-market strategy and product development at Quatromoney to transform the way families afford college.