How Is EFC Calculated? – CollectMyCash

Waiting for the official Expected Family Contribution (EFC) can feel as an eternity. When it arrives what everyone wants to understand is when is EFC calculated and what exactly does it mean? We have the answers you need.

What Is EFC?

The Expected Family Contribution may be the minimum amount the government thinks you really can afford to contribute toward your child's college expenses.

The Student Aid Office calculates this amount while using financial details in your child's Free Application for Federal Student Aid (FAFSA) form and returns the result inside your child's Student Aid Report (SAR).

The FAFSA is the gateway for college students to get any financial aid either from the government or from the colleges.

Keep in your mind that the further your EFC is, the less financial aid your child will qualify for.

The EFC reduces the Cost of Attendance (COA) in determining the quantity of financial require a family has:

Cost of Attendance (COA) – Expected Family Contribution (EFC) = Financial Need

For example, if the total COA (Tuition & Fees, Room and Board, Books, Supplies, etc) in a particular school was $50,000, and the family's EFC from the FAFSA was $30,000, they'd have $20,000 of monetary need.

It's Not What You Might Think

It's important to understand the EFC is not the actual amount you'll wind up paying toward your child's college education. Actually, many families wind up paying a lot more than their EFC, because colleges often don't meet 100 % of monetary need.

The FAFSA EFC Formula: How's EFC Calculated?

It's necessary to realize that we're discussing the FAFSA EFC calculation. The EFC formula for that CSS Profile is slightly different. Here's how the FAFSA EFC calculation works:

EFC Parent Contribution

The government considers both income and assets when determining the parent contribution to the EFC.

Parent income (or parents' income for any husband and wife) is much more impactful towards the EFC than parent assets. To determine which is considered your earnings, follow the following tips:
- Start together with your taxable income and add in non-taxable income (such as received child support and 401(k) contributions).
- Then, subtract what you taken care of taxes and Social Security.
- Also subtract the income protection allowance, which varies according to household size and also the quantity of children you've attending college.
- The number you get after these calculations is exactly what you'll report as parent income on the FAFSA.

The government will use a portion of your reported income (between 22 percent and 47 percent) when calculating EFC. The higher your income is, the greater of it will count toward EFC.

Parent assets don't affect the EFC as much as income. They're assessed for a price of 5.64 percent (significantly less than the wages assessment rates). What counts as assets?
- Cash
- Bank account balances
- Investments
- Real estate holdings (excluding the household's primary residence)
- 529 plan balances where either parent may be the account owner (a student and siblings are beneficiaries)

If the student is considered independent, parent income and assets aren't contained in the EFC calculation.

EFC Student Contribution

The student's income and assets also factor in to the EFC. Here's how:

Student income is calculated exactly the same way as parent income, beginning with the taxable income and adding/deducting income as described above. The wages protection allowance for a student is $6,570. For many students, what this means is their income will not factor into the EFC whatsoever. The government uses 50 percent of a student's reported income (above the protection allowance) when calculating EFC.

Student assets are assessed at 20 percent–a much higher rate than parent assets. See the above list for examples of reportable assets.

Tip: You don't have to wait to complete the FAFSA to get a concept of what your EFC is going to be. You can aquire a good estimate by using the College Board's calculator.

Simplified Needs Test

While the formula explained above is used for many FAFSA forms, there is another way to calculate EFC: the Simplified Formula.

This calculation can be used for families with extenuating circumstances. The Simplified Needs Test determines eligibility for the Simplified Formula. There's two required criteria:

Criteria A
- At least one individual inherited qualifies for a means-tested federal benefit program (e.g. SNAP, WIC, Medicaid, TANF)
- Parents qualify to make use of Form 1040A (but didn't file an agenda 1), don't file a taxes, filed a tax form from a Trust Territory, or a parent is really a dislocated worker
Criteria B
- Parents' adjusted revenues (AGI) is less than $50,000

If these two criteria are met, the federal government calculates EFC using the Simplified Formula, which only considers income, not assets.

What if Your EFC Is Zero?

A lower EFC means your student is eligible for a higher quantity of financial aid. Colleges offer substantial aid packages to some student by having an EFC of zero.

The eligibility requirements for any zero EFC are similar to those for that Simplified Needs Test, but they are stricter.

To qualify for zero EFC, Criteria A (see above) must be met. However, the Criteria B income threshold is gloomier: only $27,000. Independent students who've no dependents apart from their spouse do not qualify for a zero EFC.

EFC Score

Once you obtain an “EFC score” you need to know how to put it into perspective.

What is a good EFC?

There isn't an objective dividing line between “good” EFCs and “bad” EFCs, but a lesser EFC generally means more educational funding.

Financial aid is also based on the cost of the school your child attends. Let's imagine your EFC is $15,000. Your son or daughter would qualify for a smaller amount educational funding at a low-cost state school than in an expensive Ivy League institution.

Why Is My EFC So High?

For many parents, the biggest FAFSA real question is, “Why is my EFC so high?” Many reasons exist, but one of the biggest factors in recent years may be the decrease in the asset protection allowance.

The asset protection allowance shields a portion of parent assets from factoring into EFC calculations. Unfortunately, the threshold has been decreasing for the last many years.

While the asset protection allowance shielded thousands of dollars in parent assets a decade ago, the present threshold is just a few thousand dollars.

How Do Colleges Use Your EFC?

Once the federal government calculates your child's EFC, it will send that information for their potential schools. Each college has its own financial aid policies, but they all calculate financial need the same manner:

Financial need = Price of Attendance (COA) – EFC

As you can see, a greater EFC number reduces your child's calculated financial need.

Once a university has calculated your child's financial need with this particular formula, it decides just how much need-based help to offer. Most colleges don't fund 100 % of a student's financial need, but you can maximize educational funding by choosing the best school.

Aid is generally a mixture of loans, work-study opportunities, and/or grants. Some colleges also employ the EFC when allocating merit-based aid, like scholarships.

Are There Ways to Lower My EFC?

It's not usually easy to reduce your EFC after it's calculated. However, you are able to minimize your EFC by reducing income and assets as much as possible throughout the base year. Here are a few possiblity to minimize your EFC:

Lower checking account balances by paying off personal debt.
Avoid taking Roth IRA or other retirement account distributions.
Reduce your retirement contributions (they count as income).
Don't realize capital gains (e.g. don't auction stock or any other investments to make money).
Wait to remarry (to prevent having to list your brand-new spouse's income/assets on the FAFSA).

Remember, FAFSA requires financial info from the prior-prior year (e.g. the 2023-23 FAFSA uses tax info from 2023). So you will need to think ahead when making financial plans for the college years.

Give Your Child the very best Chance for Financial Aid

Your Expected Family Contribution affects just how much financial aid your student can be eligible for a. A greater EFC means less aid. By focusing on how the EFC is calculated and doing what you can to reduce your earnings and assets throughout the base year, you are able to give your child a much better shot at financial aid for school.