About EFC (Expected Family Contribution)

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The government uses the submitted FAFSA form to calculate “Expected Family Contribution” (EFC). The EFC is a measure of the family’s financial strength and the amount of resources the family has available to pay for education.

The government looks at 5 areas to calculate EFC:

  1. Assets
    includes stocks, mutual funds, annuities, trusts, US savings bonds, bank cash accounts, 529 plans, prepaid tuition plans, investment real estate, and other family holdings.  Parent assets are assessed at 5.6% of the value.  Student assets are assessed at 35% of the value.
  2. Income
    how much money the parents (or spouse) AND the student make.  Certain amount of the parent’s income is protected based on the size of the family. Anything over that amount is then assessed on a sliding scale.  The student’s income is protected to a certain level. Anything over that amount is assessed at a higher rate, usually around 50%.
  3. Household Size
    the number of dependents in the home that are being supported by the parent or student
  4. Number in College
    the number of people within the household who are attending college
  5. Age
    how close are the parents age to retirement

Your assets and income are the factors that have the biggest impact in calculating EFC. The EFC is calculated according to a formula established by Congress.

About Asset Allocation:

  • parent assets are assessed at 5.6% of the value; student assets are assessed at 20% of the value.
  • if the parent’s assets are valued at $100,000, about $5,600 will be added to the formula that calculates EFC.
  • if the student’s assets are valued at $10,000, then about $2,000 will be added to the formula that calculates EFC

About Income Allocation:

  • a certain amount of the parent’s income is protected based on the size of the family. Anything over that amount is then assessed on a sliding scale.
  • the student’s income is protected to a certain level. Anything over that amount is assessed at a higher rate, usually around 50%.
  • these income assessments are then added to the formula that calculates EFC.
What Happens to EFC

After you submit your completed FAFSA form, the federal government will process your application and calculate the EFC.  It will then produce a Student Aid Report (SAR) and send that back to the student and the colleges that the student entered on the FAFSA form. 

The SAR will report the information from the FAFSA form and the calculated EFC (the EFC will appear near the top section of the report). After the student receives the SAR, he/she must review it carefully and make any necessary corrections. You can make changes online using your PIN: click here for FAFSA form corrections  

How Does the College(s) Use the SAR

The financial aid office of the school you will be attending calculates the total cost of attendance.  It then subtracts the EFC that is reported on your SAR.  The remaining cost left over (if any) is the amount of financial need the student qualifies for; adjusted by other financial aid assistance the student expects to receive (such as school scholarships, grants, etc.).

So you can see that the lower your EFC, the greater the amount of financial aid that you may qualify for.  So it is very important that you take actions to reduce the total amount allocated for EFC.  Even many expensive schools use the EFC to determine how much qualifying aid that they are willing to offer.  So submitting your FAFSA form “correctly” is an important first step for maximizing your financial aid potential.

Next time, we will review more deeply EFC allocation and what steps to take to maximize your financial aid. 

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Categories: FAFSA Form Tips