Senate Cents: A Financial Wellness Blog

Whether you’re a high school student starting to apply for college or a parent worried about how to pay for it all; Understanding the expected family contribution (EFC) can help you feel better prepared. Learn how the EFC is calculated, what it means for you, and what you can do to ensure that your college experience is as cost-effective as possible.

What is the EFC?

The EFC is the main driver of any need-based financial aid a student is eligible to receive. Its purpose is to measure the total amount of financial resources available to a student.

For example, students with an EFC of $0 will be eligible for the most need-based aid, while those with an EFC that meets or exceeds the cost of attendance may not receive need-based aid.

How is the EFC Calculated?

To obtain an EFC, you’ll need to fill out the Free Application for Federal Student Aid (FAFSA). This provides the information needed to plug in certain values to the EFC formula such as:

• • Your family’s annual income (taxed and untaxed)
  • Assets like a home, a 529 account, or a trust
  • Benefits like severance pay, unemployment, or Social Security disability or retirement.

This pool of assets will be discounted by factors like family size and the number of family members attending college. Generally, families that will have two or more members in college at the same time will have a lower EFC than a similar family with only one college student.

How Does the EFC Affect Financial Aid?

Each school has a set cost of attendance, which includes tuition and estimates or averages for books, supplies, room and board, and transportation. The school will evaluate a student’s “financial need” by subtracting that student’s EFC from the school’s cost of attendance. As an example, a student with a $25,000 EFC who wishes to attend a school with a $50,000 per year cost of attendance, that student’s financial need would be $25,000 per year.

This doesn’t mean that the student will necessarily be offered $25,000 in need-based aid. Nor does the EFC mean the student’s family is expected to shell out $25,000 per year. Instead, this number provides a way for the school’s financial aid office to prepare a financial aid package tailored to the student.

Don’t be alarmed if your EFC comes in at a far higher amount than you feel your family could afford to pay for college. Many families are surprised to see that their EFC totals a third or even half of their net household income. The figure provides a metric for colleges to use to determine which of its students have the greatest financial need.

What Does it Mean to Qualify for Financial Aid?

Each school has its financial aid programs to offer to prospective students, and this aid can be need-based, merit-based, or some combination of the two. The EFC addresses only the eligibility for need-based assistance. However, the lower a student’s EFC, the more likely he or she is to receive some need-based aid in a financial aid offer. In some cases, this need-based aid can be combined with a merit scholarship.

If a school’s need and merit-based financial aid offer only cover a portion of the total cost, the student and their family can make up this difference through a couple of ways:

• Federal or Private Student Loans
• Parent Plus Loans
• 529 Savings Plan

How do Schools Use the EFC?

Colleges and universities rely on the EFC to generate financial aid packages for each student. For example, students whose EFC is below a certain threshold ($5,576 in 2019) will be eligible for Pell Grants. While other students with EFCs on the lower end of the range may qualify for state-specific grants and scholarships to help cover the cost of attendance.

The financial aid award letter sent to each student will spell out what the cost of attendance is, what the student’s EFC is, what financial aid is available from the school, and how the student can cover any difference between the cost of attendance and the aid package.

When Should Families Start Thinking About the EFC?

Ideally, planning for college should start as early as possible. Even once the “true” EFC has been generated, this number isn’t necessarily static since the tax returns used for the EFC are from two years earlier. If a family’s financial situation has changed, Their estimate may no longer be a realistic assessment. Such as if there’s been a job loss or other significant changes in a family’s financial situation. It is possible to appeal a college’s aid award or have the EFC recalculated to reflect current circumstances better.

Students may also want to consider starting at a community college or local state school, then transferring to another school later in their academic career. Though it’s important to investigate which credits can transfer, this can allow students to receive an education from their school of choice at a mere fraction of the cost of four years of attendance.

What Happens if Your Family Doesn’t Qualify for Need-Based Aid?

If your family’s EFC is high enough that your student is unlikely to qualify for much need-based aid, there’s no need to worry. It allows you to focus your college search on schools that offer merit scholarships, work-study programs, and other ways to help defray the cost of attending.

While college costs have risen significantly over the past several decades, there are still many schools that have maintained relatively low tuition rates. Each college’s website should include a “cost of attendance” calculator that can help prospective students calculate the cost of attendance and figure out what aid is available before they even apply.