Cracking the code to accessing financial aid is challenging but definitely a worthy endeavor. Unlock more aid opportunities by understanding your Expected Family Contribution.

One of the biggest hurdles families face in the college funding journey is understanding financial aid; really understanding it – the different types of aid available, how to obtain it, how to strategically manage your income and assets in order to maximize your aid and last but not least, how to evaluate and compare financial aid offers in your school selection process.

Beginning the financial aid conversation for most college bound families probably starts with the big question – whether or not their student will qualify to receive aid. Many families presume their income will disqualify them from receiving financial aid – so they may talk themselves out of even applying for aid at all.

Please keep in mind, there is no income cut-off that will automatically make you ineligible for financial aid. Given the high cost of college today, it’s not just a question of whether you can qualify for aid, but more so how much aid can you obtain and in what form aid is offered – so that you drive down the high costs and avoid burdensome student loan debt. And, while much of the focus of this article is on need-based financial aid, schools themselves are providing significant amounts of non-need based (merit) financial aid.

Putting together the puzzle pieces of financial aid can be overwhelming, even intimidating to both parents and students. Not only are there a multitude of data points to consider, there is variability from school to school as to what defines need, such that at one school a family with income over $200,000 could qualify for need based aid, but at another school the income ceiling could be $70,000.

The first step to gaining greater clarity about qualifying for financial aid is determining your Expected Family Contribution.

Expected Family Contribution

In order to receive federal, need-based, financial aid, families must complete the Free Application for Federal Student Aid (FAFSA). The driving factor of any financial aid determination is the Expected Family Contribution or EFC. Based on information you provide, FAFSA calculates your EFC.

financial aid FAFSA

Your EFC is an estimate of what the government thinks your family can pay for one year of college.  According to FAFSA “The Expected Family Contribution (EFC) is a measure of your family’s financial strength and is calculated according to a formula established by law.” Family financial need is then determined by reducing the Cost of Attendance (COA) by the EFC.

Cost of Attendance (COA) is the average cost for one year of college and includes tuition, fees, room/board, supplies, transportation and personal expenses.

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

As an example:

$50,000 (COA) – $30,000 (EFC) = $20,000 demonstrated financial need

A couple of important caveats;

  • Demonstrated financial need determined by FAFSA does not mean that you will automatically receive federal or institutional (schools) financial aid equal to that number. Schools are the decision-makers in weaving together financial aid packages, including using your FAFSA to determine your federal aid eligibility (government sends money to schools and funds are dispersed by the schools.) Very few schools will meet the full amount of your financial need.
  • Your EFC most likely does not represent the reality of your family’s financial situation and will probably be higher than you expect or hope.  The EFC formula is driven by your income and your assets; however, it does not take into account or make any reductions for your living expenses and debts like car loans, credit cards, or even student loan payments. But, don’t let that slow you down. You may be able to manage components of your EFC for a more positive impact. And more importantly, by knowing your EFC first, you can then be more strategic in your school search and in targeting the best sources of money for which you qualify.

Since the FAFSA is filed on an annual basis during the college years, the EFC is recalculated each year as well.

The following is a summary of the components of the EFC calculation. (You do not need to do this calculation manually!)

Calculating Expected Family Contribution

There are several factors that can be used in determining a family’s EFC. They may include:

Parent’s adjusted gross income           Equity in other than primary residence

Parent’s income taxes paid                   Business equity

Student’s adjusted gross income         # of people in the household

Student’s income taxes paid                  Marital status of parents

Cash/savings/checking amounts           Age of older parent

Non-retirement investments                # of kids in college at the same time

Home equity for primary residence

The Expected Family Contribution depends most heavily on family income and assets and the basic calculation looks like this:

EFC = % of parent income + % of student income + % of parent assets + % of student assets

financial aid - expected family contribution

Calculating EFC: Income

As a starting point, FAFSA assesses a value between 22% to 47% of parent income (based on a sliding scale that increases with income) to be included in the EFC. The highest graduated rate of 47% kicks-in at $34,500 of income.

For the student, FAFSA assesses income at 50% for amounts above the income protection allowance.

The Income Protection Allowance provides a little relief, by carving out or excluding a portion of income from the EFC calculation. For parents, the allowance is based on household size and number of children attending college at the same time.

Here is the chart from the 2020-2021 FAFSA EFC Formula Guide:

For student income, the Income Protection Allowance is currently $6,840. Once a student’s income exceeds this threshold, the student’s income is assessed at 50% for inclusion in the EFC.

To determine your income, FAFSA looks back two years, or the prior-prior year. So, when you are applying for financial aid for your student’s freshman year of college, FAFSA will base your income on the calendar year your student was in their spring semester of sophomore year/fall semester of junior year in high school.

Calculating EFC: Assets

The impact of assets on EFC will vary because not all assets are treated the same. The specific percentage of assets that count in the EFC calculation will be based on one of two formulas, the Federal Methodology or Institutional Methodology.

Federal Methodology

The federal methodology (based on your completion of FAFSA) is used to determine a family’s EFC and qualification for federal and state need-based financial aid. The majority of schools also use this formula to determine if students will qualify for need-based aid from their own institutional need-based grants.

In calculating the EFC, the FAFSA formula excludes the following assets:

  • Primary home equity
  • Qualified retirement accounts
  • Pension plans
  • Annuities (qualified and non-qualified)
  • Life insurance cash value
  • Family-owned businesses with less than 100 full-time employees

The FAFSA formula includes the following assets:

  • All taxable bank and brokerage accounts
  • Cash (regardless of where it is located)
  • Equity in real estate other than the primary residence
  • College savings accounts (529, Prepaid Tuition, Coverdell)
  • Trust funds
  • UGMA/UTMA custodial accounts

The FAFSA formula assesses parent assets at a maximum of 5.64%. So, for approximately every $10,000 in parent assets, aid eligibility drops by $564.

The Asset Protection Allowance provides a little relief. It excludes a portion of the parent’s nonretirement accounts, based on a dollar amount determined by the age of the older parent as identified in Table A5 of FAFSA:

There is no Asset Protection Allowance for student assets.

Asset values for your EFC calculation will be the values as of the date of your FAFSA submission.

Your EFC determined by FAFSA will not vary by school.

Institutional Methodology

The institutional methodology is also referred to as the CSS Profile. Approximately 400 schools use this additional formula for assessing your family’s income and assets to calculate your EFC and aid eligibility for their own institutional need-based grants.

The CSS Profile application digs deeper into a family’s financial information and includes many more questions than FAFSA. Schools using the CSS Profile can customize their aid application and add several more supplemental questions. Additionally, because of the customization, the EFC generated may vary significantly from school to school.

Unlike FAFSA, the CSS Profile utilizes a proprietary formula only part of which is made publicly available.

While the income calculation is the same for FAFSA and CSS Profile, there is a difference between them in determining which assets are included and their assessed value in the EFC calculation.

Assets excluded from the CSS Profile:

  • Qualified retirement accounts
  • Qualified annuities
  • Life insurance cash value (some schools may inquire about this)

Assets included in the CSS Profile calculation:

  • All of the same assets as listed above for FAFSA
  • Equity in the primary residence
  • Nonqualified annuities
  • Assets in a family business

While all CSS Profile schools will inquire about home equity, how that information is used will vary by school. Some schools will ignore it, some will assess it at 100% and others may assess the value up to a capped amount tied to family income (for example a cap may be equal to 1.5x income.) Unfortunately, CSS Profile schools may choose not to reveal how they assess home equity or may decide to change their policies at any time.

CSS Profile assesses parent assets at 5% and student assets at 25%.

By better understanding and managing the components of your EFC – the income and assets, how their values are assessed and when, you can potentially make a difference in qualifying for more financial aid.

The lower the EFC, the greater the chance you have to qualify for need-based aid. The higher the EFC, the less of a chance you have to qualify for need-based aid. However, that determination can really only be made in context to a schools Cost of Attendance. The more expensive a school the lower a family’s EFC will appear. Look at how a change in COA impacts financial need:

COA                      $70,000                 $40,000                 $25,000

 (-)                           (-)                             (-)                          (-)

EFC                       $30,000                 $30,000                 $30,000

Your Need       $40,000                 $10,000                 $0

By calculating your estimated or actual EFC, you can in turn use that to help you expand your list of schools for more research and consideration.

With a low EFC – look for schools that are more generous with need-based aid. Learn more about a school’s:

  • % of financial need met
  • % of students who get their full financial need met
  • Average financial aid awards

With a high EFC – look for schools that are more generous with merit-based aid (non-need based.)  Learn more about a school’s:

  • Average merit awards
  • % of freshman who receive merit awards
  • Requirements to maintain merit awards

A few tools you can use to evaluate these factors in your school research:

  • College Data
    • Similar to College Board site statistics, but also includes the number of students who receive merit based (non-need based) aid

A few additional tips to help you manage through the financial aid maze:

  • Keep assets out of the student’s name. Financial aid formulas treat student assets more harshly than parent’s assets.
  • Remember, the base year for the EFC income determination is the prior-prior year. So, where possible avoid significant increases in income, including capital gains and dividends, starting with the base year.
  • Complete the FAFSA application. It is the important first step in accessing financial aid. To get a preview of the information you will need to complete the FAFSA application, utilize the FAFSA on the Web Worksheet:
  • When evaluating financial aid offers from schools, make sure the EFC is included in the award letter. If it is not, contact the financial aid office and ask for it. Without the EFC used by the school, it is harder to properly evaluate the award – to see how generous or not-so-generous a school’s offer really is for you.

Now is the time to uncover more financial aid opportunities. Start by estimating your Expected Family Contribution (EFC), the number that is central to qualifying for need-based financial aid.  From there, expand your college search and explore how generous schools may be in helping you to lower your out-of-pocket college costs. For more information check out our library for a list of the most generous colleges.