A college education can be a significant financial investment. So most parents and aspiring students look to financial aid to make otherwise costly institutions affordable options for their families.
The majority of students — 85% of them — do receive some form of aid. But the amount they obtain depends considerably on one very important number.
Your Expected Family Contribution (EFC) is a figure that sets the parameters for your college search and weighs heavily on how much your family will truly pay for college. Knowing some key facts about your EFC can translate to major savings as you plan for college:
1. What Expected Family Contribution is (and isn’t)
What is EFC? It’s a dollar figure that represents the amount of money the federal government thinks a student and parents should be able to contribute toward the coming year of college education.
Your Expected Family Contribution is recalculated for each year of the student’s college education. And it’s used by the college your student selects — or each college to which you apply — in order to determine the amount of need-based aid you should receive.
Your EFC is not necessarily the amount you’ll be billed at a given school. Nor is it the size of your financial need. That number is determined on a school-by-school basis by subtracting your EFC from the school’s Cost of Attendance (COA):
Amount of Financial Need = (Cost of Attendance) – (Expected Family Contribution)
So, if your school’s COA is $42,000 and your EFC is $28,000, your financial need is $14,000.
While your Expected Family Contribution won’t impact non-need-based awards (like merit scholarships), the need-based aid you receive won’t exceed your EFC. But there’s no guarantee that the aid you do receive will hit that number. Most colleges do not meet 100% of students’ financial need, so you’ll likely need to cover more than your EFC for those schools.
To estimate how much you’ll really pay at a given college, crunch your numbers in the school’s net price calculator. (By law, colleges and universities are required to post these calculators to their websites.) Find your school’s calculator on its admission page, or do a quick search with your school’s name and “net price calculator.”
2. How your EFC is calculated
The Expected Family Contribution formula is actually defined by law and published each year. The federal government collects the information it needs when you file the Free Application for Federal Student Aid (FAFSA®).
Every year you complete the FAFSA, you’ll receive an updated EFC via a Student Aid Report, or SAR. (Here’s a sample SAR, where the EFC reported at the top of the first page is $0.) In addition, your EFC is sent to all the schools you list on your FAFSA.
The federal government uses three main formulas to calculate your Expected Family Contribution, depending on your filing category:
- Dependent student
- Independent student with non-spouse dependents
- Independent student without non-spouse dependents
In some cases, a student may pass the simplified needs test —meaning their EFC is calculated with the simplified formula for their filing category. That formula does not consider assets when determining EFC.
3. Which assets are considered in your EFC
When you fill out your FAFSA, you’re asked to share specific information that’s used to compute your Expected Family Contribution. Depending on students’ FAFSA filing status, they need to provide the following details for themselves, parents, and/or spouses:
- Taxable income (including interest, dividends, and capital gains) from two years ago
- Benefits received (unemployment, Social Security, etc.)
- Tax allowances
- Bank account balances, CDs, and cash
- Value of non-retirement accounts (including UGMA and UTMA accounts)
- Balance of 529 plans & Coverdell Education Savings Accounts (ESAs)
- Number of other children you’ll have in college in the coming school year
- Retirement account contributions and distributions
- Contributions to Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs)
- Equity in investment real estate
- Equity in some businesses
- Value of trust funds
4. Which assets are ignored by the EFC formula
While the FAFSA requires plenty of detail to compute your EFC, the following assets are protected entirely during the calculation:
- Retirement savings — 401(k) & 403(b) plans, IRAs & Roth IRAs, pensions, profit-sharing plans, and more
- Equity in your primary residence
- Existing debt, including student loan debt
- Value of family businesses with fewer than 100 full-time employees
- Value of life insurance policies
- Personal possessions (vehicles, electronics, jewelry, art, furniture, clothing, etc.)
- Qualified withdrawals from a 529 plan or Coverdell ESA that’s owned by the student or by a dependent student’s parents
5. How assets are weighted differently
Ownership of assets is key in determining the value of your Expected Family Contribution. Students are expected to contribute significantly more of their assets and income to educational costs than are their parents.
First, you’ll want to determine whether a student is categorized as dependent or independent, as independent students don’t report their parents’ financials on the FAFSA.
Then, check whether the student qualifies for the simplified EFC formula, which does not consider the value of financial assets.
For a dependent student not eligible for the simplified EFC formula, the Expected Family Contribution includes these weights:
- 64% to 5.64% of parents’ unprotected assets
- 22% to 47% of parents’ annual income (above certain allowances)
- 50% of students’ income
- 20% of students’ unprotected assets
When you’re thinking about saving for college, remember this: If a 529 plan is owned by a dependent student or his/her parent, the balance held is considered a parental asset. Plans owned by independent students are evaluated at a higher rate, as they’re considered student assets.
A 529 plan owned by someone else — a grandparent, for instance — isn’t listed at all on your FAFSA as an asset. However, distributions from those plans are considered untaxed income for the student. As a result, 50% of withdrawals taken from a grandparent-owned 529 plan will be added to your EFC.
6. How to calculate your EFC
So what’s your magic number? You can estimate your Expected Family Contribution by using the U.S. Department of Education’s FAFSA4caster tool. Or quickly generate your EFC with the CollegeBoard’s Expected Family Contribution Calculator:
- Gather your information.
Gather the documentation you’d need if you were filling out the FAFSA, including account balances and applicable tax returns. For the 2020 – 2021 FAFSA, you’ll need your 2018 tax records.
- Choose a formula.
The CollegeBoard calculator lets you calculate your EFC with the Federal Methodology, the Institutional Methodology, or both. The Federal Methodology is what’s used to determine your eligibility for federal aid. Some private schools and award programs, however, establish eligibility for their own aid programs with the Institutional Methodology.
- Determine your student’s status.
Complete a quick questionnaire to ascertain whether your student is considered independent or dependent. The fields you see on the next screen will vary, based on this result.
- Enter your financial details.
At this point, you’ll be asked to complete a number of fields, which may include the following:
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- Family details: state of residence, parents’ marital status, family size, names and ages of family members
- Other students in the family: the number of family members who will be in college when the student applies for aid
- Financial information: adjusted gross income (AGI), earnings, benefits received, tax credits, allowances, and unprotected assets
- Review your output.
Once you’ve filled in the requested calculator fields, view your results. You’ll see a screen that lists the expected parent contribution, the student’s financial obligation, and the total EFC estimate.
If you want to dig in behind the scenes of your result, review the publicly available EFC formula worksheets. Or connect with a financial advisor who specializes in college planning. You’ll get more information about what’s contributing the most to your EFC and learn what steps you can take to qualify for maximum college aid.
Learning the value of your Expected Family Contribution is just the first of many steps to financing and saving money on a college education. With this critical number in hand, you can weigh your college options wisely and customize a financial strategy that truly benefits your family.
