Expected Family Contribution – What is the EFC and How Does It Impact Financial Aid?

Chris Ladd, CFP®

If you have a student bound for college in the next few years and are beginning to wonder about how to pay for it and the financial aid process, a good place to start is understanding the Expected Family Contribution (EFC).

1) What is the Expected Family Contribution (EFC)?

The Expected Family Contribution (EFC) is an estimated dollar figure of how much the federal government believes your family should contribute to college costs for your student. The EFC is then used by schools to determine how much federal financial aid the student could receive. The EFC amount is not how much the family is truly expected to pay out of pocket for a student’s college education or how much financial aid will be received.

2) How is the EFC calculated?

The EFC estimate is calculated using a pre-determined formula based on the information provided in the Free Application for Federal Student Aid (FAFSA). If you’re not familiar with FAFSA or want a quick refresher, have a look at our FAFSA Basics article. Filling out the FAFSA will be the first task to complete to become eligible for federal financial aid.

3) What is the formula used to calculate EFC?

A lot of information goes into completing the FAFSA, and subsequently what determines the EFC. To make things a little more confusing, there are actually three EFC formulas – the Federal EFC, the Institutional EFC, and the Consensus EFC. Different schools use different formulas in their EFC determinations.

The Federal EFC is used by most public schools and is based primarily on information collected in the FAFSA. The Federal EFC formula takes into account many financial considerations, but it does not consider equity in the family primary residence, retirement plan balances, or the value of a small business in the calculation.

The Institutional EFC is used by many private schools. This EFC formula begins with information from the FAFSA but also includes other items such as home equity and the value of a small business. The balances of retirement plans typically need to be provided to schools using this approach, but they are not used in the formula to calculate aid eligibility. Schools using the Institutional EFC may require additional information or completion of the CSS Profile. Review our CSS Profile Fundamentals article to learn more about what it entails.

The Consensus EFC is used by a few elite private colleges and is similar to the Institutional EFC, with a couple of significant differences. First, student and parent assets are treated equally. In the other EFC formulas student assets are weighted more heavily (20% for students vs. 5.64% for parents). Second, while home equity is included in the formula, it is capped based on family income. The result from this approach is that more middle income families have access to federal financial aid.

4) When and where can I see my EFC?

After submitting the completed FAFSA, the information is processed and used to produce a Student Aid Report (SAR). The SAR summarizes the financial information provided on the FAFSA and shows the EFC. Assuming that the FAFSA was submitted and signed electronically, the SAR should be received electronically via email in 3-5 days. More information on the SAR can be found on the Federal Student Aid website page How to Review Your Student Aid Report.

5) How does your EFC affect how much financial aid you receive?

When completing the FAFSA, students also indicate schools they are interested in attending. The schools listed on the initial FAFSA application receive a copy of the SAR and use it to determine eligibility for federal and possibly institutional financial aid. Need-based aid is based on the following formula:

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

So if the Cost of Attendance at a certain school is greater than the EFC, there will be “Financial Need”, and subsequently, eligibility for federal financial aid.

6) Are there ways to lower EFC to increase financial aid received?

There are legitimate ways to lower your EFC, but it is best to plan for them even a few years ahead of time. It is best to start looking at your financial situation as early as the student’s freshman year in high school and understanding what goes into the EFC formulas.

A situation that greatly impacts the EFC calculation is having multiple children in college at the same time. If you will have two children in college, then the EFC is effectively divided in half. The result can be a significant increase in financial aid eligibility during those years.

There are other options to increase the affordability of college, such as appealing financial aid awards from schools, applying for merit-based scholarships, and saving for the expense of college ahead of time. However, when it comes to federal financial aid, understanding the Expected Family Contribution is fundamental to the planning process. So start planning early to get an understanding of How Financial Aid Works, and reach out to your financial planner if you have questions.

By Chris Ladd, CFP®

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