The calculations behind the FAFSA
You filled out the Free Application for Federal Student Aid (FAFSA) for your son or daughter or for yourself. It’s been submitted – either online or by mail – and now you wait. But wait for what? We’ll explain here what happens to all of that information you just provided the federal government and the schools you listed.
The FAFSA is just the first – but some would say the most difficult – part of the student financial aid process. The FAFSA collects personal and financial information that determines a very important number in the financial aid needs analysis – the Expected Family Contribution, or EFC.
The needs analysis is based on a few principles. First, the parents have the primary responsibility for the cost of higher education. Second, the student is responsible for some contribution to educational costs. Third, families should only be evaluated in their present financial situation. And lastly, the family’s contribution should be determined consistently and equally for all families with children attending institutions of higher education.
With that in mind, it helps to understand how that Expected Family Contribution is determined. The calculation is called the “Federal Methodology” and was created by Congress. There are two ways to determine EFC, one for independent students and another for dependent students. Most traditional freshmen are considered dependent, so we’ll describe that calculation here.
- Is at least 24 years old by December 31 of the award year covered by the FAFSA
- Is a graduate or professional student
- Is married
- Has children or dependents (other than a spouse) for whom the student provides more than half of the support
- Is an orphan or ward of the court
- Is a veteran of the U.S. Armed Forces or is currently serving on active duty
- Is determined to be “independent” by a financial aid administrator based on unusual circumstances
The information you entered into the FAFSA and that are considered for the EFC include parental income, parental assets, and student contributions, with some calculations to exclude enough of the family’s resources so they can still pay living expenses.
The first step in the EFC calculation is to determine what portion of the parents’ income is available to contribute to the costs of college. It includes total income but then subtracts taxes paid, child support and basic living expenses, and an employment allowance (basically a percentage of the income of the parent who earns less, or of the single parent’s income). This number is the available income.
Then, parental assets are analyzed. The value of cash, savings, checking accounts, the net worth of a business or farm, and investment and real estate net worth (excluding the family’s primary residence) are added together. From that total, specific savings for education and an asset protection allowance (a portion of assets dependent on structure of the family and the value of assets) are subtracted. A part of this total is used to determine the available contribution from assets.
Available income and the available contribution from assets are totaled to equal the EFC. This number is subtracted from the total cost of attendance (or COA) as determined by the school, to leave you with a dollar amount to define your “need.”
The information on the FAFSA determines what the EFC, and subsequently, what the need is. Each school you sent your FAFSA to may use this information differently to determine how much aid you will qualify for, and how to make up that need with a combination of gift-based aid (or money you don’t have to repay, usually in the form of grants or scholarships) and self-help aid (loans and money earned from employment).
In creating the financial aid award package, financial aid officers will first use up federal grants and low-interest federal loans for those with the greatest need. The most common examples of these kinds of aid are ACG Grants, Pell Grants, Perkins loans, and subsidized Stafford loans. If any state grants are available, those might be included if you are eligible. A work-study job could also be included, in which the student works to earn a portion of their aid over the school year. Scholarships are counted in the aid package – if you were awarded scholarships from outside sources, the financial aid officer may count that as part of your available contribution. Some schools have their own money to give away for financial aid, too, so once all of the federal and state resources are exhausted, you might see a scholarship, grant or loan from the school in your award package.
This overview only provides an insight into the process used when a school follows the standard federal methodology for determining financial need. Many schools require additional forms after the FAFSA, such as The College Board’s PROFILE or a school’s unique financial aid form. The information collected in these supplemental forms can be used to adjust the EFC, either in your favor or not. So don’t be surprised if you try your own calculations and they differ from what you see in a given school’s award package. It helps to understand how each school to which you are applying calculates a student’s financial aid, if you are going to use the aid award as a factor in your decision to enroll.