Your Guide to Expected Family Contribution
The constantly rising cost of college is intimidating, and many families will assume that there’s no way they could pay for a college education out of their own pocket. Since this is true⎯very few folks can pay for college these days without financial assistance⎯most families assume that they’ll be eligible for some type of financial assistance that could help them pay for school.
Unfortunately, there are limited funds available to help students pay for school, and financial aid officers need a way to categorize applicants who have different levels of financial need. The expected family contribution (EFC) figure is designed to help.
A Formal Definition
The U.S. Department of Education defines EFC as, “An index number that college financial aid staff use to determine how much financial aid you would receive if you were to attend their school.” Video: What Does EFC Mean?
Families can’t simply take a guess about what their EFC might be, and they can’t claim that their EFC is zero because they’d rather not pay for education.
Instead families must follow this series of steps in order to determine their EFC:
Compile all of your family’s household financial data
Submit your FAFSA and wait for results of your EFC figure
The U.S. Department of Education reviews the FAFSA and provides families with their EFC. That data is also shared with the schools the students choose to attend, if the applicant in question is a freshman. Otherwise, the data is only shared with the student’s college or university.
Factors That Influence EFC
Income means more than a paycheck, however, and some families may be shocked to find that money coming from Social Security benefits, combat pay, and even contributions to retirement accounts also counts as income. Families in need might also have unpleasant surprises in the income arena. In fact, families struggling to find employment may need of help paying for household expenses and for college, but they still must report their unemployment benefits as income.
- Education savings accounts
- Trust funds
- Money market funds
- Rental property
The typical equation to follow for all investments takes the present market value of the investment and subtracts any debt on the specific investment in order to determine the value that must be reported on the FAFSA.
Figures involving income and investments can deeply influence an EFC, but the amount of money a family can contribute might also be heavily influenced by the number of students in a household attending school in any given year.
While many families have only one child to send to college, those with multiple students in their midst could see their EFC drop as a result.
Factors That Do Not Count
While obtaining an EFC means providing scads of data about a family’s monetary health and financial characteristics, the final figure isn’t a true representation of a family’s ability to pay for school, as there are many types of financial burdens that simply don’t apply. Household unsecured debt like credit cards and payday loans aren’t included, and that could be a huge burden on a family’s budget.
This kind of debt can’t be counted against an investment, and there are no fields on the FAFSA in which to fill in a family’s debt load. Those families with high debt might be significantly impaired as a result.
Similarly, the cost of the school the student chooses to attend is also not included in EFC calculations, and this figure can vary dramatically depending on the choices a student makes.
The higher the cost of a specific school does not affect the EFC. Instead the amount only determines financial need.
Cost of attendance – Expected Family Contribution
= Financial Need.
Because the amount of free money sources and other need-based financial aid may be limited, many high-cost schools can’t cover all the families’ EFC.
On the plus side, there are some types of financial data that don’t appear in the FAFSA. For example, when asked to list investments, some families might be tempted to put the value of their homes on the line. For most families, this is the largest investment they have.
- However, a primary residence is not considered an investment, per the FAFSA. Families can omit this value altogether.
- There is more good news – retirements accounts and life insurance plans do not need to be included as investments on the FAFSA.
Why Does This Matter?
Students and their parents have so much to worry about as they prepare for the college journey to begin, and some might wonder if issues of the EFC are even worth bothering over. In fact, many students seem to make financial choices regarding their education without determining their EFC at all.
Knowing your EFC can help you to make decisions that are in line with your financial means and goals. If you’re trying to plan ahead about how to cover college costs, having even a rough sense for your EFC will make you more as you apply for financial aid packages and student loans, if you need them.