Waiting for your official Expected Family Contribution (EFC) can feel like an eternity. When it arrives what everyone wants to know is how is EFC calculated and what exactly does it mean? We’ve got the answers you need.

What Is EFC?

The Expected Family Contribution is the minimum amount the government thinks you can afford to contribute toward your child’s college expenses.

The Student Aid Office calculates this amount using the financial details in your child’s Free Application for Federal Student Aid (FAFSA) form and returns the result in your child’s Student Aid Report (SAR).

The FAFSA is considered the gateway for students to receive any financial aid either from the government or directly from the colleges.

Keep in mind that the higher your EFC is, the less financial aid your child will qualify for.

The EFC reduces the Cost of Attendance (COA) in determining the amount of financial need a family has:

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

For example, if the total COA (Tuition & Fees, Room and Board, Books, Supplies, etc) at a particular school was $50,000, and the family’s EFC from the FAFSA was $30,000, they would have $20,000 of financial need.

It’s Not What You Might Think

It’s important to understand the EFC is not the actual amount you’ll end up paying toward your child’s college education. In fact, many families end up paying more than their EFC, because colleges often don’t meet 100 percent of financial need.

The FAFSA EFC Formula: How Is EFC Calculated?

It’s essential to understand that we’re discussing the FAFSA EFC calculation. The EFC formula for the CSS Profile is slightly different. Here’s how the FAFSA EFC calculation works:

EFC Parent Contribution

The government considers both income and assets when determining the parent contribution to the EFC.

• Parent income (or parents’ income for a married couple) is far more impactful to the EFC than parent assets. To determine what is considered your income, follow these guidelines:
  
  • Start with your taxable income and add in non-taxable income (such as received child support and 401(k) contributions).
    
  • Then, subtract what you paid for taxes and Social Security.
    
  • Also subtract the income protection allowance, which varies based on household size and the number of children you have in college.
    
  • The number you get after these calculations is what you’ll report as parent income on the FAFSA.
    

The government will use a percentage of your reported income (between 22 percent and 47 percent) when calculating EFC. The higher your income is, the more of it will count toward EFC.

• Parent assets don’t affect the EFC as much as income. They are assessed at a rate of 5.64 percent (significantly less than the income assessment rates). What counts as assets?
  
  • Cash
    
  • Bank account balances
    
  • Investments
    
  • Real estate holdings (excluding the family’s primary residence)
    
  • 529 plan balances where either parent is the account owner (the student and siblings are beneficiaries)
    

If the student is considered independent, parent income and assets aren’t included in the EFC calculation.

EFC Student Contribution

The student’s income and assets also factor into the EFC. Here’s how:

• Student income is calculated the same way as parent income, starting with the taxable income and adding/deducting income as described above. The income protection allowance for a student is $6,570. For most students, this means their income will not factor into the EFC at all. The government will use 50 percent of a student’s reported income (above the protection allowance) when calculating EFC.
  

• Student assets are assessed at 20 percent–a much higher rate than parent assets. See the above list for examples of reportable assets.
  

Tip: You don’t need to wait to fill out the FAFSA to get an idea of what your EFC will be. You can get a good estimate by using the College Board’s calculator.

Simplified Needs Test

While the formula explained above is used for most FAFSA forms, there is another way to calculate EFC: the Simplified Formula.

This calculation is used for families with extenuating circumstances. The Simplified Needs Test determines eligibility for the Simplified Formula. There are two required criteria:

• Criteria A
  
  • At least one person in the household qualifies for a means-tested federal benefit program (e.g. SNAP, WIC, Medicaid, TANF)
    
  • Parents are eligible to use Form 1040A (but did not file a Schedule 1), do not file a tax return, filed a tax form from a Trust Territory, or a parent is a dislocated worker
    
• Criteria B
  
  • Parents’ adjusted gross income (AGI) is less than $50,000
    

If both of these criteria are met, the government calculates EFC using the Simplified Formula, which only considers income, not assets.

What if Your EFC Is Zero?

A lower EFC means your student is eligible for a higher amount of financial aid. Colleges may offer substantial aid packages to a student with an EFC of zero.

The eligibility requirements for a zero EFC are similar to those for the Simplified Needs Test, but they are stricter.

To qualify for zero EFC, Criteria A (see above) must be met. However, the Criteria B income threshold is lower: only $27,000. Independent students who have no dependents other than their spouse are not eligible for a zero EFC.

EFC Score

Once you receive an “EFC score” it’s important to know how to put it into perspective.

What is a good EFC?

There isn’t an objective dividing line between “good” EFCs and “bad” EFCs, but a lower EFC generally means more financial aid.

Financial aid is also based on the cost of the college your child attends. Let’s say your EFC is $15,000. Your child would qualify for much less financial aid at a low-cost state school than at an expensive Ivy League institution.

Why Is My EFC So High?

For many parents, the biggest FAFSA question is, “Why is my EFC so high?” There are many reasons, but one of the biggest factors in recent years is the reduction of the asset protection allowance.

The asset protection allowance shields a portion of parent assets from factoring into EFC calculations. Unfortunately, the threshold has been decreasing for the last several years.

While the asset protection allowance shielded tens of thousands of dollars in parent assets a decade ago, the current threshold is only a few thousand dollars.

How Do Colleges Use Your EFC?

Once the government calculates your child’s EFC, it will send that information to their potential schools. Each college has its own financial aid policies, but they all calculate financial need the same way:

• Financial need = Cost of Attendance (COA) – EFC
  

As you can see, a higher EFC number reduces your child’s calculated financial need.

Once a college has calculated your child’s financial need with this formula, it decides how much need-based aid to offer. Most colleges do not fund 100 percent of a student’s financial need, but you can maximize financial aid by choosing the right school.

Aid is usually a combination of loans, work-study opportunities, and/or grants. Some colleges also use the EFC when allocating merit-based aid, like scholarships.

Are There Ways to Lower My EFC?

It’s not usually possible to reduce your EFC after it’s calculated. However, you can minimize your EFC by reducing income and assets as much as possible during the base year. Here are some possible ways to minimize your EFC:

• Lower savings account balances by paying off consumer debt.
  
• Avoid taking Roth IRA or other retirement account distributions.
  
• Reduce your retirement contributions (they count as income).
  
• Don’t realize capital gains (e.g. don’t sell stock or other investments for profit).
  
• Wait to remarry (to avoid having to list your new spouse’s income/assets on the FAFSA).
  

Remember, FAFSA requires financial info from the prior-prior year (e.g. the 2022-23 FAFSA uses tax info from 2020). So you’ll need to think ahead when making financial plans for the college years.

Give Your Child the Best Chance for Financial Aid

Your Expected Family Contribution affects how much financial aid your student can qualify for. A higher EFC means less aid. By understanding how the EFC is calculated and doing what you can to minimize your income and assets during the base year, you can give your child a better shot at financial aid for college.

Other Articles on Financial Aid:

Tips for How to Fill Out the FAFSA, the CSS Profile, and Other Aid Forms

How Does Financial Aid Work? Understanding the System

How to Apply for Financial Aid for College

Six Key Strategies to Lower Your EFC

Why Is My EFC so High and What Does it Mean?

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