With the latest formula for Expected Family Contribution (EFC) out for the 2019-20 academic year, some families are feeling the pinch as their kids attend college. Here’s what you need to know about EFC — and how it impacts the college bottom line.
What Does a High EFC Mean?
Your EFC is the amount of money the government thinks your family can afford to put toward a student’s college education for that year. So if you have an EFC of $15,000, the government expects that your family can pay for that much of the college bill this year.
If you have a high EFC, it means the feds think your family will be able to cover a bigger portion of your cost of a higher education —especially if your EFC is more than the cost of the college your student is attending. In those cases, the government assumes your family can afford all the costs of college.
When determining your EFC, the government uses the information provided on your Free Application for Federal Student Aid (FAFSA). Some of the factors included in the EFC formula are:
- Household size
- Number of kids in college
- Student income and assets
- Parent income and assets
- Age of the oldest parent
What about the EFC allowance?
There is an allowance designed to shield some parent assets from inclusion in the calculations, helping reduce your EFC. However, the number of assets protected from the calculation has been falling in recent years. The following image, from Edvisors, illustrates the drop in the number of assets taken out of the reckoning for parents.
As you can see, for school year 2009-10, parents in their mid-40s could expect to see about $50,000 in assets shielded from EFC calculations. By 2016-17, that amount had dropped below $20,000. Today, for the 2019-20 year, a 45-year-old (married) parent will only see $11,100 in joint assets shielded. All the rest of parent assets are considered in the calculation.
And that, right there, is the answer to the question, “Why is my EFC so high?” Fewer assets are being shielded in the formula, and that means more of the parents’ savings, investments, and other assets are being included in the calculation.
For many middle-income families, this can mean the loss of need-based financial aid. With more assets being “counted” as “proof” that a family can afford to shoulder more college costs, EFC is going up for many people.
Avoid Common FAFSA Mistakes
In addition to changes in the EFC calculation, many families make mistakes when filling out FAFSA, which lead to unnecessarily high EFCs. One common mistake that has occured to many members of our Paying For College 101 Facebook group has to do with retirement rollovers.
Dawn Kirsch recently posted this PSA to members of the group:
“Public Service Announcement for FAFSA filers.
Here’s a very important piece of info I wish I had known. If you have done an IRA rollover and received a 1099 form for your taxes, the FAFSA does NOT take that into account and will have grossly inflated numbers for your EFC. (Ask me how I know 🤣.) The data retrieval tool does not delineate between rollover and distribution payouts, which is a HUGE difference. The college will have to manually correct this for you. Apparently this is a pretty common error when dealing with a rollover scenario. My college knew right away what had happened to give us an EFC of $143,000, and said it would be an easy fix for them when I bring in the 1099 forms to the financial aid office.”
To avoid having retirement rollovers mistreated, professionals suggest you do not use DRT, the data retrieval tool which automatically pulls information from your taxes. As of now, DRT does not properly categorize retirement rollovers and includes this information in your income, grossly overstating your EFC.
If you or your spouse had a retirement rollover during the tax year for which you are using to fill out FAFSA, manually enter your information and avoid using DRT.
As Dawn found out, if you do use DRT and it mishandles your retirement rollover, you’ll need to contact the financial aid office for each school for which your student is submitting FAFSA and explain your situtation. Most likely, you’ll also be asked to submit additional documention before the school can make corrections on their end.
Unfortunately, there are many other mistakes families make when filling out FAFSA. Take your time and read up on common FAFSA mistakes you can avoid, before you delve in.
I Have a High EFC. Should I Still Fill Out the FAFSA?
At this point, you might be asking, “Why do we have to fill out a FAFSA if our EFC is so high and we won’t get financial aid?”
Even if you have a high EFC, it still makes sense to fill out the FAFSA. Your EFC might be high enough to disqualify you from need-based aid, like grants, but you might still be able to get federal work-study or get federal student and parent loans.
In order to access federal student loans and other types of financial aid, you still need to fill out the FAFSA. On top of that, many school-based scholarships also take information from the FAFSA — even for merit-based aid.
Government need-based grants aren’t the only forms of financial aid. Federal student loans and federal work-study programs are also considered student aid. Plus, state programs and school programs are also considered financial aid. And, if parents want to use Parent PLUS loans to help out, the FAFSA is part of that process.
So, if you still need money to help pay for school, filling out the FAFSA is important.
Keep EFC Sticker Shock from Derailing Your Plans
One of the best ways to avoid sticker shock is to estimate your family’s EFC before senior year. Keep an eye on the situation, and estimate it each year of high school. This can provide your family with time to look into other options for paying for school, including federal and private student loans, scholarships, and efforts to save up using accounts like a 529.
When you have an idea of what the government thinks your family should pay, and you can see the gap in what you can practically afford, you can start taking steps to close that gap and make sure to get the best bang for your college buck.
Find a College That Can Offer Free Money
Remember, you are not in this on your own. Regardless of what your EFC is and whether or not you can afford it, you need to be financially strategic when searching for colleges.
The amount of free money colleges offer is FOUR times the amount of money given out in private scholarships. Money given by colleges to students for either need or merit awards (also known as institutional grants) is the second largest source of free money, the largest being the Federal government.
You can focus your student’s college search on schools that are known to be more generous with either merit scholarships or need based aid. Whether you need a school that comes close to meeting 100% of need, or you want to focus on getting as much in merit scholarships as possible, you can identify the best schools for your family.
Try our College Free Money Finder today! The Money Finder identifies schools where your student is most likely to get the most free money in either merit scholarships or need based aid.
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by Miranda Marquit, who has been covering personal finance for more than 10 years, including aspects of college planning and student loans. She is a recognized money expert and has contributed to numerous media outlets, including Forbes, Marketwatch, NPR, USA Today, Investopedia, and U.S. News & World Report. She lives in Idaho with her teenage son — who she’s just starting to guide through the college selection and admissions process.