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Financial Aid: Determining the Expected Family Contribution

Photo of a College Graduate and His Mother

Expected family contribution (EFC) is the amount of money a family should contribute toward education costs. Understanding how EFC is calculated is the key to your financial aid strategy. There are currently two methods of calculating EFC: the method prescribed by Congress, called the federal methodology, and the institutional methodology. While both methods are similar, the institutional methodology includes certain income and assets not included in the federal method and tends to calculate a higher family contribution. The institutional methodology is often used by schools that make need-based aid available in addition to federal student aid.

The student, not the parent, is responsible for completing a financial aid form. But the student may need the parent's financial information, depending on whether the student depends financially on that parent. The first part of a financial aid form asks questions to determine whether the student is dependent or independent. An independent student may omit questions about parents' income, assets, and taxes.

The financial aid form gathers information about the income, assets, and taxes of both student and parents. For a dependent student, EFC is the sum of four separate calculations, including the contributions from the following sources:

The parents' incomes
The parents' assets
The student's income
The student's assets

The calculations are not made on the form, but they are calculated by the agency that processes the financial aid form.

Contributions from Parental Income

Parental income includes taxable and non-taxable income from the year preceding the award year (last year's income if you plan to get financial aid this calendar year). The methodology automatically deducts an income protection allowance—money for food, rent, transportation, laundry, etc. The income protection allowance is adjusted for the number of family members and the number in school, and is based on a national average skewed just above the poverty level. Federal and state income taxes, Social Security taxes, and an employment expense allowance (up to $2,500 if both parents work or if it is a single parent household) are subtracted from parental income to compute "available income." Available income is multiplied by a factor ranging from 22–47% (graduated upward on the amount of "available income") to determine the amount from income.

Contributions from Parental Assets

Parental assets include the value of stocks, bonds, savings accounts, and business assets as of the date the parents sign the form. To determine the amount from parental assets, an asset protection allowance—a sort of nest egg for the golden years based on the age of the older parent—is subtracted from the amount of parental assets, and the remainder is multiplied by approximately 6%.

Contributions from Student Income

Students add up all their income and subtract their federal, state, and Social Security taxes. They may also subtract an income protection allowance (about $2,000). The amount from student income is 50% of everything the student earns that is over that amount.

Contributions from Student Assets

Students add up all their assets, including savings, investments, and trust funds, but excluding retirement IRAs. The amount from student assets is multiplied by 25–35%.

The expected family contribution is calculated by adding these four amounts.

In families with more than one member attending post-secondary schools simultaneously, each student will have a separate family contribution amount consisting of a fraction of the parents' contribution from income and assets, plus the student's own contribution from income and assets. The parental contribution is divided by the number of family members in post-secondary school. This includes parents who may be students as well as children.

In single-parent families where parents are divorced or separated, students use the income and assets of the parent with whom they lived for the greater part of the calendar year preceding the year in which they enter post-secondary school. Where the parent has remarried, the step-parent's income and assets must also be included in the calculation, just as though he or she were a natural parent.

Independent Student Status

Independent students include only their own income, assets, and those of their spouses (if married) on the financial aid forms to determine their expected family contributions. However, it is not easy to qualify for independent status.

The federal government has set strict guidelines for determining independent status. To qualify, a student must be able to answer "yes" to one or more of the following questions:

Will you turn 24 during or before the year of attendance?
Are you a veteran of the US armed forces?
Are you a graduate or professional student?
Are you married?
Are you an orphan or a ward of the court?
Do you have legal dependents (other than a spouse)?

By answering "yes" to any of the above requirements, you are automatically considered independent for federal financial aid purposes. If you answered "no" to all of the questions above, you are considered dependent on your parents for financial aid, even if you don't live with them and they don't claim you on their tax return. Some schools may disregard independent status. Note that students may file an appeal with the college financial aid office if they believe they are fully independent of their parents' support.

Financial planners recommend that you calculate your expected family contribution before completing financial aid forms. By determining your EFC early, you may be able to take advantage of financial planning strategies that will lower your EFC and generally improve your finances. You can perform the calculations free on the College Board Website.