College Financial Aid – Your Expected Family Contribution
The EFC, or Expected Family Contribution, is the cornerstone of the financial aid awarding process. For federal aid eligibility, your EFC will be determined from your FAFSA application.
If you are not aware of the questions that affect your EFC, you may inadvertently make an error on your FAFSA that could have a serious impact on you child’s award package. Briefly, both the parent’s and student’s income and assets impact the EFC. Careful attention to these questions is vital. Two other questions that have a major affect on the EFC are the family size and number in college questions. A family with two children in college will have half the parent contribution of the same family with one child in college. The EFC calculation, which is the result of Congressional action, is a complicated number cruncher that takes into consideration the custodial family’s size, provides an income protection for basic living expenses, looks at the amount of liquid savings available from the student and parent, (hint: students’ savings have a dollar for dollar greater impact on the EFC than do parents’), and requests a disclosure of business and investment income. What is not looked at is the financial strength of the non-custodial parent, home equity, accounts protected for retirement and small business value (business’ of less than 100 employees). Now that the federal EFC is calculated, your financial aid office will determine your or your students’ need. Another formula, this one much simpler, is now applied. Cost of attendance minus your EFC equals your federally calculated need. What if, you ask, your EFC is greater than your cost of attendance? In this case, you will be considered a “no-need” student and will be eligible for non-need based aid only.
In case this is not confusing enough, some institutions, mainly four-year privates, use a separate EFC calculation, usually know as “Institutional methodology.” The most commonly used application by institutions is provided by College Board and is called the CSS profile. Unlike the FAFSA, the CSS profile has a cost associated with the application. While institutions use your Federal EFC from the FAFSA to calculate your federal aid eligibility for federal loans, grants and work-study, they apply their own EFC to calculate how much institutional funds you are eligible for. Institutions with sizeable endowments are allowed to use their own methodology to determine what type of students they wish to recruit and retain with their own funds. But Federal aid eligibility must always be determined by federal methodology and this should be disclosed to you on your award letter. What you should know about institution’s methodology is that their applications can and usually do ask more probing financial questions than the FAFSA application. Non-custodial parents and their spouses must disclose their income and assets. Home equity from both parents (if applicable) is also used in the calculation. Fortunately the CSS profile and similar applications ask you to disclose your expenses rather than relying upon an income protection allowance used in the Federal calculation. Therefore, you have the opportunity to disclose higher than average expenses your family may have. Subsequent posts will discuss how to approach your financial aid office if your family has experienced financial circumstances or hardships that are not reflected in your FAFSA and CSS profile.