What Is The EFC?

Everyone should complete the FAFSA, even if they have a high EFC. Here, we discuss the FAFSA, EFC, income and assets, and more.


Updated September 19, 2023 · 4 Min Read

What Is The EFC?

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Many college students graduate with student loan debt. Learners can reduce the amount they owe by taking advantage of financial aid. According to EducationData.org, 86% of students receive some financial aid. Still, more than $2 billion in student aid grants go unclaimed each year.

The federal government uses the FAFSA form to assess applicants' abilities to pay for college. Federal financial aid offerings depend heavily on expected family contribution (EFC). You should still complete the FAFSA, even if you have a high EFC. The form generates a financial profile that students need to apply for most financial aid. This includes scholarships and grants.

The FAFSA and Financial Aid Eligibility

Students can apply for any kind of financial aid by submitting the FAFSA to the Federal Student Aid Office. This creates a Student Aid Report (SAR). Learners need this financial profile to apply for aid such as loans or scholarships.

Applicants must meet basic eligibility criteria to qualify for federal financial aid. They need a high school or GED diploma. They must also show financial need and acceptance to an accredited school. Additional requirements include U.S. citizenship or eligible noncitizenship. Applicants also need a Social Security number.

The government estimates financial need by subtracting EFC from cost of attendance (COA). Enrollment status and year in school also may affect student aid.

What is Expected Family Contribution?

The EFC indicates how much students and their families can afford to pay for education each year. This index appears as a six-digit number in the top right corner of the SAR. The section below explains the EFC calculation system.

Q. How is EFC Calculated?

The Department of Education (ED) publishes the tables for EFC calculation. The ED's Central Processing System calculates EFC based on financial data from the FAFSA. The ED uses somewhat different EFC formulas for dependent students, independent students, and independent students with dependents. Primary factors influencing the EFC include income, assets, and number of household members. The number of college enrollees in your household also affects the EFC.

Schools sometimes consider additional information when determining EFC and resulting aid offerings. Many schools subtract EFC from COA to determine aid eligibility.

Q. What Does My EFC Number Mean?

College financial aid offices use the EFC to estimate how much financial aid the school will offer to enrollees. Students with low EFC receive the most student aid. Learners with high EFC receive less aid. Applicants with family incomes below $26,000 qualify for an automatic zero EFC and maximum federal funding.

Q. What If a Family Can't Afford Their EFC?

The EFC does not determine the actual amount students must pay or the exact amount of federal aid a student will receive. Parents or guardians who refuse to provide financial aid information or contribute to a student's education may disqualify students from receiving federal aid. The federal government and schools typically provide financial assistance only when families cannot pay.

Students can sometimes reduce their high EFC by submitting a FAFSA appeal. Some students can qualify as independent and access financial aid without their parents' involvement. Dependent students may qualify for unsubsidized Stafford loans without entering parental information.

Q. How Can Families Minimize EFC?

Families can lower high EFCs by maximizing the number of dependents in their household. Households may lower their EFC by supporting several college students enrolled at least part time.

Students who wait until they reach 24, get married, or otherwise qualify as legally independent may lower high EFCs. Learners with large assets can reduce their EFC by moving these assets to another family member. Converting general savings into college savings accounts can lower the EFC.

Can You Still Receive Aid from FAFSA With a High Net Worth and Income?

Students with high incomes should complete the FAFSA. Many students assume their high EFC will disqualify them from aid. However, this isn't true. The FAFSA has no income limit.

Plus, not all aid depends on financial need. Completing the FAFSA can give learners access to direct unsubsidized Stafford loans. Students who plan to use loans or pursue merit-based scholarships or grants should complete the FAFSA. Many scholarships require FAFSA information.

How is Income Treated on the FAFSA?

The ED's federal methodology for determining EFC depends heavily on income. This methodology uses the FAFSA to gather tax return and self-reported income information from the previous two years. The FAFSA asks for both student and parent income information for dependent students. Married students must report spousal income.

The FAFSA draws on income earned from work or adjusted gross income (AGI) from tax returns. The FAFSA excludes certain income types from reporting and deducts them from the AGI. These include taxable portions of scholarships, need-based financial aid, or combat pay.

Tax deductions for educational credits or child support also don't count as income on the FAFSA.

Students seeking aid should know about the income protection allowance. This is the threshold of income that applicants can make annually before the income lowers their financial aid amounts.

Assets and the FAFSA

Both student and parent assets can increase EFC on FAFSAs and CSS Profiles. On the FAFSA, student assets raise EFC by 20% of the asset value. These assets raise EFC by 25% on CSS Profiles. Parent assets raise EFC by 5.64% on FAFSA and 5% on CSS.

Many students and families shelter assets to increase student financial aid eligibility for federal need-based grants, subsidized loans, and work study. Students can shelter assets by converting reportable assets into non-reportable assets.

Reportable assets include vehicles, equipment, and non-expendable commodities costing $1,000 or more and lasting at least one year.Non-reportable assets include home equity, retirement accounts, and small businesses. Students can also shift reportable assets to a parent's or guardian's name or use them to pay down debt.

Does Paying Off Debt Lower Your EFC on FAFSA?

The FAFSA ignores most consumer debt. Raising or lowering this kind of debt does not influence the EFC. Students should pay off consumer debt with reportable assets, such as bank accounts. This is because lower reportable assets reduce EFC.

The EFC calculations include the market value of reportable assets minus debts secured by those assets. Home equity loans on family homes can lower aid eligibility. This is because reportable assets do not secure these loans, yet loan proceeds get reported as assets on the FAFSA.

How is a Distribution from a ROTH IRA Treated for FAFSA?

Students must report Roth IRA distributions as income on their FAFSA. This includes tax-free return of contributions. The distribution amount may count as untaxed income or as part of AGI. Roth IRA distributions can increase EFC and reduce need-based financial aid eligibility. When possible, learners should wait to make IRA withdrawals until after applying for aid.

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