Your family’s Expected Family Contribution (EFC) is the starting point for creating your college funding strategy. As parent’s search for ways to lower their educational costs, understanding the details of the expected family contribution calculation is very important. The biggest misconception is that the EFC is only one number. In reality, the calculation of your expected family contribution is the result of four separate sections or quadrants. The detailed calculation includes parent’s income, parent’s asset, student’s income and student’s assets. Each of the sections has separate rules that need to be identified to maximize a family’s financial aid position.
The college uses a family’s EFC to determine if they qualify for need based financial aid. The lower a family’s Expected Family Contribution is the more likely that family will receive more free financial aid. The financial need is determined by subtracting the EFC amount from an institution’s Cost of Attendance (COA). Typically the cost of attendance will include tuition, books, supplies, transportation and board.
The Free Application for Student Financial Aid (FAFSA) is called the federal methodology. Every school that wants to receive federal funds for their students uses this process. Another method is the Institutional Method. This method is a secondary process that is used by some colleges to supplement a family’s financial information provided under the FAFSA calculation. The most common institutional method is called the CSS profile which is run by College Board.
The Institutional method includes additional information not considered by the Federal Method. For students who are applying as early decision candidates and want financial aid the CSS profile is normally required. College with high endowments also use this process so that they can better allocate financial resources to students that have a higher need normally. This method typical generated a higher number than the federal method. It is important that you know both and the details of how they are calculated.
All colleges now have a net price calculator on their websites. The quality of these calculators will vary greatly depending on the school. These calculators will normally provide your Expected Family Contribution number and the possible net cost to attend that college for the first year. Again the issue is you only get one number.
This is true for the Federal Expected Family Contribution Calculator, called the FAFSA4CASTER. This website provides an easy to use calculator but does not give you the quadrant breakdown or the Institutional number. Our Free EFC Calculator give you the breakdown and both numbers.
The Major Differences
There is a great deal of confusion between the two methods. An important part of creating your college funding strategy is determining your list of colleges. If the colleges on your list do not include a CSS Profile school then you will not need to worry about the differences.
Here are the major differences:
CSS Profile/ Independent
|General Calculation||Standard for All Colleges||Variable by College|
|Home Equity||Not Included||Most Colleges include a percent|
|Retirement Accounts||Not Included||Included|
|Family Business w Less than 101 employees||Not Included||Included|
|Non-custodial Parent||Not Included||Included|
|Calculation Allowances||Standard||Variable by college|
|Student Contribution||Could be 0 value||Minimum expected|
Federal EFC Common Errors
A general statement made by many advisors is to remove all of the assets from the student’s name. This is not true. Here is where a better understanding of the four quadrants and the colleges that are being consider needs to be known before that decision is made.
The reason for this statement is based on how assets are calculated differently for parents and students. Student assets are calculated at a 20% basis. Parent assets have an allowance based on the age of the oldest parent and the amount over the allowance is calculated at 5.67%. This is why people make this statement. If the parent part of the expected family contribution is greater than the schools cost of attendance then the students assets will have no affect on the students financial aid position.
It is true that retirement account values are not included in the federal EFC calculation but the contributions to any deferred compensation in the years you apply for financial aid are consider as income in the calculation. You need to review this as part of your college funding sources.
Another misconception is that not saving for college will let you have a lower expected family contribution and will qualify you for more financial aid. The problem is that more colleges are considering your ability to pay as part of their admissions criteria. Only about 1 – 2 % of college meet 100% of need. If you do not have the savings to pay for college the cost of borrowing the money can be expensive.
Creating a Strategy
Paying for college is one of the most expensive investments that a parent will make in their child’s future. Understanding how your Expected Family Contribution is calculated and how it will change over that child’s college education is critical.
The EFC is only one part of your college funding strategy. There is too much emphasis placed on the EFC number. College Saving Plans, Educational Tax Strategies, Student Loans and various loan repayment methods need to be considered to help you lower your cost of education.