Why Expected Family Contribution (Student Aid Index) Matters for College Aid

 March 30, 2021
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To understand what your Expected Family Contribution (EFC) is, it helps to first understand what it isn’t.

Your EFC is not how much your family must pay out of pocket for your college education, and it’s not how much financial aid you’ll receive. Rather, it’s what the federal government — taking into account your family’s finances — thinks you can contribute toward college costs. That estimated number is then used by your school to determine how much federal financial aid you might receive.

Your Expected Family Contribution plays a pivotal role in determining how much financial aid you can get from the federal government — at least until July 1, 2023. That’s when EFC will be replaced by SAI, or Student Aid Index.

Specifically, here are some things you should know about EFC:

Why your Expected Family Contribution is a dollar figure

The EFC is just that — the estimated amount that the government calculates you and your parents, in most cases, can afford to put toward the cost of your education. It is one of four factors used by your school to determine how much need-based aid you can receive in the form of grants, subsidized or low-interest loans, and work-study funding.

The other three factors are:

  • Enrollment status
  • Year in school
  • Cost of attendance

When it’s put on paper, your EFC is a simple dollar figure. For some borrowers, it could be as little as $0 (and an SAI, once it replaces EFC, could actually be a negative number). For others, as much as the full cost of attendance. A low EFC means you may be eligible for a larger financial aid package, while a high EFC means you may have to rely on unsubsidized loans to cover any costs your family can’t afford.

Behind the scenes, the EFC you receive is based on a complicated formula.

Why is Expected Family Contribution being replaced by Student Aid Index?
The FAFSA Simplification Act lumped into the Consolidated Appropriations Act of 2021 (also known as the second coronavirus relief bill out of Congress) sought to more clearly explain to students and their families how their eligibility for federal financial aid would be determined.
● EFC has long been the number used by college financial aid offices to determine how much financial aid you should receive; it’s not, as its name implies, a direct reflection of how much you (or your parents) must contribute out of pocket toward school costs.
● Student Aid Index, the thinking goes, more clearly describes a given student’s eligibility for financial assistance, whether or not they receive parental support.

How Expected Family Contribution is calculated

Your EFC comes from the information you provide in your Free Application for Federal Student Aid (FAFSA). Filling out the FAFSA is the first step you’ll take toward financing your education.

What you report about your family’s income has a direct effect on the EFC that ends up on your college award letter. But your independent or family income is just one element that affects your EFC. The others are:

  • Assets you own, such as your home
  • Benefits you receive, such as unemployment or Social Security
  • Your family size, including the number of relatives attending school simultaneously

A student from a family that owns a home, for example, may end up with a higher EFC than one with a single parent renting an apartment. But if that first student has three siblings also in college, their EFC will also reflect that.

The above factors are used in the Department of Education’s formula for calculating EFCs. The federal agency releases a detailed breakdown of this formula annually. Some major pieces of financial information, such as credit card debt and outstanding student loans, are not included in the calculation.

To get a better sense of your own EFC, you first need to know what kind of federal aid applicant you are.

How will calculations work for the Student Aid Index?
When SAI replaces EFC for the 2023-2024 academic year, don’t worry about wholesale changes to the formula used to determine your eligibility for aid. The National Association of Student Financial Aid Administrators wrote in its guidance, however, that some changes are afoot. Most notably:
● SAI would base Pell Grant award amounts more heavily on a student’s dependency status, among other household factors. Based on what we know today, it’s safe to assume that more lower-income students, independent or otherwise, will have access to higher grant amounts once the Student Aid Index is in place.
● SAI wouldn’t give the same break that EFC has afforded to families with multiple children enrolled in college simultaneously. It’s fair to expect that if you have two children in college by 2024, you would receive less federal financial aid than you would have in 2023.

How to estimate your Expected Family Contribution

Within the department’s 36-page explanation of how the EFC is calculated, there are worksheets for three types of federal aid applicants:

  • Dependent students
  • Independent students with a spouse and no other dependents
  • Independent students with dependents other than a spouse

There are standard and simplified formulas for each applicant. Applicants that are eligible for the simplified formula won’t have to enter as much financial information to see their EFC.

For example, a dependent student whose family receives Supplemental Nutrition Assistance Program (SNAP) benefits and wasn’t required to file an income tax return would qualify for the simplified formula, and therefore would not have to disclose family assets in their application.

To find your estimated Expected Family Contribution, select and complete the worksheet from the EFC formula guide that fits your family’s financial situation.

If you prefer to be guided through this process, try an EFC calculator like one from The College Board. One benefit of using a calculator to find your EFC is that you can simultaneously plug your information into the federal formula and a separate methodology that private schools use to disperse grants. That will give you a fuller sense of the potential aid available to you.

No matter how you estimate your Expected Family Contribution, you’ll need to have the same information readily available. Examples of necessary data can include:

  • Income figures as specific as untaxed Social Security benefits
  • Allowances like state taxes
  • Assets, such as cash held in checking and savings accounts
  • Other documents, such as your most recent tax return

To ensure consistency and accuracy, make sure you’re using the same financial information you entered on your FAFSA in whatever calculator you use.

How to handle changes in family finances

Once you go through the estimation process, the EFC assigned to you in your college award letters shouldn’t come as a surprise.

But it’s possible for your life and financial situation to drastically change after filing your FAFSA. Your EFC of $10,000 could shrink to $5,000, for example, if your breadwinner parent suddenly loses a job or falls ill.

For a student in a similar situation, an appeals process — called professional judgment — could result in an adjusted EFC that better reflects their ability to pay for school.

It’s important to discuss any questions and concerns with your school’s financial aid office as soon as a problem comes to light. The representatives there can help you secure the federal aid you now qualify for, no matter your initial EFC.

What your Expected Family Contribution (or Student Aid Index) means

There is a simple equation that may help you understand what your EFC really means when financing your education. Simply subtract it from your school’s cost of attendance (COA):

COA — EFC = Financial need

And once the Student Aid Index arrives in July 2023, the equation will change slightly:

COA — SAI = Financial need

Your financial need can be covered by a variety of sources, including gift aid like scholarships and grants that don’t have to be paid back. Ultimately, your EFC helps the federal government and your school decide how much need-based federal aid you can receive.

Your need-based aid allotment can’t exceed your cost of attendance. If your COA is $10,000, for example, and your EFC is $5,000, you can’t receive more than $5,000 in need-based aid.

Common forms of federal need-based aid include:

  • Federal Pell Grant
  • Federal Supplemental Educational Opportunity Grant (FSEOG)
  • Direct subsidized loan
  • Federal Perkins loan
  • Federal work-study

Need-based loans are generally preferable to other loans. A direct subsidized loan, for example, is a more cost-effective alternative to a direct unsubsidized loan because the government will pay interest on the subsidized loan while you’re enrolled, and during periods of deferment.

The maximum allowance for each federal loan type varies depending upon your class year and whether you’re an independent or dependent student. The maximum you as an individual can claim is listed on each college award letter you receive from schools to which you have been accepted or are already enrolled.

But don’t be afraid to challenge what you’ve been awarded if it falls below the federally mandated maximum. Your school may have room in its budget to accomodate your needs. To learn more, see our guide on negotiating a better financial aid package.

Plus, any remaining balance could be filled in by private student loans, one of several solutions that can cover a funding gap if you hit your federal loan limit.

Laura Gariepy contributed to this report.