If you’re relying on federal student loans to help you pay for college, you’ll first need to complete your Free Application for Federal Student Aid (FAFSA). The information you provide on the FAFSA, including your family’s assets, will help determine your eligibility for need-based financial aid. This financial information is then used to calculate an expected family contribution (EFC), which could greatly impact your federal financial aid eligibility. Here’s what to know about this important number, what factors into it and how it’s calculated.
A financial advisor can help you create a financial plan for your family’s education needs and goals.
What Is an EFC?
Your EFC is the total you and your family can reasonably afford to contribute to your college costs, per the U.S. government’s determination. This figure doesn’t represent actual contributions, it’s just an estimated amount based on the financial data you’ve shared on your FAFSA form. It’s a measure of your family’s financial strength.
College financial aid offices use the EFC when determining how much federal financial aid you may qualify for. The total EFC is subtracted from the cost of attendance and helps determine your eligibility for federal funds like Pell Grants, Direct Subsidized Loans, and more.
What Factors Into Your EFC?
Several factors are used to determine your EFC, all of which you’re required to disclose on your FAFSA. Things that are typically considered include:
- Parental income and assets, including cash, savings accounts, investments, parent-owned 529 balances and any owned real estate apart from a primary residence.
- Student income and assets, including the examples mentioned above.
- Household size
- Number of students in college
How Is Your EFC Calculated?
While both student and parent assets and income factor into EFC calculations, each is treated slightly differently when determining your EFC from the FAFSA. Here are examples of the calculations for each.
Note that these examples assume that the young adult heading to college is a dependent student. The calculations for independent students are slightly different and can be found in the U.S. Department of Education’s (DOE) EFC Formula Guide.
Parental Contribution
- Add the total of taxable and non-taxable income, such as contributions to a retirement account.
- Subtract any taxes paid, including federal, state and Social Security taxes.
- Subtract the income protection allowance (IPA), which considers both family size and the number of students in college. The IPA for a household of four with two college students, for example, is $26,830 for the 2023 school year. (You can view these allowances on the DOE EFC Formula Guide.)
- Subtract the employment expense allowance for working families. The employment expense allowance for 2023 is 35% of income or $4,000, whichever is less.
Once your calculations are complete, you’ll determine your allowable income (AI), which can be a negative number. The next step is to determine the parental contribution from assets. Here’s how this is done:
- Add parental assets, including cash, savings, checking and investments.
- Subtract educational savings and asset protection allowance. Note that this is still included on the FAFSA EFC calculation form, but the total allowance drops to zero for the 2023 school year.
- Multiply the total by 12%.
You’ll then have your total contribution from assets. Next, you’ll add up the allowable income and total contribution from assets to come up with adjusted available income. Finally, you’ll determine your total parent contribution, using data from the table in the DOE EFC Formula Guide.
Student Contribution
- Add up the total of taxable and non-taxable income.
- Add up total allowances, including federal, state and Social Security taxes and the student IPA, which is $7,040 for 2023.
- Subtract total allowances from total income.
- Multiply that figure by .50 to determine the total student contribution from AI.
Once you have your total student contribution from AI, you’ll need to then calculate your total student contribution from assets. Here’s how to do this:
- Add student assets, including cash, savings, checking and investments.
- Multiply the total by 20% to determine the total student contribution from assets.
When you’ve determined both your parent contributions and student contributions, you can calculate your total EFC. Your total EFC is calculated by adding parent contribution, student contribution from AI, and student contribution from assets. Total EFC will be subtracted from the cost of attendance to help determine your eligibility for federal aid.
Bottom Line
Your EFC is an indicator of your family’s financial strength, and this figure plays an important role in how much federal financial aid you’re likely to get. While calculating EFC manually is somewhat complex, doing so can give you some valuable insight as you plan for the cost of college. It’s likely worth the time you’ll spend to determine your EFC.
Education Planning Tips
- A financial advisor can help you create a financial plan to invest in your family’s education. SmartAsset’s free tool matches you with up to three financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- If you want to customize a 529 plan by age, here’s a breakdown of 529 investment strategies by age.
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