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Understanding Expected Family Contribution (EFC) for Education Funding

Learn how Expected Family Contribution (EFC) is calculated and its impact on financial aid eligibility, based on factors like income, assets, and family composition for educational funding.

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Understanding Expected Family Contribution (EFC) for Education Funding

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  1. Session FF-05 Expected Family Contribution Marianna Deeken U.S. Department of Education

  2. EFC Expected Family Contribution • Measure of what the student and family can be expected to contribute to student’s cost of education

  3. Expected Family Contribution • Calculated from data collected on the FAFSA • Formula is in statute • Designed to measure the family’s financial strength • ED publishes updated tables each year in the Federal Register

  4. Principles of Need Analysis • Family has primary responsibility to pay for educational costs • Student and parents are expected to contribute to the extent they are able • Families should be evaluated in an equitable and consistent manner

  5. Need Analysis Concepts • Need-based funds are available to assist with educational costs that exceed the family’s ability to pay • Assesses family’s financial strength at the time of application • Family resources are devoted first to basic subsistence

  6. Factors that affect EFC • Taxable and untaxed income • Taxes paid • Number in Household • Number in College • Assets • Age of the older parent • Number of wage earners

  7. EFC Calculations • EFC result on page 1 of ISIR is a 9 month EFC • Law specifies how an EFC must be calculated for periods of other than nine months • Results show on ISIR by number of months • 9 month EFC must be used for Pell Grant eligibility

  8. How is EFC Determined? • Three distinct formulas • Regular • Simplified • Automatic zero

  9. Regular Formula • Three versions of regular formula • Dependent students • Independent students without dependents other than a spouse • Independent students with dependents other than a spouse

  10. Alternate EFC Formulas • Simplified formula • Assets are not considered in the calculation • Automatic Zero EFC formula • Untaxed income and assets are not considered in the calculation

  11. Simplified Formula For dependent students • Parents’ AGI or income earned from work < $50,000 and • Parents are not required to file IRS form 1040 OR • Member of FAFSA household received federal means-test benefit

  12. Simplified Formula For all independent students • Student (and spouse) AGI or income earned from work < $50,000 and • Student (and spouse) not required to file IRS form 1040 OR • Member of FAFSA household received federal means-test benefit

  13. Automatic Zero EFC For dependent students • Parents’ AGI or income earned from work is $20,000 or less and • Parents are not required to file IRS form 1040 OR • Member of FAFSA household received federal means-test benefit

  14. Automatic Zero EFC For independent students with dependents other than a spouse • Student’s (and spouse’s) AGI or income earned from work is $20,000 or less and • Student (and spouse) not required to file IRS form 1040 OR • Member of FAFSA household received federal means-test benefit

  15. SNT & Automatic 0 EFC • Federal Means-Tested Benefit Programs • Supplemental Security Income (SSI) • Temporary Assistance for Needy Families (TANF) • Special Supplemental Nutrition Program for Women, Infants, and Children (WIC) • Food Stamps • Free or Reduced Price Lunches

  16. The EFC Family • Two parents, one working • Two children in family • One child in college • Live in Illinois • Older parent is age 46

  17. Treatment of Income Total Income (TI) Base year income from all taxable and untaxable sources • Exclusions on FAFSA Worksheet C =Total Income

  18. Treatment of Income Available Income (AI) is portion of income remaining for discretionary Spending Total income • Total Allowances =Available Income

  19. Total Allowances Allowances for taxes • U. S. Income tax paid • Estimate of state and other taxes • State of residence • Amount of total income • Social Security tax

  20. Total Allowances Income Protection Allowance (IPA) • Estimates amount needed for basic needs • Based on Bureau of Labor Statistics lower budget expenditures adjusted for CPI • Increases with each household member • Decreases with each member in college

  21. Total Allowances • Employment expense allowance • Represents additional costs when both parents work • Applies to working single parent families

  22. Treatment of Assets Assets defined • Cash, savings, checking • Investments and trusts • Real estate equity • Business/farm equity (not family owned) • Protects first 60% of equity up to $105K • Decreases protection percentage after $105K

  23. Treatment of Assets Cash, savings, checking +Net worth of real estate and investments +Adjusted net worth of business/farm =Total Net Worth

  24. Treatment of Parents’ Assets Total Net Worth • Education Savings and Asset Protection Allowance =Discretionary Net Worth

  25. Treatment of Parents’ Assets Education Savings and Asset Protection Allowance • Protects assets for retirement and future education costs • Applies when parent is age 26 or older • Increases with age • Adjusted for marital status

  26. Treatment of Parents’ Assets Discretionary Net Worth X 12% asset conversion rate =Contribution from Assets

  27. Adjusted Available Income Parents’ Available Income (+/-) +Parents’ contribution from assets (+/0) =Total Adjusted Available Income (+/-)

  28. Determining Parents’ Contribution As income increases, amount needed for basic household expenses decreases • Discretionary income increases • Income available for education Adjusted Available Income (AAI) X AAI contribution rate =Total Parents’ Contribution from AAI

  29. Determining Parents’ Contribution Total contribution from AAI is divided evenly among all household members in college Total PC from AAI / Number in College =9 month PC

  30. Determining Dependent Student’s Contribution Total of student taxable + untaxed income • U.S. taxes paid • Estimate of state and other taxes • $3,080 IPA • Allowance for parents’ negative AAI = Available income (AI) X 50% assessment of AI = Student contribution from AI

  31. Determining Student’s Contribution Cash, savings, checking +Net worth of real estate and investments +Adjusted net worth of business/farm =Total Net Worth X 20% =Student contribution from assets

  32. Determining EFC Parents’ Contribution +Student’s contribution from AI +Student’s contribution from assets = 9 month EFC

  33. What If there were two family members in college? • IPA is $21,020 • Total allowances against parent’s income are $28,524 • New AI is $14,203 • New PC is 1570 • New EFC is 1590

  34. Resources • 2008-2009 FSA Handbook, Application & Verification Guide, Chapter 3 • EFC Formula Guide on IFAP • http://ifap.ed.gov/efcinformation/0809EFCFormulaGuide.html

  35. Contact Information Your feedback and comments are appreciated. Marianna Deeken Training Officer 206-615-2583 marianna.deeken@ed.gov

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