Understanding Expected Family Contribution (EFC)
The Expected Family Contribution (EFC) is a crucial number that determines your eligibility for federal student aid. Despite its name, the EFC is not the amount your family must pay for college—rather, it's an index number that colleges use to determine how much financial aid you're eligible to receive. The EFC is calculated using a complex formula established by federal law, taking into account your family's taxable and untaxable income, assets, benefits, family size, and the number of family members attending college.
Understanding your EFC helps you plan for college costs and maximize financial aid opportunities. The formula considers parents' income (up to 47% of adjusted available income), parents' assets (up to 5.64% of net worth), student income (50% of income above protected allowance), and student assets (20% of net worth). This calculation significantly impacts your eligibility for Pell Grants, subsidized loans, and institutional aid.
The EFC formula underwent significant changes with the Free Application for Federal Student Aid (FAFSA) Simplification Act. Starting with the 2024-2025 aid year, the EFC was replaced by the Student Aid Index (SAI), which can now be negative, potentially increasing aid eligibility. Key changes include the removal of the number of family members in college adjustment, simplified asset reporting thresholds, and elimination of the business/farm exemption for families with net worth under $1 million.
Several strategies can help lower your EFC. These include maximizing retirement contributions (which are excluded from assets), reducing reportable assets by paying down debt or purchasing necessary items before filing FAFSA, timing asset sales to avoid appearing as income, and strategically managing dependent student income and assets. Parent-owned 529 plans are assessed at the lower parent asset rate rather than the higher student rate. Understanding these nuances helps families position themselves for maximum financial aid eligibility while remaining compliant with reporting requirements.