In the video in this lesson, I explain how you can use an online Expected Family Contribution calculator.
Use the Right EFC Calculator
The easiest way to obtain an advance look at your Expected Family Contribution is to use the EFC calculator at the College Board’s website.
One of the first questions that you will encounter when using the College Board’s EFC calculator is which methodology you want to use – the federal methodology or institutional methodology or both. You should designate both methodologies since at this point you don’t want to limit your school choices.
The vast majority of colleges and universities in this country only use the federal methodology, which is what the Free Application for Federal Student Aid depends upon.
In addition to the FAFSA, 229 mostly private colleges and universities require undergraduate applicants to complete the CSS/Financial Aid PROFILE, which uses the institutional formula. The handful of public universities using the PROFILE include University of Michigan, University of Virginia, College of William and Mary and the University of North Carolina, Chapel Hill.
Here is the list of institutions that use the PROFILE.
The Different EFC Formulas
All schools use the federal formula, via the FAFSA, to determine if a student qualifies for federal and/or state financial aid. Most schools also rely on the federal FAFSA results to determine if students will qualify for need-based aid from their own institutional need-based grants.
PROFILE schools use the institutional formula results to determine if a student qualifies for their in-house pots of money. The EFC generated by the institutional formula is often different from the federal EFC because it drills deeper into a family’s finances.
You’ll learn more about the differences between these formulas in the module entitled, Financial Aid Basics.
To use the EFC calculator, you need to have your income tax return and investment statements ready.
Here are the main questions that the calculator will ask:
- Number of people in household.
- Marital status of parents.
- Age of parents.
- Age of children.
- Number of children in college.
- Parents’ adjusted gross income from the most recent calendar year.
- Parent’s income taxes paid for most recent calendar year.
- Student’s adjusted gross income.
- Student’s income taxes paid.
- Any claimed education tax credit.
- Medical expenses.
- Cash, savings, checking for parent(s) and child.
- Non-retirement investments for parent(s) and child.
- Business equity.
The federal formula doesn’t ask about retirement account assets, but the PROFILE does. It’s considered rare, however, for a PROFILE school to take retirement wealth into consideration for financial-aid purposes.
Once you’ve plugged in the information, the calculator will produce an estimated EFC for the federal methodology and another EFC for the institutional methodology.
Actually, a student who is applying to PROFILE schools would end up with multiple EFCs. Each school can modify the basic PROFILE application by including supplemental questions that will generate a different EFC for each school.
After submitting their FAFSA online, a family will learn what their EFC is by receiving their Student Aid Report (SAR) by email. The PROFILE won’t notify parents about what their institutional EFC is.
To illustrate how the EFC calculator works, I used the following stats for a hypothetical family:
- Marital status: Married.
- Oldest parent: 55
- One child heading to college
- Siblings: 16-year-old sister
- Parents adjusted gross income: $150,000
- Home equity: $100,000
- Non-retirement assets (including 529 accounts): $50,000
- Student’s adjusted gross income: $2,000
- Student’s assets: $500
- Parents income taxes: $20,000
EFC Results for Hypothetical Family
Interpreting Your EFC
Okay so what do these figures mean?
In this example, the family’s share of the costs would range from $29,365 to $30,697 for one year of their child’s college education.
If the school’s sticker price is less than the EFC, the student would be ineligible for need-based financial aid. In this circumstance, however, a student may qualify for a merit scholarship, which is not tied to need.
If this student is applying to an expensive private school with a generous aid policy, he could be in line for significant need-based aid.
As a practical matter, when a family’s EFC is this high, a merit scholarship will come close to filling the gap between the EFC and the school’s cost of attendance.
Let’s say, for instance, that the student in the above example got into a school with a $46,000 sticker price and received a merit award of $11,000 a year.
|Cost of attendance:||$46,000|
|Minus||$11,000 merit scholarship|
|$5,635 Demonstrated need|
The remaining need would be $5,635. It’s unlikely that most schools would cover this additional cost except for including a federal student loan in the package.
Inside the EFC Formula
While a lot is riding on a family’s EFC, the EFC formulas are hardly scientific. The EFC can be a fairly harsh assessment of a family’s ability to pay, but that is the figure that the schools will be working with.
The federal EFC formula is a creation of Congress, which goes a long way towards explaining why it is flawed.
It’s likely that your EFC(s) won’t pinpoint what your family can truly afford to pay for college. Many families are shocked when they generate their EFC’s.
The federal and PROFILE formulas, for instance, don’t consider household debt. The formulas don’t care if a family is in bankruptcy. In what’s a plus for some households, however, the federal formula doesn’t count a family’s assets if the parents’ adjusted gross income is less than $49,999.
Parents won’t get a break from the federal formula if they live in an expensive area like San Francisco where the median-priced house costs more than $1 million compared to houses in an inexpensive area like Pierre, SD, where plenty of houses are priced in the $150,000 range. The PROFILE formula does take into account where a family resides.
If you’d like to see exactly what factors that the federal EFC includes in its calculations, you can check out the federal government’s latest EFC formula which is updated every year:
Unfortunately, much of the PROFILE formula, which belongs to the College Board, is proprietary.
1. Knowing your EFC(s), no matter how depressing, allows you to start targeting the best sources for the type of money that your child will qualify for.
2. If you have a low EFC, you’ll be looking for generous sources of need-based aid.
3. If you have a high EFC, you’ll be looking to maximize your chances at merit money, which isn’t tied to financial need.