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EFC: Expected Family Contribution and Need Analysis

Learn about the Expected Family Contribution (EFC) and the principles of need analysis in determining financial aid eligibility. Explore the different formulas and factors that affect EFC calculations.

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EFC: Expected Family Contribution and Need Analysis

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  1. Session #32 The EFC Expected Family Contribution Marianna DeekenClaire Micki Roemer

  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 strength at the time of application • Family resources are devoted first to basic subsistence

  6. Need Analysis Concepts • FM measures discretionary resources • Protects resources needed for basic living • Establishes a portion available for education

  7. 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

  8. EFC Calculations • EFC result on ISIR reflects 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

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

  10. 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

  11. 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

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

  13. Simplified Formula For all independent students • Student (and spouse) AGI or earnings 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

  14. 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

  15. 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

  16. SNT & Auto 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

  17. The Web Family • Two parents with one working • Two children in family • One child in college • Live in Illinois • Older parent is age 46

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

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

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

  21. 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

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

  23. 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

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

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

  26. Treatment of Parents’ Assets • Education Savings and Asset Protection Allowance • Protects assets for retirement and future education costs • Applies > age 25 • Increases with age • Adjusted for marital status • No protection for dependent students

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

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

  29. 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

  30. 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

  31. Determining Student’s Contribution Total of student taxable + untaxed income • State and federal taxes • $3,000 IPA • allowance for parents’ negative AAI = Available income (AI) X 50% assessment of AI = Student contribution from AI

  32. 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

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

  34. What if? • If there were two in the household in college: • IPA is $20,510 • Total allowances are $28,014 • New AI is $14,713 • New PC is $3,276 • New EFC is 3286

  35. Resources • 2007-2008 FSA Handbook, Application & Verification Guide, Chapter 3 • EFC Formula Guide on IFAP

  36. Claire Micki Roemer Phone: 202-377-3452 Email: claire.roemer@ed.gov Contacts We appreciate your feedback and comments. We can be reached at: Marianna Deeken • Phone: (206) 615-2583 • Email: marianna.deeken@ed.gov

  37. Please provide any comments regarding this training or the trainers to: Jo Ann Borel Title IV Training Supervisor joann.borel@ed.gov 202-377-3930

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