How Does My EFC Work?
Know the details of the calculation, and you can help keep your EFC down – and your grant money up.
If you’ve started searching for colleges, you’ve probably also started investigating financial aid.
If you haven’t yet, there’s no better time than now.
For some people, the amount of financial aid available will greatly affect what college they attend. That means, before you can make any final decisions, you need to know what you can afford.
Nothing matters more in that calculation than your Expected Family Contribution (EFC).
Your EFC is calculated when you fill out your free FAFSA form. Your EFC is exactly what it sounds like – the amount of money your family is expected to be able to pay towards your schooling.
The gap between your EFC and your college expenses – including tuition, books, fees, and room and board – is your need. Depending on the school you choose, you can have your entire need covered by grants. If not, loans can fill the gap.
Regardless, you want your need to be as high as possible – thus making you eligible for the most possible money.
That means you want your EFC to be as low as possible. Knowing how your EFC is calculated is the first step.
What Goes Into An EFC?
First things first: If both a student and his or her family are paying for school, the student’s money gets counted first – and at a higher rate.
Income matters most – and students are expected to pay a greater percentage of their income towards schooling then parents are. Do note – dividends are included as income. Don’t forget this – a failure to accurately report all income can result in ineligibility.
After that come assets – and there’s a big difference here. A student can be expected to pay as much as 20% of any savings he or she has, while parents are capped at 5.64%. Some assets will count against you in the formulas… and others will not. This may also depend on the type of school your student is considering.
Finally, debt on assets (such as a mortgage on a house) are subtracted from assets. Cars don’t typically count as assets – so, if you need a new one, it may make sense to buy one before you submit your FAFSA application. However, keep in mind that liquidity is very important – in general and especially during the college years – so you don’t want to spend your liquid assets just to lower your EFC. Also, the money in retirement savings plans typically don’t count as assets – but new contributions to those accounts may count against you depending on what grade your student is in.
Understand these calculations, and you’ll do a better job reducing your EFC – and increasing your grant and loan money.
I go into the EFC in much greater detail in our free online video workshop, which you can sign up for by following this link.
To your successful college search,