How Financial Need Is Determined
The expected family contribution (EFC), is the amount of money that a family is expected to contribute toward the price of a student’s education from there income and assets. There is a different financial aid need analysis formula for each of three student groups:
• Dependent Students
• Independent Students W/no Dependent
• Independent Students with Dependent
The EFC will consist of two parts: the parental contribution and the student contribution. Generally, a family contribution refers to both Parent and Student combined. For independent students, there would be no parent contribution.
Assets will usually be excluded from the EFC calculation for those with an adjusted gross income being below $50,000. When assets have been taken into account, the EFC formula will provide an asset protection allowance according to your age and marital status. The typically usual family receives an asset protection allowance of $45,000. This amount will be subtracted from the parents’ total net worth of assets and, of the remainder; only 12 percent will be considered available assets for educational expenses. Independent students with children will also receive the asset protection allowance, but the assessment rate is now only 7 percent.
In comparison, if you are a dependent student or independent student with no dependents you will be expected to contribute 20 percent of the total assets, since it will be assumed that these students have saved their money for the purposes of paying for their higher education.
What assets will they be using to calculate the EFC?
• Real Estate other than the family residence
• Investments
• Family owned business with more than 100 employees
• A Farm that the family does not live on
• Current cash, savings, and checking accounts
• Educational IRA or savings plans, if owned by the student’s parents
The following assets will not be included:
• The value of IRAs and other Retirement plans
• Home Equity (the difference between home value and home debt)
• Farm Equity for a farm in which the family lives (the difference between the value of the farm and the debt against the farm)
• Family owned business with fewer than 100 employees
• Cash value of Life Insurance Policies
To determine the amount of income that would be available for educational purposes, both parents and students are given offsets against income. Offset will include taxes (federal, state, local, FICA), employment expenses, and an income protection allowance. For parents and independent students that do have dependents, the income protection allowance can range from $15,000 to $45,000, based on the family size and number of family members that are enrolled in college.
After they have subtracted the offsets from the total income, the remaining income is called the available income. For parents and independent students that do have dependents, the available assets are added to the available income to get to the adjusted available income (AAI). A portion of this amount will be multiplied by 22 to 47 percent (plus an additional predetermined assessment) to arrive at the total contribution. Unfortunately, the higher the income, the higher the percentage used.
Dependent students as well as independent students without dependents are expected to contribute 20 percent of their available income and receive a more limited income protection allowance:
• $3,080 for dependent students
• $6,220 for single independent students
• $6,220 for married independent students with both enrolled
• $9,970 for married independent students with one enrolled
What income will be used to calculate the EFC?
• Adjusted gross income, if taxes filed, or total wages
• Non-taxable income, including earned income credits, public assistance, contributions to tax-deferred pension and savings plans, IRA deductions, any child support, untaxed portions of retirement distributions and other items listed on the financial aid application
The following income will not be included:
• Food stamps or subsidized housing
• Student financial aid awards, including need-based work study earnings
• Federal education tax credits
• Child support paid to another household
