As families start to dip their toes into the murky waters of the college application process, there’s one thing that’s crystal clear—college is very expensive and getting more expensive every year. A family’s best safeguard against being pulled underwater by college costs is to become fully educated about the college financial aid system.

That education starts with an understanding of a special number, EFC, or Expected Family Contribution, a measure of what a family can contribute toward college costs each year. EFC is the base of your need-based financial aid package.

Financial Need at a college is determined by this simple equation:

COA (Cost of Attendance) – Your EFC = Your Need

If your EFC is less than the COA, you qualify for need-based financial aid (grants, student loans, and work-study). The lower your EFC, the more need-based aid you qualify for.

Your EFC is generated through an analysis of parent and student income and assets as reported on the FAFSA, the Free Application for Federal Student Aid. Any family wishing to be considered for need-based financial aid must fill out and submit the FAFSA each year.

Most families are stunned when they see their EFC for the first time because they feel it’s much too high—that it would be impossible for them to contribute that much money every year toward college costs. And, in fact, they’re right. Today, the EFC actually reflects a combination of what you can pay now and what you can borrow and pay over time.

For this reason, the family’s EFC often contributes heavily to overall college debt.

Why Your EFC Matters

The Federal Government uses your EFC to determine your eligibility for federal grants (Pell, FSEOG, TEACH, and IASG) and federal student loans (Perkins and Direct).

Many states use your EFC to determine your eligibility for state student aid (grants and student loans).

Finally, colleges use your EFC as your minimum contribution to the COA at their college, unless your EFC is greater than the COA or you receive merit aid (scholarships) greater than your financial need.

How Is the EFC Calculated?

The formula used to analyze parent and student income and assets on the FAFSA produces your EFC, which consists of:

22% – 47% parent taxed and untaxed income (after tax and income protection allowances)


50% of student taxed and untaxed income over a fixed income protection allowance of about $6,600/year


2.6% – 5.6% Parent assets (after a small asset protection allowance based on older parent’s age)


20% of student assets (no asset protection allowance)

(A small number of colleges generate a different EFC based on an Institutional Methodology. Since the vast majority of colleges use only the FAFSA to determine your EFC, our discussion here refers only to the FAFSA-generated EFC.)

5 Essential Facts All Families Should Know About the FAFSA-Generated EFC

1. The Income reported (both student and parent) is from prior-prior year—meaning if the student is entering college in fall of 2019, the income reported is from 2017.

2. The net value of both parent and student Assets, on the other hand, is reported as of the day the FAFSA is submitted.

3. Parent assets excluded in the EFC formula are:
a. All existing retirement accounts
b. Value of a primary residence
c. Cash value of insurance policies
d. Annuities

4. Cash gifts to students and bills paid on the student’s behalf by anyone other than the custodial parents are considered student untaxed income.

5. The EFC formula does not take into consideration a family’s consumer debt, any previously acquired student debt, mortgage payments you make on your primary residence, or medical debt.*

4 Factors That Have the Biggest Impact on the Size of Your FAFSA-Generated EFC

1. Parent Income

The EFC formula gives standard tax, social security, and employment expense allowances but an unrealistically low parent income protection allowance. For example, the 2019-2020 EFC formula sets the income protection allowance for a family of four with one child attending college at a mere $28,580. After allowances, parents are expected to contribute between 22%-47% of what’s left to the EFC. This is why parent income often has the largest impact on the EFC. (See our infographic detailing EFC based on parent income alone).

2. The number of children attending college at the same time

While each child might have a different contribution to the EFC from his/her own income or assets, the parent contribution in a given year is split between their children who are in college that year, thereby significantly reducing each child’s EFC. This benefit in the EFC formula for siblings attending college at the same time can significantly reduce their overall college costs. However, it’s extremely unfair that families whose children have no overlapping college years do not get this benefit, especially since many of these families have to borrow to cover college costs each year.

3. Student Income

Students have a yearly income protection allowance of about $6,600 and some tax allowances. 50% of any income above this amount is added to the EFC. Although most students probably won’t earn much more than $6,600/year, some kids do work hard to save for college—and end up being hurt by this part of the EFC formula.

Families also don’t realize that untaxed student income can quickly exceed the yearly income protection allowance of $6,600. Untaxed student income includes cash gifts to a student and any money received or paid on the student’s behalf by anyone other than the custodial parents. So, Grandma’s gift of $20,000 to your daughter could raise the family’s EFC by as much as $10,000.

4. Student Assets

20% of the net value of student assets (savings and checking balances, savings bonds, and other investments)is added to the EFC. There is no student asset protection allowance.

Learning what your EFC is and how it’s calculated can help you better prepare for college costs. With the government’s free, anonymous, online EFC calculator, FAFSA4caster, you can get a good estimate of what your EFC is before you file the FAFSA.

However, EFC is only one part of a family’s Net Price, the actual dollar amount of the COA you are responsible for paying each year. Net Price includes your EFC, federal and state loans, work-study awards, and the GAP (unmet need). Our article, Discover Your Likely Net Price Before You Apply explains how Net Price is determined at each college.

A wealth of information about Net Price, EFC, and all aspects of college financial aid (including strategies to keep your EFC as small as possible and reduce your overall college costs) can be found in Untangling College Financial Aid.

The most important thing you can do to control college costs is become fully educated about the college admissions process and the college financial aid system BEFORE applying to college. Armed with the right information, you can take action to achieve better results, save thousands of dollars, and avoid drowning in college debt.

* Special financial circumstances that aren’t taken into consideration in the EFC formula, such as high medical debt, sudden loss of wages, and other unforeseen financial burdens should be discussed with each college’s financial aid office. While not guaranteed, colleges may consider special circumstances and reduce your EFC.

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Updated September 15, 2018