Before your clients head off to visit colleges with their teenagers, they should equip themselves with a critically important figure. They need to know their Expected Family Contribution.
An EFC is what a family will be expected to pay at a minimum for one year of college. A family's EFC will help colleges, as well as the federal and state governments, determine if they will qualify for need-based financial aid.
An EFC, which is expressed as a dollar figure, can be as low as $0 for poor families. In contrast, there is no ceiling for how high the EFC can be for wealthy parents. The largest EFC that I've personally seen was about $108,000 for a teenager whose dad was an executive of a national chain of restaurants.
Affluent families might assume that their EFC will be so huge that there would be no reason to fool with generating this number. I think, however, that this is shortsighted for a couple of reasons.
No. 1: Parents' assumptions about financial aid are often wrong.
In some cases, parents earning $150,000 to $200,000 could be eligible for need-based aid if their child attends a college that costs $50,000 or more a year. The family's income could even be considerably higher if two or more of their children are attending college at the same time.
Divorce can also dramatically impact whether a family will receive assistance. After a divorce, parents, who normally would be out of the running for need-based money, could qualify for this help. That is because in cases of divorce, most colleges only consider one parent's income when making financial aid calculations.
No. 2: Obtaining your EFC can be helpful in shrinking a family's college costs.
Generating an EFC can indirectly reduce your higher-ed tab by helping you narrow the focus on the types of schools that will reward your child.
Here's an example of what I'm talking about: Let's say your EFC is $48,000, which would disqualify you from getting need-based aid.
Knowing your EFC is substantial, you will want to look for schools that would give merit money to your child regardless of income. Colleges routinely dispense merit scholarships based on a teenager's academic record, as well as on such things as his or her talents, volunteer record and work experiences. The good news is that the vast majority of colleges will award merit money to affluent students with solid academic stats. The Ivy League schools are among the notable institutions that don't dispense merit aid.
Pinpointing an EFC can also help families that are going to require a ton of financial help. Families with a low EFC should be searching for colleges that provide generous financial aid packages. One way to measure this is to look at what percentage of a family's financial need a college routinely meets. These families would also want to investigate how generous schools are with grant aid (free money) versus loans.
And finally, knowing an EFC can help a family that's stuck in the middle. Let's say a family has an EFC of $20,000 and the teenager is looking at schools in the $40,000 to $50,000 range. This child could be in the running for merit aid and need-based assistance. So these families would also want to investigate a school's policy on both of these forms of assistance.
Behind the EFC
There are actually two ways that a family's EFC is calculated. The most popular is via the federal methodology, which most schools in this country use. About 270 private colleges and universities use the institutional methodology, which relies upon a financial aid application called the CSS/Financial Aid PROFILE that you can find on the College Board website.
Here are some of the factors that help determine a family ‘s EFC:
- Number of people in household.
- Marital status of parents.
- Age of oldest parent.
- Number of children in college.
- Adjusted gross income from most recent calendar year.
- Income taxes paid for most recent calendar year.
- Any claimed education tax credit.
- Cash, savings, checking total.
- Non-retirement investments.
- Business equity.
Obtaining Your EFC
Determining your EFC is actually fairly painless. Free online calculators exist that can crunch the numbers for you. Over the years, I have recommended that parents use the EFC calculator on the College Board's website. Just type “EFC calculator” into the upper right-hand box on the College Board's home page to locate it.
Now, however, I am recommending an online EFC calculator that you can find on TuitionCoach's website. There are many valuable financial aid resources on TuitionCoach, which until recently was a paid service.
Here's what makes TuitionCoach's EFC calculator different: Once you obtain your EFC, TuitionCoach will help you try to lower that figure. The lower your EFC, the more likely that you will be eligible for a better need-based financial aid package.
For many, if not most parents, the biggest factor impacting their EFC figure is going to be their yearly income. There are ways, however, to legitimately lower an EFC on the margins and TuitionCoach can show your clients how to do just that.
is a college consultant, author and speaker and she writes three college blogs for CBSMoneyWatch, US News & World Report and TheCollegeSolutionBlog.com.