Session FF-05

Expected Family Contribution

Marianna DeekenU.S. Department of Education

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EFCExpected Family Contribution• Measure of what the student and family

can be expected to contribute to student’s cost of education

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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

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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

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Need Analysis Concepts

• Need-based funds are available to assist with educational costs that exceed the family’s ability to pay

• Assesses family’s financial strength at the time of application

• Family resources are devoted first to basic subsistence

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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

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EFC Calculations

• EFC result on page 1 of ISIR is 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

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How is EFC Determined?

• Three distinct formulas Regular Simplified Automatic zero

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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

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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

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Simplified Formula For dependent students

Parents’ AGI or income earned from work < $50,000

and Parents are not required to file IRS form

1040OR Member of FAFSA household received

federal means-test benefit

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Simplified FormulaFor all independent students

Student (and spouse) AGI or income earned from work < $50,000

and Student (and spouse) not required to file

IRS form 1040OR Member of FAFSA household received

federal means-test benefit

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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

1040OR Member of FAFSA household received

federal means-test benefit

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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 1040OR Member of FAFSA household received

federal means-test benefit

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SNT & Automatic 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

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The EFC Family

• Two parents, one working• Two children in family• One child in college• Live in Illinois• Older parent is age 46

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Treatment of Income

Total Income (TI)

Base year income from all taxable and untaxable sources Exclusions on FAFSA Worksheet C=Total Income

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Treatment of Income Available Income (AI) is portion ofincome remaining for discretionary Spending

Total income Total Allowances=Available Income

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Total AllowancesAllowances for taxes

U. S. Income tax paid Estimate of state and

other taxes State of residence Amount of total income

Social Security tax

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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

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Total Allowances • Employment

expense allowance Represents

additional costs when both parents work

Applies to working single parent families

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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

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

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Treatment of Parents’ Assets

Total Net Worth Education Savings and Asset

Protection Allowance=Discretionary Net Worth

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Treatment of Parents’ Assets

Education Savings and Asset ProtectionAllowance

Protects assets for retirement and future education costs

Applies when parent is age 26 or older•Increases with age•Adjusted for marital status

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Treatment of Parents’ Assets

Discretionary Net WorthX 12% asset conversion rate=Contribution from Assets

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Adjusted Available Income

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

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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

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Determining Parents’ ContributionTotal contribution from AAI is divided evenly among all household members in college

Total PC from AAI / Number in College=9 month PC

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Determining Dependent Student’s ContributionTotal of student taxable + untaxedincome U.S. taxes paid Estimate of state and other taxes $3,080 IPA Allowance for parents’ negative AAI= Available income (AI)X 50% assessment of AI= Student contribution from AI

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Determining Student’s Contribution

Cash, savings, checking+Net worth of real estate and investments+Adjusted net worth of business/farm=Total Net WorthX 20%=Student contribution from assets

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Determining EFC

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

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What Ifthere were two family members in college?

• IPA is $21,020• Total allowances against parent’s income

are $28,524• New AI is $14,203• New PC is 1570

New EFC is 1590

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Resources

• 2008-2009 FSA Handbook, Application & Verification Guide, Chapter 3

• EFC Formula Guide on IFAP http://ifap.ed.gov/efcinformation/

0809EFCFormulaGuide.html

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Contact Information

Your feedback and comments are appreciated.

Marianna DeekenTraining Officer206-615-2583marianna.deeken@ed.gov