The world of financial aid is confusing, to say the least. Misinformation, lack of detailed information, and no ability to find one straight answer for all your questions means headache and frustration for parents and their college-bound students. And one of the most confusing can be understanding the expected family contribution (EFC) in need-based aid. This article and video explains the expected family contribution meaning and the 3 different types of EFCs you might encounter on your financial aid application journey. 

Expected Family Contribution Meaning 

The Expected Family Contribution (EFC) is a calculation universities use to determine how much money your family can spend to help your student go to college every time you fill out the annual FAFSA application. The EFC is calculated using parents’ combined gross income, non-retirement assets, businesses or family farms (in some cases), and potentially other financial data like pre-tax retirement contributions. 

Schools use your EFC when calculating need-based financial aid. As a refresher, that’s the cost of attendance minus EFC equals need ( COA – EFC = Need). If the EFC is less than the cost of attendance at any given college, we could be eligible for need-based financial aid. 

Note: If your EFC is too high or higher than you’d like to contribute, this number isn’t enforced and you are not required to pay that much for your student. They can come up with the funds using private scholarships or getting an on-campus job. 

The 3 Different Types of EFC’s

Now, to further complicate matters, there are actually three different types of Expected Family Contribution schools look at when calculating need-based aid. The three primary types of EFCs are:

  • The Federal Methodology (FM)
  • The Institutional Methodology (IM)
  • The Consensus Methodology (CM)

Nearly all public schools, and most private schools, use the federal methodology. However, there are a few important exceptions to this rule to keep in mind when applying because each type has different requirements you need to follow

The Federal Methodology

There are a couple of things to point out here and a couple of big differences between that methodology (FM) and the other two  (IM/CM). The biggest one, in my opinion, is the fact that the Federal Methodology does not consider home equity to be an asset in the expected family contribution equation. So when they’re coming up with the EFC that they’re assigning to your family, they’re not even going to inquire about home equity and we are going to make sure we do not include home equity as an asset on the FAFSA. However, colleges that use the institutional and consensus methodologies will ask and you need to provide it.

The other factor that we need to be aware of is if you are a two-household family, divorced, or separated, the federal methodology will only look at the income and assets of the household of the custodial parent(s). Now, if the custodial parent is remarried, they’re also going to include that step-parent in the methodology. So those are two of the big differences that are unique to the federal methodology.

A quick recap of the federal methodology: 

  • Used by most schools
  • Home equity is not an asset
  • Looks only at the custodial parent financials

Learn more about the Federal Methodology: Expected Family Contribution (FAFSA) Explained

The Institutional Methodology

As I alluded to, most of the colleges that fit in this category are a lot of the more popular, competitive, private colleges. These schools consider home equity fair game, for lack of a better term. If you own your home, and you have any equity in it, that’s going to be considered just like your checking account, your savings account, or your brokerage account when calculating expected family contribution. There are some differences from one college to the next in terms of how much they actually consider your home equity.

Still, this is critical information to keep in mind when evaluating what schools your child wants to apply to and attend. If you have considerable home equity and don’t want that to impact your financial aid, doing research ahead of time by leveraging our free MyCAP tool can help you to evaluate whether or not that will sway the amount of aid you receive at certain institutions.

Differentiating factors of the institutional methodology: 

  • Used by many private universities
  • Home equity is calculated as an asset

The Consensus Methodology

The Consensus Methodology tends to be used by the most competitive colleges (from an admission standpoint). They are a little bit different from the Institutional Methodology in that although they consider home equity, for the most part, they put less emphasis on that. And it’s usually tied to the amount of house household income in terms of how much they actually hold that against you.

The other big difference is that both the public schools (federal methodology) and most of the private schools ( institutional methodology) put a lot of emphasis on any savings in the student’s name. So if there are custodial accounts (UTMA or UGMA),  any money in the student’s name,  federal and institutional methodology schools are going to put a lot of emphasis on the balances of those accounts… much more so than they will on the parents. Whereas consensus methodology schools don’t hold the money in the student’s name against you with that same intensity that those other methodologies (FM/IM) use.

Overview of consensus methodology difference: 

  • Used by most competitive school
  • Less emphasis on home equity 
  • Less emphasis on student savings than federal and institutional schools

Learn more about how home equity affects need-based financial aid: How Home Equity Affects The CSS Profile

A Friend to Help you Navigate the Financial Aid Process

This process can be incredibly confusing for families. That’s why we’re here!

When you rely on the MyCAP technology, you don’t have to be an expected family contribution expert.

You don’t have to know all of this! All you have to do is plug your information into the MyCAP platform, and our data and experts are going to tell you exactly how much aid these schools are going to give you (or what gap in financing you can expect for your family). 

We’re going to tell you what methodology each of these colleges uses for determining expected family contribution and financial aid distribution, and walk you through how to search for scholarships and private financial aid to bridge the gap.

Have questions keeping you up at night? We’re here to help! Join our FREE Office Hours webinar every other week. This is a live event hosted by a CAP expert designed to answer any and all college planning questions. Register for Office Hours Here: Office Hours Sign Up