Have you heard the term Expected Family Contribution on TV or on social media and wondered what exactly it is, and does it matter to your child and your family?

I am here to tell you that it is an important concept to understand because it is the first piece of the puzzle when you start to think about college affordability for your family.

What Is The EFC?

When you submit the Free Application for Federal Student Aid (FAFSA), you are sharing financial data for both the student and the parent(s) as well as some demographic and other family information. This information is put into a formula that calculates your Expected Family Contribution (EFC). In fact, after you hit submit, the confirmation page that follows tells you exactly what your EFC is. (So, print this page for your records!)

Now let’s define EFC. It is the annual minimum amount that the college thinks you can afford to pay for one year of college. I want to emphasize that it is not the amount you will have to pay. Your responsibility according to the college could be more than this and often is. I also want to emphasize that this is for one year of college not all four years. You will be required to submit the FAFSA each year. A new EFC will be calculated for each year your child is in college.

When I work with parents, I create three different EFC estimates as part of the financial planning work I do. Through the years, working with hundreds of families, I have never had a parent who agrees with their EFC estimates. I always get the question, “Peg, this is for all four years, right?”

The EFC calculation includes parent income and non-retirement assets and student income and non-retirement assets. It also includes values of businesses and/or family farms in some cases. There is also other financial data that may be included (e.g., pre-tax retirement contributions).

Okay now we have established with the EFC is. How is this the first piece in the puzzle?

Colleges use your EFC in the equation:

Cost of Attendance – EFC = Financial Need.

Learn more: When Your Expected Family Contribution is Too High

An EFC Example

So, for example, if a college has a cost of attendance of $60,000 and you have an EFC of $30,000 then your financial need would be $30,000. This is an important number to the college because this is how they establish if your family has need-based eligibility. Then the college will attempt to meet some or all of that need with Federal, state, and endowment funds and different types of loans. Hopefully, most of this need will be met so there is less money out of your pocket. Colleges vary in the percent of financial need they meet.

The only way your EFC gets calculated is by submitting the FAFSA. You will not be on the radar of the Financial Aid office unless you submit this form. It is for this reason among others that I strongly recommend you submit the FAFSA.

Learn more: Applying for Financial Aid: FAFSA and CSS Profile

Looking Ahead

Now that you are an expert on all things EFC, I want to give you a heads up that this term will disappear starting with the FAFSA that goes live on October 1, 2023.

In December 2020, Congress passed the Coronavirus Relief bill. The FAFSA Simplification Act was embedded in this bill. There are many changes on the horizon for the FAFSA. One of them is a terminology change. Effective in the 2023-2024 school year, the Expected Family Contribution will be called the Student Aid Index (SAI). SAI will still be this first piece in the puzzle and will still be calculated using the FAFSA data submitted by families. This name change came about because there was some confusion with families that they thought the EFC would be what they would be expected to pay due to the name. As I mentioned earlier, this is quite often not the case, so the name change came about as hopefully a better descriptor of what the EFC is. In any event, I don’t want you to be confused if you start seeing the term Student Aid Index (SAI) floating around in the media.

The new equation starting with the 2023-2024 school year for financial aid award packaging will be Cost Attendance – SAI = Financial Need

Learn more about FAFSA changes: FAFSA Changes 2023-24: What You Need To Know

It’s important to start looking at this first piece of the puzzle around college affordability when your child is in their sophomore year in high school, so you are getting ahead of this. Colleges are discounting their sticker prices and one of the tools they use is need-based aid. It’s important to understand as a family if need-based could be a part of your college funding strategy. This will most likely be different from college to college.

I encourage you to take this first step. And, as always, enjoy the journey!