What Is Expected Family Contribution (EFC)?
The Expected Family Contribution (EFC) was an index number that served as an estimate of a student's, and their family's, ability to pay for a year of post-secondary education. Within the broader realm of financial aid, the EFC was a critical component in determining an applicant's eligibility for need-based financial aid from federal, state, and institutional sources. This figure, calculated based on information provided through the Free Application for Federal Student Aid (FAFSA), helped colleges and universities assess how much financial assistance a student required to cover their cost of attendance. Generally, a lower EFC indicated a greater financial need, potentially leading to a larger financial aid package. The EFC was included on the Student Aid Report (SAR) provided to applicants after filing the FAFSA.
History and Origin
The concept of a standardized approach to determining student financial need in the United States began to formalize in the mid-20th century. Prior to federal intervention, individual colleges and universities developed their own methods for distributing institutional aid. The passage of the Higher Education Act of 1965 laid the groundwork for federal student aid programs.63
A significant milestone occurred with the introduction of the Basic Educational Opportunity Grant, later renamed the Federal Pell Grants, which established a need analysis methodology that included criteria for EFC calculations.62 Over the years, the methodology evolved, incorporating various factors to determine a family's financial strength. In 1986, Congress introduced the "congressional methodology," creating unique EFC calculations for different student classifications. The Higher Education Act Reauthorization of 1992 then merged existing methodologies into a single "federal methodology," which included the introduction of the automatic zero EFC for low-income students and the removal of home value from the calculation for federal aid.60, 61
The EFC system underwent a substantial transformation with the passage of the FAFSA Simplification Act as part of the Consolidated Appropriations Act, 2021, and its subsequent amendments.59 This legislation, passed in December 2020, aimed to streamline the application process and revise how financial need is determined.58 A key change was the decision to replace the Expected Family Contribution (EFC) with the Student Aid Index (SAI), effective for the 2024-2025 award year.56, 57 This overhaul also incorporated provisions from the FUTURE Act, allowing for direct data exchange of federal tax information from the Internal Revenue Service (IRS) to the Federal Student Aid system, simplifying the application process for many families.53, 54, 55
Key Takeaways
- The Expected Family Contribution (EFC) was an index number used to assess a student's financial need for federal, state, and institutional financial aid.
- It was calculated based on information provided on the Free Application for Federal Student Aid (FAFSA), considering factors like family income and assets.
- A lower EFC indicated a higher level of financial need and potential eligibility for more aid.
- The EFC has been replaced by the Student Aid Index (SAI) starting with the 2024-2025 award year due to the FAFSA Simplification Act.
- Unlike the EFC, which was truncated at zero, the Student Aid Index can be a negative number, indicating a greater level of financial hardship.
Formula and Calculation
The calculation of the Expected Family Contribution (EFC) involved a complex formula mandated by federal law, utilizing data from the FAFSA form. While the specific methodology varied slightly depending on the student's dependency status (dependent or independent), the core elements generally included:
- Parental Contribution: Derived primarily from parents' taxable and untaxed income, assets (excluding the primary residence for federal methodology), and allowances for living expenses and taxes.50, 51, 52
- Student Contribution: Determined from the student's income and assets.48, 49
The general formula to calculate a student's eligibility for financial aid based on EFC was:
Variables Defined:
- Cost of Attendance (COA): The total estimated cost of attending a particular educational institution for an academic year, including tuition, fees, room and board, books, supplies, transportation, and personal expenses.46, 47
- Expected Family Contribution (EFC): The amount the federal government determined a family could reasonably contribute toward college costs.
- Other Financial Assistance: Any other aid a student receives, such as outside scholarships.
For example, the calculation for a dependent student's EFC combined parents' contribution from their available income and assets, and the student's contribution from their income and assets.45 Allowances against income, such as federal, state, and Social Security taxes paid, and an income protection allowance based on family size, were subtracted to arrive at "available income."42, 43, 44 Contributions from investment accounts and other non-retirement assets were also assessed, though at different rates for parents and students.41
Interpreting the EFC
The Expected Family Contribution (EFC) was not the amount a family was required to pay for college, nor was it the actual amount of financial aid a student would receive. Instead, it was an index number used by financial aid offices to gauge a family's financial strength and determine eligibility for various types of federal, state, and institutional grants, federal student loans, and work-study programs.40
A very low EFC, particularly an EFC of zero, indicated significant financial need, making a student eligible for the maximum amount of federal aid, such as the Federal Pell Grant. Historically, the lowest possible EFC was zero, even if a family's financial situation suggested they could contribute less.39 The actual financial aid package offered to a student would vary by institution, as each college's cost of attendance differed. The difference between a school's cost of attendance and the student's EFC represented their calculated financial need.38
Hypothetical Example
Consider a hypothetical student, Alex, who applied for financial aid for the 2023-2024 academic year (when EFC was still in use). Alex's chosen university had a Cost of Attendance (COA) of $25,000. After Alex and their parents completed the FAFSA, their Expected Family Contribution (EFC) was calculated as $8,000.
Using the formula for financial need:
Based on this calculation, Alex was determined to have a financial need of $17,000. The university's financial aid office would then attempt to meet this need through a combination of available aid programs. This might include a Federal Pell Grant, subsidized federal student loans, or eligibility for a work-study program. If Alex qualified for a Pell Grant of $5,000 and a subsidized federal student loan of $4,500, the remaining unmet need would be:
This $7,500 would then need to be covered by other sources, such as unsubsidized federal student loans, private scholarships, or direct family contributions.
Practical Applications
The Expected Family Contribution (EFC) was central to the process of applying for and receiving various forms of financial aid in the United States. Its primary application was in the determination of eligibility for federal student aid programs, including Federal Pell Grants, Federal Supplemental Educational Opportunity Grants (FSEOG), Direct Subsidized Loans, and Federal Work-Study.37 Students annually submitted the FAFSA, which collected the necessary financial data for EFC calculation.
Beyond federal programs, many state governments and individual colleges and universities used the EFC as a primary metric for awarding their own institutional financial aid. This ensured a consistent and equitable approach to distributing limited aid resources based on a standardized measure of financial capacity. For instance, the Pennsylvania Higher Education Assistance Agency (PHEAA), a leading student aid organization, uses FAFSA data to determine eligibility for state grants and other programs.36 The EFC also played a role in guiding financial advisors and families in college planning, allowing them to estimate potential out-of-pocket costs and strategize savings and borrowing accordingly.
Limitations and Criticisms
Despite its long-standing role, the Expected Family Contribution (EFC) methodology faced various limitations and criticisms over the years. One significant critique was that the EFC often did not accurately reflect a family's true ability or willingness to pay for college.35 The calculation primarily relied on income and assets from two years prior (known as "prior-prior year" income), which could be problematic if a family's financial situation had changed significantly due to job loss, medical expenses, or other unforeseen circumstances.33, 34
Another point of contention was the "sibling discount" effect. Under the EFC formula, if multiple children from the same family were enrolled in college simultaneously, the EFC per student was often reduced. However, this aspect was removed with the FAFSA Simplification Act's changes, leading to concerns that families with multiple children in college would see an increase in their Student Aid Index (SAI) and potentially a reduction in need-based aid.31, 32
Furthermore, the EFC was always a non-negative number, truncated at zero, meaning that even families with severe financial hardship were assigned an EFC of zero, lumping them together with those who had slightly more resources but still qualified for the lowest contribution.30 This made it challenging for financial aid administrators to differentiate between the varying levels of extreme need among the lowest-income students. As the National Association of Student Financial Aid Administrators (NASFAA) noted, nearly 40% of students had a zero EFC at one point, double the rate from the late 1990s, highlighting the formula's inability to differentiate true need at the lowest end of the spectrum.29 The complexity of the EFC calculation and its perceived opacity also drew criticism, with many advocating for a simpler, more transparent system for assessing financial need.28
Expected Family Contribution (EFC) vs. Student Aid Index (SAI)
The Expected Family Contribution (EFC) and the Student Aid Index (SAI) both serve the purpose of measuring a family's financial strength to determine eligibility for federal financial aid. However, the SAI, which replaced the EFC starting with the 2024-2025 award year, introduces several key distinctions designed to simplify the process and expand aid eligibility.
| Feature | Expected Family Contribution (EFC) | Student Aid Index (SAI) |
|---|---|---|
| Purpose | Index to determine eligibility for need-based aid. | Index to determine eligibility for need-based aid. |
| Minimum Value | Could not be lower than $0. | Can be a negative number, as low as -$1,500.26, 27 |
| Family Members in College | Factor in the calculation, potentially lowering EFC per student. | Removed from the calculation.23, 24, 25 |
| Child Support Received | Counted as untaxed income. | Included as an asset.22 |
| Small Business/Farm Value | Excluded for businesses with fewer than 100 employees under federal methodology.21 | Net worth of all businesses/farms (regardless of size) included as an asset.19, 20 |
| Source of Data | Manually reported by applicants on FAFSA. | Mandates direct data exchange from IRS (FUTURE Act).17, 18 |
The most notable difference is the SAI's ability to be a negative number. This change allows financial aid administrators to identify and provide additional assistance to students with the most profound financial needs, whereas the EFC's floor of zero made it difficult to distinguish between varying levels of high need.15, 16 The removal of the "number of family members in college" from the SAI calculation is also a significant shift, as it alters how aid is distributed among families with multiple college students.13, 14 Overall, the transition from EFC to SAI is part of a broader effort to streamline the federal financial aid application and better target assistance.11, 12
FAQs
What is the primary purpose of the Expected Family Contribution (EFC)?
The EFC was an index number used to assess a family's financial capacity to contribute to college costs, which then determined a student's eligibility for various federal, state, and institutional financial aid programs.
Why is the EFC no longer used?
The EFC was replaced by the Student Aid Index (SAI) starting with the 2024-2025 award year due to the FAFSA Simplification Act. This change aimed to simplify the application process, refine the calculation of financial need, and allow for a negative index number to better identify the most financially vulnerable students.8, 9, 10
Did the EFC represent the actual amount a family had to pay?
No, the EFC was an index number, not a direct bill or the actual amount a family was required to pay. It was used by financial aid offices to calculate a student's eligibility for need-based financial aid by subtracting it from the school's cost of attendance.7 The actual out-of-pocket cost depended on the aid package offered by the institution.
What factors were considered when calculating the EFC?
The EFC calculation typically considered the family's income (both taxable and untaxed), assets (excluding primary residence for federal aid), family size, and the number of family members attending college.4, 5, 6
How does the Student Aid Index (SAI) differ from the EFC?
The key differences include the SAI's ability to be a negative number (as low as -$1,500), the exclusion of the number of family members in college from its calculation, and changes in how certain assets, like child support received and the value of small businesses or farms, are considered.1, 2, 3