Why Is My EFC So High? Explaining the Main Reasons

Understanding Expected Family Contribution

The Expected Family Contribution (EFC) represents an index number used by college financial aid offices to determine how much financial aid a student may be eligible to receive. It is important to understand that the EFC is not the amount a family will pay for college, nor is it a bill that must be paid. Instead, it is a standardized measure of a family’s financial strength, calculated through a federal formula based on information submitted via financial aid applications. A higher EFC typically indicates that a student qualifies for less need-based financial aid. This calculation helps colleges distribute limited financial aid funds equitably among eligible students.

Key Income Factors

Income plays a substantial role in determining a family’s Expected Family Contribution (EFC), with both parental and student income being assessed. Taxable income, such as wages, salaries, business profits, and investment earnings like interest and dividends, significantly drives the EFC calculation. Adjusted gross income (AGI) reported on federal tax returns is a primary component, and higher AGIs generally lead to a higher EFC.

Untaxed income and benefits also impact the EFC, potentially increasing it. Examples include child support received, untaxed portions of pension distributions, distributions from individual retirement accounts (IRAs), workers’ compensation, and veterans’ non-education benefits.

A portion of income is shielded from the EFC calculation through an “income protection allowance,” designed to cover basic living expenses. Income up to this threshold is not factored into the EFC. Once income surpasses this protected amount, a significant percentage of the remaining income is assessed and contributes directly to the EFC. The specific percentage assessed varies based on the income level, with higher incomes contributing at a greater rate.

Key Asset Factors

Assets are another significant component in the Expected Family Contribution (EFC) calculation, with different assessment rates applied to parental and student assets. Student assets are assessed at a much higher rate, typically around 20% to 25% of their value, meaning a larger portion of a student’s savings directly impacts the EFC. In contrast, parental assets are assessed at a significantly lower rate, generally up to 5.64% of their value. This disparity is due to the financial aid philosophy that students have a greater direct responsibility for their educational costs.

Certain assets are included in the EFC calculation, such as balances in savings and checking accounts. Non-retirement investments, including stocks, bonds, mutual funds, and certificates of deposit (CDs), are also factored in. Real estate equity in properties other than the primary residence, such as vacation homes or rental properties, contributes to the EFC. Business assets are included for businesses with more than 100 full-time employees, or if the business is not owned and controlled by the family.

Conversely, several types of assets are excluded from the EFC calculation to protect essential family resources. The equity in the family’s primary residence is generally not counted. Funds held in qualified retirement accounts, such as 401(k)s, IRAs, 403(b)s, and pension plans, are excluded. The cash value of life insurance policies and the value of personal possessions, including vehicles, household furnishings, and clothing, are also not considered.

An “asset protection allowance” exists to shield a certain amount of parental assets from the EFC calculation. This allowance is primarily based on the age of the older parent, with older parents typically receiving a larger allowance. Assets exceeding this allowance are then subject to the parental assessment rate, contributing to the overall EFC.

Family Demographics and Other Considerations

Family demographic factors also play a role in determining the Expected Family Contribution (EFC). A larger family size generally results in a lower EFC because available income and assets are spread among more individuals. This adjustment recognizes that larger families have greater everyday living expenses, which reduces their capacity to contribute to college costs. The number of dependents supported by the family, as reported on the financial aid application, directly influences this calculation.

Another significant demographic factor is the number of family members enrolled in college at least half-time during the same academic year. If multiple children from the same family are attending college concurrently, the calculated EFC is typically divided among them. This effectively lowers the EFC for each individual student, as the family’s expected contribution is shared.

Differences in Calculation Methodologies

The Expected Family Contribution (EFC) can vary significantly depending on which financial aid application a family completes, due to differences in calculation methodologies. The federal methodology, used by the Free Application for Federal Student Aid (FAFSA), determines eligibility for federal student aid programs. Many private colleges and universities use the institutional methodology, often requiring the CSS Profile application, to award their own institutional aid. These distinct approaches can lead to different EFC figures for the same family.

A key distinction is how certain assets are treated. The CSS Profile often considers assets typically excluded from FAFSA calculations, which can result in a higher EFC. For example, the equity in a family’s primary home, generally not counted by FAFSA, may be considered by institutions using the CSS Profile. Similarly, the value of small business equity (for businesses with fewer than 100 employees) and farm equity are often included in the CSS Profile’s assessment, whereas FAFSA typically excludes them.

Another notable difference lies in the treatment of non-custodial parent income and assets for divorced or separated parents. While FAFSA generally only considers the financial information of the custodial parent, the CSS Profile frequently requires financial details from both parents. This broader inclusion of financial resources can lead to a higher overall EFC when applying to institutions that utilize the CSS Profile.