Unraveling the Unraveling the Mysteries of the EFCMysteries of the EFC

oror“What do you mean I “What do you mean I

can contribute $15,000 can contribute $15,000 toward her education!”toward her education!”

By Kent McGowanBy Kent McGowan

Director, Financial AidDirector, Financial Aid

Buffalo State CollegeBuffalo State College

E F What?E F What?

EFC stands forEFC stands for

ExpectedExpected

FamilyFamily

ContributionContribution

E F What?E F What?

What it is theoretically:What it is theoretically:

How much a family can contribute How much a family can contribute toward their son or daughter’s toward their son or daughter’s education that academic year.education that academic year.

An EFC of 5000 would mean the family An EFC of 5000 would mean the family can literally contribute $5000 toward can literally contribute $5000 toward their education that year.their education that year.

E F What?E F What?

What it is actually:What it is actually:

A way of comparing a family’s relative A way of comparing a family’s relative financial strength to that of other financial strength to that of other applicants based on certain resources applicants based on certain resources presumed to be currently available to presumed to be currently available to them.them.

It does not look at actual consumption It does not look at actual consumption habits, does not look at all resources, nor habits, does not look at all resources, nor does it account for shifting circumstances.does it account for shifting circumstances.

Establishing Aid EligibilityEstablishing Aid Eligibility

Cost of AttendanceCost of Attendance

- Expected Family Contribution- Expected Family Contribution

Documented NeedDocumented Need

Pell eligible EFC range is 0 - 3850Pell eligible EFC range is 0 - 3850

Choosing the EFC FormulaChoosing the EFC Formula

There are actually seven EFC formulas:There are actually seven EFC formulas:• Dependent studentsDependent students

• who qualify for the simplified needs testwho qualify for the simplified needs test• who don’t qualify for the simplified needs testwho don’t qualify for the simplified needs test

• Independent students Independent students withoutwithout dependents dependents other than a spouse (single or married no other than a spouse (single or married no kids)kids)• who qualify for the simplified needs testwho qualify for the simplified needs test• who don’t qualify for the simplified needs testwho don’t qualify for the simplified needs test

Choosing the EFC FormulaChoosing the EFC Formula

• Independent students Independent students withwith dependents dependents other than a spouse (single or married, other than a spouse (single or married, have kids)have kids)• who qualify for the simplified needs testwho qualify for the simplified needs test• who don’t qualify for the simplified needs who don’t qualify for the simplified needs

testtest

• Those who qualify for an Auto Zero EFCThose who qualify for an Auto Zero EFC

Simplified Needs TestSimplified Needs Test

Used to determine whether assets are Used to determine whether assets are considered in the EFC calculation.considered in the EFC calculation.

Dependent studentsDependent students• Parental AGI less than $50,000 andParental AGI less than $50,000 and• Parents able to file 1040A, 1040EZ or not Parents able to file 1040A, 1040EZ or not

required to filerequired to file

Independent studentsIndependent students• Student/Spouse AGI less than $50,000 andStudent/Spouse AGI less than $50,000 and• Student/Spouse able to file 1040A, 1040EZ or Student/Spouse able to file 1040A, 1040EZ or

not required to filenot required to file

Auto Zero EFCAuto Zero EFC

If certain criteria are met, student If certain criteria are met, student automatically assigned an EFC of 0 automatically assigned an EFC of 0 regardless of what the calculated EFC regardless of what the calculated EFC would be.would be.

Accommodates situations where Accommodates situations where student working to provide income for student working to provide income for support of household, or where family support of household, or where family has already shown high level of need.has already shown high level of need.

Auto Zero EFCAuto Zero EFC

Dependent studentsDependent students• Parental AGI $20,000 or lessParental AGI $20,000 or less• Parents able to file 1040A, 1040EZ or Parents able to file 1040A, 1040EZ or

not required to file, or parent or student not required to file, or parent or student received a “means tested federal received a “means tested federal benefit program” in prior calendar yearbenefit program” in prior calendar year

Means Tested Federal Benefit Means Tested Federal Benefit ProgramProgram

Includes:Includes:• SSISSI• Food StampsFood Stamps• Free or reduced school lunchesFree or reduced school lunches• Temporary Assistance for Needy Temporary Assistance for Needy

Families (TANF)Families (TANF)• Special supplemental nutrition programSpecial supplemental nutrition program

Auto Zero EFCAuto Zero EFC

Independent students with dependents Independent students with dependents other than spouse (have kids)other than spouse (have kids)• Student/Spouse AGI $20,000 or lessStudent/Spouse AGI $20,000 or less• Student/Spouse able to file 1040A, Student/Spouse able to file 1040A,

1040EZ or not required to file or 1040EZ or not required to file or student/spouse received a “means student/spouse received a “means tested federal benefit program” in prior tested federal benefit program” in prior calendar yearcalendar year

Auto Zero EFCAuto Zero EFC

Independent students without Independent students without dependents other than spouse (no dependents other than spouse (no kids)kids)• Do not qualify for auto zero EFCDo not qualify for auto zero EFC

Components of the EFCComponents of the EFC

Dependent student EFC is made up of Dependent student EFC is made up of three components:three components:• Parent ContributionParent Contribution

• Available IncomeAvailable Income• Contribution from AssetsContribution from Assets

• Student Income ContributionStudent Income Contribution• Student Contribution from AssetsStudent Contribution from Assets

Dependent Student FormulaDependent Student Formula

Parents' Available IncomeParents' Available Income

Total IncomeTotal Income

– – Total AllowancesTotal Allowances

Available IncomeAvailable Income

Parents' Total IncomeParents' Total Income

Adjusted Gross Income (AGI)Adjusted Gross Income (AGI)

+ Untaxed Income (from Worksheets A & + Untaxed Income (from Worksheets A & B)B)

- Income Reductions (Worksheet C)Income Reductions (Worksheet C)

If not required to file taxes total income If not required to file taxes total income earned from work is used in place of AGIearned from work is used in place of AGI

Parents' Total AllowancesParents' Total Allowances

US Income Tax Paid (from 1040)US Income Tax Paid (from 1040)

+ State & other tax allowance (see table)+ State & other tax allowance (see table)

+ Father’s FICA allowance (see table)+ Father’s FICA allowance (see table)

+ Mother’s FICA allowance (see table)+ Mother’s FICA allowance (see table)

+ Income Protection allowance (see table)+ Income Protection allowance (see table)

+ Employment Expense allowance+ Employment Expense allowance

Employment Expense Employment Expense AllowanceAllowance

Two working parents: 35% of the Two working parents: 35% of the lesser of the earned income, or lesser of the earned income, or $3,100, whichever is less.$3,100, whichever is less.

One-parent families: 35% of earned One-parent families: 35% of earned income, or $3,100, whichever is less.income, or $3,100, whichever is less.

Two-parent families, one working Two-parent families, one working parent, allowance is zero.parent, allowance is zero.

Parents' Available IncomeParents' Available Income

Total IncomeTotal Income

– – Total AllowancesTotal Allowances

Available IncomeAvailable Income

Parents' Contribution from Parents' Contribution from AssetsAssets

Included:Included:• Value of most trust fundsValue of most trust funds• Value of educational savings plansValue of educational savings plans

Not included:Not included:• Primary residencePrimary residence• Value of retirement plan or life insuranceValue of retirement plan or life insurance• Family business with 100 or fewer Family business with 100 or fewer

employeesemployees• Family farm if residence is on the farmFamily farm if residence is on the farm

Parents' Contribution from Parents' Contribution from AssetsAssets

Discretionary Net Worth:Discretionary Net Worth:

Cash, savings & checkingCash, savings & checking

+ Net worth of investments+ Net worth of investments

+ Adjusted net worth of business/farm + Adjusted net worth of business/farm (see table)(see table)

- Education savings and asset Education savings and asset protection allowance (see table)protection allowance (see table)

Parents' Contribution from Parents' Contribution from AssetsAssets

Discretionary Net WorthDiscretionary Net Worth

X .12X .12

Contribution from AssetsContribution from Assets

Parents' ContributionParents' Contribution

Available IncomeAvailable Income

+ Contribution from Assets+ Contribution from Assets

Adjusted Available IncomeAdjusted Available Income

Parents' ContributionParents' Contribution

Adjusted AI Contribution (from table)Adjusted AI Contribution (from table)

divided bydivided by

Number in CollegeNumber in College

==

Parent ContributionParent Contribution

Student’s Total IncomeStudent’s Total Income

Adjusted Gross Income (AGI)Adjusted Gross Income (AGI)

+ Untaxed Income (from Worksheets A & + Untaxed Income (from Worksheets A & B)B)

- Income Reductions (Worksheet C)Income Reductions (Worksheet C)

If not required to file taxes total income If not required to file taxes total income earned from work is used in place of AGIearned from work is used in place of AGI

Student’s Total AllowancesStudent’s Total Allowances

US Income Tax PaidUS Income Tax Paid

+ State & other tax allowance+ State & other tax allowance

+ FICA allowance+ FICA allowance

+ Income Protection allowance (2,550)+ Income Protection allowance (2,550)

+ Allowance for Parents' negative + Allowance for Parents' negative Adjusted Available IncomeAdjusted Available Income

Student Income Student Income ContributionContribution

Total IncomeTotal Income

- Total Allowances- Total Allowances

Available IncomeAvailable Income

X .50X .50

Student Income ContributionStudent Income Contribution

Student Contribution from Student Contribution from AssetsAssets

Net Worth:Net Worth: Cash, savings & checkingCash, savings & checking

+ Net worth of investments+ Net worth of investments

+ Net worth of business/farm (not + Net worth of business/farm (not adjusted)adjusted)

Note: there is no asset protection allowanceNote: there is no asset protection allowance

Student Contribution from Student Contribution from AssetsAssets

Net WorthNet Worth

X .35X .35

Student Contribution from AssetsStudent Contribution from Assets

EFCEFC

Parent ContributionParent Contribution

+ Student Income Contribution+ Student Income Contribution

+ Student Contribution from Assets+ Student Contribution from Assets

Expected Family ContributionExpected Family Contribution

Independent Student Independent Student FormulasFormulas

With Kids - Calculation identical to parent of With Kids - Calculation identical to parent of a dependent student.a dependent student.

No Kids – Similar to dependent student No Kids – Similar to dependent student calculation except:calculation except:• Higher income protection allowance (5,790 or Higher income protection allowance (5,790 or

9,260)9,260)• Employment allowance expense includedEmployment allowance expense included• Net worth of business/farm is adjustedNet worth of business/farm is adjusted• Asset protection allowance includedAsset protection allowance included

Questions?Questions?