# Presentation: 661712

## Session #32

**The EFC **
**Expected Family Contribution**
- Marianna DeekenClaire Micki Roemer

**Notes:**
11/6/2007

## EFC

- Expected Family Contribution
- Measure of what the student and family can be expected to contribute to student’s cost of education

## Expected Family Contribution 

- Calculated from data collected on the FAFSA
- Formula is in statute
- Designed to measure the family’s financial strength
- ED publishes updated tables each year in the Federal Register

## Principles of Need Analysis

- Family has primary responsibility to pay for educational costs
- Student and parents are expected to contribute to the extent they are able
- Families should be evaluated in an equitable and consistent manner

## Need Analysis Concepts

- Need-based funds are available to assist with educational costs that exceed the family’s ability to pay
- Assesses strength at the time of application
- Family resources are devoted first to basic subsistence

## Need Analysis Concepts

- FM measures discretionary resources
- Protects resources needed for basic living
- Establishes a portion available for education

## Factors that affect EFC

- Taxable and untaxed income
- Taxes paid
- Number in Household
- Number in College
- Assets
- Age of the older parent
- Number of wage earners

## EFC Calculations

- EFC result on ISIR reflects a 9 month EFC
- Law specifies how an EFC must be calculated for periods of other than nine months
- Results show on ISIR by number of months
- 9 month EFC must be used for Pell Grant eligibility

## How is EFC Determined?

- Three distinct FM formulas
- Regular
- Simplified
- Automatic zero

## Regular Formula

- Three versions of regular formula
- Dependent students
- Independent students without dependents other than a spouse
- Independent students with dependents other than a spouse

## Alternate EFC Formulas

- Simplified formula
- Assets are not considered in the calculation
- Automatic Zero EFC formula
- Untaxed income and assets are not considered in the calculation

## Simplified Formula 

- For dependent students
- Parents’ AGI or earnings from work < $50,000 *and*
- Parents  are not *required* to file IRS form 1040
*OR*
- Member of FAFSA household received federal means-test benefit

## Simplified Formula

- For all independent students
- Student (and spouse) AGI or earnings from work < $50,000 *and*
- Student (and spouse) not required to file IRS form 1040
*OR*
- Member of FAFSA household received federal means-test benefit

## Automatic Zero EFC

- For dependent students
- Parents’ AGI or income earned from work is $20,000 or less
*and*
- Parents are not required to file IRS form 1040
*OR*
- Member of FAFSA household received federal means-test benefit

## Automatic Zero EFC

- For independent students with
- dependents other than a spouse
- Student’s (and spouse’s) AGI or income earned from work is $20,000 or less
-  *and*
- Student (and spouse) not required to file IRS form 1040
*OR*
- Member of FAFSA household received federal means-test benefit

**Notes:**
Independent students with no dependents other than spouse do not qualify for automatic zero EFC calculation.

## SNT & Auto 0 EFC

- Federal Means-Tested Benefit Programs
- Supplemental Security Income (SSI)
- Temporary Assistance for Needy Families (TANF)
- Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)
- Food Stamps
- Free or Reduced Price Lunches

## The Web Family

- Two parents with one working
- Two children in family
- One child in college
- Live in Illinois
- Older parent is age 46

## Treatment of Income 

- Total Income (TI)
- Base year income from all taxable
- and untaxable sources
- _Exclusions on FAFSA Worksheet C_
- =Total Income

## Treatment of Income  

- Available Income (AI) is portion of
- income remaining for discretionary
- Spending
- Total income
- _Total Allowances_
- =Available Income

## Total Allowances

- Allowances for taxes
- U. S. Income tax paid
- Estimate of state and other taxes
- State of residence
- Amount of total income
- FICA

## Total Allowances

- Income Protection Allowance (IPA)
- Estimates amount needed for basic needs
- Based on Bureau of Labor Statistics lower budget expenditures adjusted for CPI
- Increases with each household member
- Decreases with each member in college

## Total Allowances 

- Employment expense allowance
- Represents additional costs when both parents work
- Applies to working single parent families

## Treatment of Assets 

- Assets defined
- Cash, savings, checking
- Investments and trusts
- Real estate equity
- Business/farm equity (not family owned)
- Protects first 60% of equity up to $105K
- Decreases protection percentage after $105K

## Treatment of Assets

**Treatment of Assets**

- Cash, savings, checking
- +Net worth of real estate and investments
- +_Adjusted net worth of business/farm_
- =Total Net Worth

## Treatment of Parents’ Assets

- Total Net Worth
- Education Savings and Asset _Protection Allowance_
- =Discretionary Net Worth

## Treatment of Parents’ Assets  

- Education Savings and Asset Protection Allowance
- Protects assets for retirement and future education costs
- Applies > age 25
- Increases with age
- Adjusted for marital status
- No protection for dependent students

## Treatment of Parents’ Assets 

- Discretionary Net Worth
- X _12% asset conversion rate_
- =Contribution from Assets

## Adjusted Available Income

- Parents’ Available Income (+/-)
- +_Parents’ contribution from assets (+/0)_
- =Total Adjusted Available Income (+/-)

## Determining Parents’ Contribution

- As income increases, amount needed for basic household expenses decreases
- Discretionary income increases
- Income available for education
- Adjusted Available Income (AAI)
- X _AAI contribution rate_
- =Total Parents’ Contribution from AAI

## Determining Parents’ Contribution

- Total contribution from AAI is divided evenly among all household members in college
- Total PC from AAI / Number in College
- =9 month PC

## Determining Student’s Contribution

- Total of student taxable + untaxed
- income
- State and federal taxes
- $3,000 IPA
- _allowance for parents’ negative AAI_
- = Available income (AI)
- X _50% assessment of AI_
- = Student contribution from AI

## Determining Student’s Contribution

- Cash, savings, checking
- +Net worth of real estate and investments
- +_Adjusted net worth of business/farm_
- =Total Net Worth
- X 20%
- =Student contribution from assets

## Determining EFC

- Parents’ Contribution
- +Student’s contribution from AI
- +_Student’s contribution from assets_
- = 9 month EFC

## What if?

- If there were two in the household in college:
- IPA is $20,510
- Total allowances are $28,014
- New AI is $14,713
- New PC is $3,276
- New EFC is 3286

## Resources

- 2007-2008 FSA Handbook, Application & Verification Guide, Chapter 3
- EFC Formula Guide on IFAP

## Contacts

**Claire Micki Roemer**
**Phone:  202-377-3452**
**Email: claire.roemer@ed.gov**

- We appreciate your feedback and comments.
- We can be reached at:

**Marianna Deeken**
**   ****Phone: (206) 615-2583 **
**   ****Email: marianna.deeken@ed.gov**

## Please provide any comments regarding this training or the trainers to:

Jo Ann Borel
Title IV Training Supervisor
joann.borel@ed.gov
202-377-3930

- Jo Ann Borel
- Title IV Training Supervisor
- joann.borel@ed.gov
- 202-377-3930