# Presentation: 873739

## Session FF-05

**Expected Family Contribution**
- Marianna Deeken
- U.S. Department of Education

**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 family’s financial strength at the time of application
- Family resources are devoted first to basic subsistence

## 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 page 1 of ISIR is 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  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 income earned 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 income earned 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 & Automatic 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 EFC Family

- Two parents, 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
- Social Security tax

## 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 when parent is age 26 or older
- Increases with age
- Adjusted for marital status

## 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 Dependent Student’s Contribution

- Total of student taxable + untaxed
- income
- U.S. taxes paid
- Estimate of state and other taxes
- $3,080 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

- there were two family members in college?
- IPA is $21,020
- Total allowances against parent’s income  are $28,524
- New AI is $14,203
- New PC is 1570
- New EFC is 1590

## Resources

- 2008-2009 FSA Handbook, Application & Verification Guide, Chapter 3
- EFC Formula Guide on IFAP
- http://ifap.ed.gov/efcinformation/0809EFCFormulaGuide.html

## Contact Information

- Your feedback and comments are appreciated.

- Marianna Deeken
- Training Officer
- 206-615-2583
- marianna.deeken@ed.gov