Title IV of the Higher Education Act (HEA) authorizes a group of federal student aid programs. Eligibility for many of these aid programs is contingent on student need. Student need is defined as the difference between a school's cost of attendance (COA) and the student's expected family contribution (EFC). A student's EFC is determined by a group of formulas in Part F of Title IV. The formulas define the applicable family unit and establish a process to calculate the EFC for the upcoming award year on the basis of the income and assets of the student and, if applicable, the student's parents or spouse. The EFC formulas in the HEA are also known as the "federal methodology." This report will discuss the EFC formulas and how current law and the Department of Education (ED) consider the financial resources and other characteristics of a student's family in calculating the EFC. This report will not discuss the application of the EFC in determining and packaging student aid. The next section of this report will discuss how ED collects and processes information from prospective students using the Free Application for Federal Student Aid (FAFSA). The following section will discuss how the information from the FAFSA is used to determine the student's dependency status and applicable EFC formula. The subsequent sections will describe how each of these formulas translates the financial characteristics of a student's family into an EFC. The FAFSA is the data collection instrument for information used to calculate the EFC. The EFC is calculated on the basis of information provided on the FAFSA by the student on income, assets, and other characteristics. Students who do not meet the "independent student" criteria in statute must report information on their parents. Students who are married must report information on their spouses. Information from the FAFSA is shared with state agencies and institutions of higher education to help determine federal and non-federal aid. Some questions gather information that is relevant to state and institutional aid programs but not relevant to federal aid programs. Responses to these questions do not affect the EFC and corresponding federal aid. The vast majority of student aid applicants complete the FAFSA online, though it is also possible to complete a paper form. The online FAFSA is designed to prompt applicants only for necessary data. For example, if an applicant's initial responses indicate that he or she meets the criteria to be classified as an "independent" student, the online form will not ask questions about the student's parents. This "skip logic" simplifies the application process by allowing users to only provide necessary information. Applicants who file the FAFSA online and who have already completed their tax returns for the applicable reference year have the option of using the Internal Revenue Service Data Retrieval Tool (IRS-DRT). The tool provides tax data to the applicants that they can then choose to import into the FAFSA. Some FAFSA items do not have tax form equivalents and therefore must be completed manually, even if the applicant uses the IRS-DRT. After an applicant submits a FAFSA, the form is processed by the Central Processing System (CPS). The CPS uses the applicant's responses to calculate an EFC and checks the application's data against several existing databases (such as the Social Security Administration) to verify the student's identity and eligibility for federal student aid. The CPS also checks the FAFSA for possible inconsistencies or mistakes that require correction. After processing the FAFSA data, the CPS produces two types of output documents. The Student Aid Report (SAR) provides the student with his or her EFC and other information. Institutional Student Information Records (ISIRs) are provided to institutions that the student specified on his or her FAFSA. The ISIR provides the student's EFC and other data from the FAFSA that can influence institutional need-based aid. The FAFSA becomes available on October 1 of the year prior to the applicable award year (AY). For example, the FAFSA for AY2018-2019 became available October 1, 2017. The FAFSA is completed using income and tax information from the year that is two years prior to the applicable award year. To continue the same example, the FAFSA for AY2018-2019 is completed using income and tax information from calendar year 2016. Prior to AY2017-2018, the FAFSA became available on January 1 of the award year and was completed using income and tax information from the year prior to the award year. For example, the FAFSA for AY2015-2016 became available on January 1, 2015, and was completed using income and tax information from calendar year 2014. The move to make the FAFSA available earlier and shift from using the prior year's income and tax information to using information from the "prior-prior year" was accomplished through ED's exercise of an authority specified in the HEA. ED stated that the shift will allow students to apply for aid earlier and better align the financial aid application process with the college application timeline. The change in timing may also increase the likelihood that families will be able to import tax information to the FAFSA using the IRT-DRT because it is likely that applicable family members will have filed taxes for the applicable year by the time the FAFSA becomes available. Data from the FAFSA are used to determine a student's dependency status and the applicable formula within that dependency status. This is typically a two-step process. The first step is determining the student's dependency status. If the student meets the criteria to be classified as independent, the EFC calculation will only consider the financial resources of the student and, if applicable, the student's spouse. If the student does not meet the criteria for an independent student, the student is classified as dependent and the EFC formula will consider the financial resources of both the student and the student's parents. The second step is determining the applicant's eligibility for a simplified needs test (SNT). If the applicant is eligible for the SNT, the student's EFC will be determined on the basis of a reduced number of income-based factors and assets will not be considered in EFC calculations. Some applicants who are eligible for the SNT may be further eligible for an "automatic zero" EFC. If an applicant is not eligible for the SNT, the EFC will be determined on the basis of the full formula, which considers both income and assets. The HEA has different formulas for each of three dependency statuses: dependent students; independent students without dependents; and independent students with dependents. As noted previously, the formula for dependent students considers the financial resources of the students' parents while the formulas for independent students do not. In cases where a student is married, the financial resources of the student's spouse are always considered. The HEA specifies that a student who does not meet the criteria for an independent student is treated as a dependent student. An independent student is defined as a student who meets any of the following criteria: is 24 years of age or older by December 31 of the award year; is an orphan, in foster care, or a ward of the court; or was an orphan, in foster care, or a ward of the court at any time when the individual was 13 years of age or older; is, or was immediately prior to attaining the age of majority, an emancipated minor or in legal guardianship as determined by a court of competent jurisdiction in the individual's state of legal residence; is a veteran of the Armed Forces of the United States or is currently serving on active duty in the Armed Forces for other than training purposes; is a graduate or professional student; is a married individual; has legal dependents other than a spouse; or has been verified, by a qualified authority during the school year in which the application is submitted, as either an unaccompanied youth who is a homeless child or youth, or as unaccompanied, at risk of homelessness, and self-supporting. A student who does not meet any of the above criteria is considered a dependent student for the purposes of the EFC formula. Notably, a student's financial independence does not, by itself, make the student independent for federal student aid purposes. Similarly, whether or not a parent declares a student as a dependent on the parent's tax return has no effect on the student's dependency status for the purposes of the FAFSA and federal student aid. The EFC formula has separate treatments for independent students with and without dependents. Thus, once a student meets the criteria for an independent student, it must be determined if the independent student has dependents. Dependents of the student are defined as "the student's dependent children and other persons (except the student's spouse) who live with and receive more than one-half of their support from the student and will continue to receive more than half of their support from the student during the award year." The full EFC formulas consider a range of data elements related to income and assets and make a number of intermediate calculations to determine a student's EFC. Not all students, however, are subject to the full formulas. Applicants with certain characteristics and incomes below a specified level are eligible for a simplified needs test (SNT) or an automatic zero EFC. The SNT does not consider an applicant's assets when calculating the EFC. Applicants who are eligible for the SNT and fill out the FAFSA online are typically not prompted to enter asset information. This reduces the number of questions these students must answer when completing the FAFSA. To be eligible for the SNT, the applicant must have an adjusted gross income (AGI) of less than $50,000 and meet other criteria. For dependent students, the AGI limit applies only to the student's parents. For independent students, the AGI limit applies to the combined AGI of the student and the student's spouse, if any.