Understanding the FAFSA’s EFC

You might think you know what the FAFSA’s EFC means, but do you? When you file the Free Application for Federal Student Aid (FAFSA), your income, asset and personal information are used to calculate the Expected Family Contribution, which also is known as the EFC.

Most families look at the EFC and gasp because it is higher than what the family thinks it can afford to pay. Despite the name, the expected family contribution has little to do with the actual amount you will have to pay.

Usually, you end up paying a lot more. Financial aid is based on financial need, which is the difference between total costs and the EFC. The higher the EFC, the less financial aid you get.

But most colleges and universities do not provide enough financial aid to cover the full demonstrated financial need of all students. They leave many families with unmet need, which is a gap between financial aid and financial need.

Even if a school meets a student’s full demonstrated financial need, financial aid packages often include loans. Student loans do not cut costs. Instead, they often increase costs by charging interest. The amount the family will have to pay now and in the future is often much higher than the EFC, partly because of unmet need and partly because of the inclusion of student loans in the financial aid package.

Based on an analysis of data from the 2011-12 National Postsecondary Student Aid Study (NPSAS:12), more than half (57%) of students in bachelor’s degree programs have unmet need. If student loans are left out from the analysis, seven-eighths (86%) of these students have unmet need. The average gap for just one year was $8,079 if loans are counted as meeting need. It was $12,279 otherwise.

Some schools use their own financial aid formula for calculating the EFC. They must use the FAFSA’s EFC for federal and state aid, but can use their own EFC for awarding their own financial aid funds.

Often, schools have a minimum student contribution or summer work expectation that increases the EFC by $3,000 to $6,000. The school might claim to meet the full demonstrated financial need, but does so because it changed the definition of financial need.

Rather than be misled by confusion over the expected family contribution, instead look at the net price. The net price is the difference between total college costs and gift aid. Gift aid includes grants, scholarships and other money that does not need to be repaid.

The net price is like a discounted sticker price and more accurately reflects the actual amount of money the family will have to pay using savings, income and loans.