If you have a high school student applying to college soon, it won’t be long before you learn about the Expected Family Contribution (EFC). Probably the most prevalent acronym in the world of college financial aid, the EFC is a number personalized to your family and used by colleges to determine your eligibility for financial aid. The EFC is calculated by inputting your family’s finances into a standard formula set by Congress. And the result of this common calculation can leave a lot of families, well, frustrated.

Your EFC is intended to indicate the amount that your family can pay for one year of college costs. Colleges use it when determining how much financial aid to offer to your student. But many families, when learning of their EFC, can’t believe the enormity of the number. Surely, they think, there has been some error? The EFC can seem escalated because of some assumptions in the formula used to calculate it. And though the details of the calculation are unlikely to change significantly in the near future, understanding how the formula works can ease some of the shock when you learn your own EFC.

The EFC calculation determines both a parent contribution and a student contribution toward college costs, and then combines them. The formula intends to determine your total financial resources, and then subtract the minimum amount of money your family needs for living expenses each year. It assumes the remaining amount can, in part, be used for college. Here how it works:

EFC Parent Contribution

  1. Add up total annual parent income. Use both taxable and nontaxable income, including any amount put toward retirement that year
  2. Subtract allowances for federal taxes, state taxes, and Social Security paid
  3. Subtract an Income Protection Allowance (IPA). Here’s the real surprise in the formula. The IPA is intended to represent the amount a family needs from its income for necessities (think housing and food). It’s based on the size of your family and how many children you currently have going to college. But for a family of four with one child going to college, it’s only $28,580 for the current year. You likely spend more than that on living, right?
  4. Subtract an Employment Expense Allowance. This is only for households where all parents are working, and equals 35% of earned income or $4,000, whichever is less. It’s intended to cover those expenses that all working parents have, such as buying lunch and commuting.
  5. The number you’ve reached based on the calculations above is called your Available Income (AI) and is intended to represent how much of your income can be considered for college costs. Set that number aside for a moment.

  6. Add up total parent assets. Include all cash, bank accounts, net investments, and net real estate, but don’t include your primary home or your retirement accounts.
  7. Subtract an Asset Protection and Education Savings Allowance. This number is based on the age of the older parent and is intended to protect an amount of your assets that you have saved for emergencies or college costs. As an example, the allowance for a parent age 48 is $11,900 (if there are two parents).
  8. Multiply your current total by 12%. This calculation ends up protecting most of your remaining assets for other needs, which is good news.
  9. The number you’ve reached here is your Contribution from Assets.

  10. Add Available Income to the Contribution from Assets to determine the Parent Adjusted Available Income (AAI).
  11. Determine Parent Contribution from AAI. There’s a complicated table that provides you this number. As an example, if your AAI is $100,000, your Parent Contribution from AAI is $40,305. You’ll divide that number in half if you have two children in college at once.

The resulting number is your Parent Contribution. Set that number aside.

EFC Student Contribution

  1. Add up total annual student income. Use any income received in the year, regardless of whether or not the student paid taxes on it.
  2. Subtract allowances for federal taxes, state taxes, and Social Security paid
  3. Subtract an Income Protection Allowance (IPA). This number increases a bit each year. Right now it’s $6,660, which is a pretty generous figure. Many students don’t have income that exceeds this amount.
  4. Determine Student Contribution from Available Income. Take 50% of your current total to determine this figure.
  5. Set that number aside for a moment.

  6. Add up total student assets. Include all cash, bank accounts, and net investments
  7. Determine Student Contribution from Assets. Take 20% of your current asset total
  8. Determine Total Student Contribution. Add Student Contribution from Available Income to Student Contribution from Available Income. The resulting sum is your Student Contribution.

Ready to calculation your EFC? Add your Parent Contribution to your Student Contribution. The resulting sum is your family’s EFC. Though it doesn’t represent the exact amount that you’ll pay for college costs, colleges will assume you can contribute this amount when they determine how much financial aid of office to your family.

Though you can calculate your EFC by hand using these formula worksheets, you can much more easily use our EFC Calculator to reach the same result. If you’d like to talk with us once you have your estimated EFC, give us a call. We’re happy to walk through the numbers and answer any questions. You can reach us at (800) 449-MEFA (6332).