Expected Family Contribution Calculation Methods FAFSA, CSS PROFILE, Consensus 568 Group

What is the EFC? We Explain How to Calculate EFC?

• Calculation Based on Student / Parents’ Financial Data
• Primary Factor in Calculating’Needs-Based” Financial Aid Eligibility
• Two Financial Aid Forms Are Used for Calculation – FAFSA (Federal) and CSS PROFILE  (300+ Schools Mostly Private))
• 3 Possible Formulas/Methodologies; FAFSA, CSS Profile, 568 Consensus (“President’s Group” (25 Schools)
• You Can Reduce Your EFC With Proper Planning Qualify for More Financial Aid

How is Your EFC Calculated?

The EFC calculation is computed by using the family’s financial data submitted on the Free Application for Federal Student Aid (“FAFSA”) and possibly the Financial Aid Profile administered by the College Board (“CSS PROFILE”).

These financial aid forms contain two different formula methodologies that are used to calculate your EFC.

• Federal Methodology (“FM”) – FAFSA
• Institutional Methodology (“IM”) – CSS PROFILE

A third calculation method Consensus 568 is used by a very limited number of schools (25) but requires the above two forms but alters some of the Profile conventional methodology. The FAFSA form is required to qualify for federal assistance.

“Basic” Financial Need Analysis Formula

Cost of Attendance (“COA”)
–   Expected Family Contribution (“EFC”)
=  Financial Need
–   Resources of Student
=  Adjusted Financial Need

Three Expected Family Contribution Methodologies

 Federal Method (“FM”) – FAFSA

The Expected Family Contribution is computed by submitting your financial data via the FAFSA Form to the need analysis service, the Federal Student Aid Programs, located in Mount Vernon, Illinois.

When you file your FAFSA your EFC is computed and reported on the Student Aid Report (“SAR”).

College Financial Aid Officers (“FAO”) receive your SAR and subtract your EFC result from the Cost of Attendance (“COA”) for the respective college.

The FAFSA EFC (“FM method”) is used by every accredited college in the United States to determine how much federal money can be disbursed by the college to cover the students Cost of Attendance (“COA”).

Institutional Method (“IM”) – CSS Profile

Some private colleges and a few public schools (274 schools for 2014-2015, source College Board) require a closer look at the family’s financial situation. They request a second form, the Financial Aid Profile (“ CSS PROFILE”).

[Strategy Alert]: There are five state schools that use the CSS PROFILE< the rest are private schools. They are; University of Virginia, University of Michigan, College of William and Mary, University of Arizona, and the University of North Carolina at Chapel Hill.

Furthermore, some of these colleges may require their own Institutional Form.

The College Board determines the IM Formula and makes annual changes to it. Important: CSS Schools can and do vary on how they calculate their  formula based upon their respective financial aid policies / practices.

The IM calculates the EFC using additional financial considerations such as a family home, family farm, and other assessed items. As a general rule, the IM EFC will be higher than the FM EFC (Not Always!).

It’s important to estimate your EFC using both formulas.

Taking it a step further, make sure you understand the individual characteristics of your application schools that require the IM and any additional assets they might assess.

Some schools require more information in a supplemental section (“SQ”) that appears after the special circumstances (“ES”) section of the PROFILE form.

Consensus Methodology 568 Group

Consensus method starts using as a base form the CSS PROFILE Institutional Method.  This method focuses exclusively on the family’s “ability to pay” for college.

Issues relative to “packaging of financial awards” such as grants/loans/work study components are not  considered including academic or athletic “merit awards”.

One striking difference between the basis of the PROFILE form pertains to home equity where the Consensus only counts up to 120% of  parents income. When applying to one of these 25 schools in the 568 Group you can  live  in a very expensive house and your assessment could be much less than the CSS Profile method.

Another example 529 Plans held in the student’s name. The FAFSA assesses these at the parents rate of 5.6%, the PROFILE 25%, and the Consensus 5% (in addition to all assets).

 EFC Calculators Do The Heavy Lifting

The above EFC Chart explains how the calculation process works.

EFC  Calculators are readily available online, but not all are created equal and some more confusing than others.

Here is the big problem. Free online calculators are built to provide you with an “estimate” and it is impossible to be 100% exact on how your EFC number will turn out.

However the next step after the estimation is to evaluate strategies that might lower your EFC number to enhance your opportunity for more financial aid.

Here is an example from finaid.org,

This form generates a simplified chart showing approximations of the Expected Family Contribution (EFC).The results are only an approximation of the Federal EFC figure that is calculated when you file the FAFSA form.”

The best solution is  a good estimate that goes through a series of strategy check points to make sure your number will be the lowest possible.

How Would You Like to Simplify the EFC Chart?

Working together you be able to see clearly how the EFC works, receive a customized EFC calculation based on your financial information, and then we will provide you recommendations on how to lower your EFC.

And you receive cost saving reports based upon your EFC number, “eye-popping” Financial Aid Eligibility report that compares up to 5 Colleges side by side.

Your decisions moving forward will be better and make more sense to you.

Eliminate the questions and confusion.

Let’s look at some examples, click  →  EFC Tune-Up Course

Reduce Your EFC

 See How It Works So You Have Choices

As you view the EFC Chart above, when you calculate expected family contribution, there are some strategies that you should understand in your efc results for the FAFSA and the IM calculations.

These strategies are understanding the “rules of the game” as it relates to the components of the formula.

• Income (AGI plus Untaxed Income and Benefits) is more difficult to lower with a W-2 statutory employee versus a self employed household.
• Assets are the easiest component to lower. However, many people wait too long and then are forced to make hasty decisions without careful consideration of looking forward beyond college and measuring the financial impact over the next 10 – 20  years.
• Failing to understand that college happens fast, it’s for a relatively short period of time but can be full of weighty decisions, and costly when done wrong. Strategies during college years can be different than your long term strategies, you need to evaluate options based upon accurate information we will discover together.

 Assessable and Non-Assessable

Some financial items count (“Assessable”) and some do not (“Non-Assessable”) count.

For example untaxed income benefits that are not taxed but added back to your financial aid income will surprise you.

Obviously, you will want to focus on non-assessable or “efc formula omissions” when trying to lower your EFC.

Omissions from the formula might help you understand that you are doing nothing wrong when you implement “Formula Reduction Strategies”.

Certain financial “things” count and certain one don’t. The EFC process can be compared to the Tax Code, it is all about rules.

When you know the rules and how they interact with the EFC Chart components above, then you are in position to lower your EFC calculation just like a CPA / Accountant might lower your taxes.

Warning: The EFC rules are different between the Federal Methodology and the Institutional Methodology. Here are three  examples and there are many more differences.

•  When you contribute to or receive payments from a Medical Savings Account the FM considers this a Non-Assessable Income event and the IM will consider it assessable.
• If you own a business with less than 100 employees the FM will not assess it as an asset, the IM method will assess the business.
• Dependent Student Income Expense Allowance (“up to” non-assessable) for 2018 is $6,570 for the FM EFC formula. The IM formula does not have a student expense allowance.

[Strategy Alert]: Using the FM Method, you can see you can shift up to $6,570 to a student from the parents in the form of income to the student for “viable” services performed. Just a simple calculation assuming federal tax rate of 30%, this is a savings of $1,971. For “net” savings other possible taxes must be considered. Actual results can vary but “tax capacity” is worth considering.

EFC FAFSA Reporting Rules

There are many rules when comes to what is reported on on the FAFSA that provides you the Student Aid Report which gives you your Expected Family Contribution.

Above we looked at how the formula works, but inside there are rules governing what is reported and not reported.

These are the basic areas of the EFC Chart where numerous rules govern what is assessable and not assessable; and what is required to be reported as income even though the financial event may not be taxable.

Here are some of the areas the free course covers.

 Untaxed Income and Benefits

• Detailed summary of events that are considered income some of which are not taxable but includable in your financial aid reporting. And a few strategies on helping eliminate or minimize these counted income sources.

Deductions From Financial Aid Income

EFC Financial Aid Income differs from taxable income, two examples, taxable scholarships and child support paid.

 Non-Assessable Income and Assets

• Some examples personal items like computers / i-phones, annuities, and life insurance. Some of these are different for the Federal Method (“FAFSA”) and the Institutional Method (“CSS PROFILE”) , that is why your target list of schools should be developed before any asset re-positioning planning occurs. An example of non-assessable income would be  loans.

 Asset Information –  Market Value

• The date you sign the FAFSA or PROFILE  is the date of the asset value. The value is the current market value which is defined as if you were forced to sell the asset within 30 days, what would be the value under this condition.

Plan and You Can Lower Your EFC Number

Want your EFC calculated and suggestions to make your EFC as low as possible?

Want College Cost Comparison Reports using your EFC Number, projected financial help based upon historical data, and then find out your “funding gap”.

Do you want to make good financial choices for your Family?

Or, let the Government Financial Aid System do it for you?

Let’s work together, take the next step   –   Click  EFC Tune-UP

 

JimKuhner