1. Basics of the EFC Calculation Presented by: Michelle Stipp, DeVry University

2. 2 The Basics Expected family contribution (EFC) is the amount a family can be expected to contribute toward a student’s college costs –used to determine a student’s need for financial aid Source of the data is the Free Application for Federal Student Aid (FAFSA) Calculation is done consistently for all students using the Federal Methodology (FM) –Assesses available income and assets

3. 3 How Is EFC Determined? Three FM models –Dependent student –Independent student without dependents other than a spouse –Independent student with dependents other than a spouse

4. 4 How Is EFC Determined? Three distinct FM formulas –Regular –Simplified Does not include assets –Automatic Zero

5. 5 Factors that Impact EFC Number in Household Number in College Taxed and Untaxed Income Taxes Paid Assets and Investments Age of the Older Parent Number of Wage Earners

6. 6 Total Income in FM Base year income from all taxable and untaxable sources -Excludable income (e.g. education credits, earnings from need-based employment programs such as Work Study, or other income reported on Worksheet C) =Total Income

7. 7 Total Allowances in FM Allowances for Taxes –U. S. income tax paid –State and other taxes –FICA Income Protection Allowance (IPA) Employment Expense Allowance

8. 8 Treatment of Income in FM Total Income -Total Allowances =Available Income (AI)

9. 9 Treatment of Assets in FM Cash, savings, checking + Net worth of real estate & investments + Adjusted net worth of business/farm = Total Net Worth

10. 10 Treatment of Assets in FM Total Net Worth –Education Savings and Asset Protection Allowance =Discretionary Net Worth x Asset Conversion Rate = Contribution from Assets

11. 11 EFC Components Parents’ Contribution (PC) consisting of: –Contribution from parents’ available income (AI) –Contribution from parents’ assets Student’s Contribution (SC) consisting of: –Contribution from student’s available income (AI) –Contribution from student’s assets

12. 12 Parents’ Contribution Available income +Contribution from assets =Adjusted available income (AAI) xAssessment rate =Total parents’ contribution ÷Number in college (excluding parents) =Parents’ contribution (if negative, set to 0)

13. 13 Total Student’s Contribution Student’s contribution from AI +Student’s contribution from assets =Student contribution

14. ILASFAA Annual Conference April 16-18, 2008 14 Dependent Model Parents’ contribution +Student’s contribution =Nine-month EFC

15. 15 Independent Student without Dependents other than a Spouse Applies to single and married independent students EFC Components of Regular Formula: –Contribution from student’s (and spouse’s) available income –Contribution from student’s (and spouse’s) assets

16. 16 Independent Students with Dependents other than a Spouse Regular Formula looks much like that of parents of dependent students Similar allowances and asset conversion rate

17. 17 Simplified Formula Applies to all three models Elements used in the simplified need analysis: –Adjusted gross income –Federal taxes paid –Untaxed income and benefits –Number of family members –Number of family members in college –Allowances for state and other taxes Assets are not considered in the calculation

18. 18 Simplified Formula Must meet specific criteria: –Income less than $50,000, and –Eligible to file a 1040A or 1040EZ, or –Recipient of a means-tested federal benefit program Supplemental Security Income (SSI) Food Stamp Program Free and Reduced Price School Lunch Program Temporary Assistance for Needy Families (TANF) Supplemental Nutrition Program for Women, Infants and Children (WIC)

19. 19 Automatic Zero EFC Applies to Dependent Students and Independent Students with Dependents other than a Spouse Does not apply to Independent Students without Dependents other than a Spouse

20. 20 Automatic Zero EFC Must meet specific criteria: –Income less than $20,000, and –Eligible to file a 1040A or 1040EZ, or –Recipient of a means-tested federal benefit program Supplemental Security Income (SSI) Food Stamp Program Free and Reduced Price School Lunch Program Temporary Assistance for Needy Families (TANF) Supplemental Nutrition Program for Women, Infants and Children (WIC)

21. Need Analysis Changes Implementation for 2008-2009

22. 22 Need Analysis Changes Effective for 2008-09: –Increases in Income Protection Allowances To $3080 from $3000 for dependent students To $6220 from $6050 for independent students without dependents other than a spouse (single student and married student with both enrolled) To $9970 from $9700 for independent students without dependents other than a spouse (married student, only one enrolled)

23. 23 Hand Calc Case Studies … Rounding Rules Carry all calculations to three decimals Round resulting amount to nearest whole number.001 to.499 rounded down.500 to.999 rounded up