1. Calculating an EFC Federal Methodology

2. Federal Methodology
Method for assessing ability to pay consists of two steps:
Measuring a family’s financial strength
Assessing a portion of family’s financial resources as being available to contribute toward educational costs

3. Federal Methodology
Methodology used to calculate expected family contribution (EFC)
Classifies students according to one of three models:
Model A: Dependent student
Model B: Independent student without dependents other than a spouse
Model C: Independent student with dependents other than a spouse

4. Types of Formulas Each student model has two formulas: Regular
Simplified

5. Regular Methodology Dependent Student EFC Components
Parents’ contribution (PC) consisting of:
Contribution from parents’ available income
Contribution from parents’ assets
Student contribution (SC) consisting of:
Contribution from student’s available income
Contribution from student’s assets

6. Regular Methodology Independent Student EFC Components
Contribution from student’s (and spouse’s) available income Contribution from student’s (and spouse’s) assets

7. Simplified Formula or simplified Needs test
Dependent Student
Parent’s Combined AGI or earnings from work < $50,000 and either
(1) the parents were not required to file an IRS Form 1040,
(2) one of them is a dislocated worker as defined in the Workforce Investment Act or
(3) anyone counted in their household size received a means-tested federal benefit during 2011 or 2012.
Independent Student
Student’s and spouse’s (if married) combined AGI or earnings from work < $50,000 and either
(1) the student and spouse were not required to file an IRS Form 1040,
(3) anyone counted in their household size received a means-tested federal benefit during 2011 or 2012.
Assets not considered

8. AUTOMATIC ZERO EFC
If certain criteria are met no calculation is performed, EFC automatically is set to zero but is limited to:
Dependent student
parents’ combined AGI (for tax filers) or combined income earned from work (for non-filers) is $24,000 or less, and either
(1) the parents were not required to file an IRS Form 1040,
(2) one of them is a dislocated worker as defined in the Workforce Investment Act of 1998, or
(3) anyone counted in their household size received a means-tested federal benefit during 2011 or
Independent student with dependents other than a spouse
student’s and spouse’s combined AGI (for tax filers) or combined income earned from work (for non- filers) is $24,000 or less, and either
(1) the student and spouse were not required to file an IRS Form 1040,
(3) anyone counted in the household size received a means-tested federal benefit during 2011 or 2012.
Independent students with no dependents other than a spouse do not qualify

9. Factors that affect EFC
Number in Household
Number in College
Taxed and Untaxed income
Taxes paid
Investments
Number of wage earners

10. Federal Methodology Characteristics
Base-year income is used
2012 is base year for
Allowances protect portions of income and assets
Distributes available family resources among all family members (other than dependent student’s parents) attending postsecondary schools
EFC calculated for nine-month enrollment period

11. Case Study Refer to description of case study in packet
David, Melanie’s Step-dad
Refer to description of case study in packet
Hand calculate an EFC for Melanie for 9 months
Review results
Ann, Melanie’s Mom
Melanie

12. Rounding Rules for calculating an EFC
Carry all calculations to three decimals
Round resulting amount to nearest whole number
.001 to .499 rounded down
.500 to .999 rounded up