Session #32 The EFC Expected Family Contribution

Marianna Deeken Claire Micki Roemer

EFC
Expected Family Contribution • Measure of what the student and family can be expected to contribute to student’s cost of education

2

Expected Family Contribution
• Calculated from data collected on the FAFSA • Formula is in statute  Designed to measure the family’s financial strength • ED publishes updated tables each year in the Federal Register

3

Principles of Need Analysis
• Family has primary responsibility to pay for educational costs • Student and parents are expected to contribute to the extent they are able • Families should be evaluated in an equitable and consistent manner

4

Need Analysis Concepts
• Need-based funds are available to assist with educational costs that exceed the family’s ability to pay • Assesses strength at the time of application • Family resources are devoted first to basic subsistence

5

Need Analysis Concepts
• FM measures discretionary resources  Protects resources needed for basic living  Establishes a portion available for education

6

Factors that affect EFC
• Taxable and untaxed income • Taxes paid • Number in Household • Number in College • Assets • Age of the older parent • Number of wage earners

7

EFC Calculations
• EFC result on ISIR reflects a 9 month EFC  Law specifies how an EFC must be calculated for periods of other than nine months  Results show on ISIR by number of months  9 month EFC must be used for Pell Grant eligibility
8

How is EFC Determined?
• Three distinct FM formulas  Regular  Simplified  Automatic zero

9

Regular Formula
• Three versions of regular formula  Dependent students  Independent students without dependents other than a spouse  Independent students with dependents other than a spouse

10

Alternate EFC Formulas
• Simplified formula  Assets are not considered in the calculation • Automatic Zero EFC formula  Untaxed income and assets are not considered in the calculation

11

Simplified Formula
For dependent students •Parents’ AGI or earnings from work < $50,000 and •Parents are not required to file IRS form 1040 OR •Member of FAFSA household received federal means-test benefit

12

Simplified Formula

For all independent students •Student (and spouse) AGI or earnings from work < $50,000 and •Student (and spouse) not required to file IRS form 1040 OR •Member of FAFSA household received federal means-test benefit

13

Automatic Zero EFC
For dependent students •Parents’ AGI or income earned from work is $20,000 or less and •Parents are not required to file IRS form 1040 OR •Member of FAFSA household received federal means-test benefit

14

Automatic Zero EFC

For independent students with dependents other than a spouse

•Student’s (and spouse’s) AGI or income earned from work is $20,000 or less and •Student (and spouse) not required to file IRS form 1040 OR •Member of FAFSA household received federal means-test benefit
15

SNT & Auto 0 EFC
 Supplemental

• Federal Means-Tested Benefit Programs
Security Income (SSI)  Temporary Assistance for Needy Families (TANF)  Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)  Food Stamps  Free or Reduced Price Lunches

16

The Web Family
• Two parents with one working • Two children in family • One child in college • Live in Illinois • Older parent is age 46

17

Treatment of Income
Total Income (TI) Base year income from all taxable and untaxable sources − Exclusions on FAFSA Worksheet C =Total Income

18

Treatment of Income
Available Income (AI) is portion of income remaining for discretionary Spending Total income − Total Allowances =Available Income

19

Total Allowances
• Allowances for taxes  U. S. Income tax paid  Estimate of state and other taxes  State of residence  Amount of total income  FICA
20

Total Allowances
• Income Protection Allowance (IPA)  Estimates amount needed for basic needs  Based on Bureau of Labor Statistics lower budget expenditures adjusted for CPI  Increases with each household member  Decreases with each member in college
21

Total Allowances

• Employment expense allowance  Represents additional costs when both parents work  Applies to working single parent families

22

Treatment of Assets
Assets defined  Cash, savings, checking  Investments and trusts  Real estate equity  Business/farm equity (not family owned) •Protects first 60% of equity up to $105K •Decreases protection percentage after $105K
23

Treatment of Assets
Cash, savings, checking +Net worth of real estate and investments +Adjusted net worth of business/farm =Total Net Worth

24

Treatment of Parents’ Assets
Total Net Worth − Education Savings and Asset Protection Allowance =Discretionary Net Worth

25

Treatment of Parents’ Assets
• Education Savings and Asset Protection Allowance  Protects assets for retirement and future education costs  Applies > age 25 •Increases with age •Adjusted for marital status  No protection for dependent students
26

Treatment of Parents’ Assets
Discretionary Net Worth X 12% asset conversion rate =Contribution from Assets

27

Adjusted Available Income
Parents’ Available Income (+/-) +Parents’ contribution from assets (+/0) =Total Adjusted Available Income (+/-)

28

Determining Parents’ Contribution

• As income increases, amount needed for basic household expenses decreases  Discretionary income increases  Income available for education Adjusted Available Income (AAI) X AAI contribution rate =Total Parents’ Contribution from AAI
29

Determining Parents’ Contribution
• Total contribution from AAI is divided evenly among all household members in college Total PC from AAI / Number in College =9 month PC

30

Determining Student’s Contribution
Total of student taxable + untaxed income − State and federal taxes − $3,000 IPA − allowance for parents’ negative AAI = Available income (AI) X 50% assessment of AI = Student contribution from AI

31

Determining Student’s Contribution
Cash, savings, checking +Net worth of real estate and investments +Adjusted net worth of business/farm =Total Net Worth X 20% =Student contribution from assets

32

Determining EFC
Parents’ Contribution +Student’s contribution from AI +Student’s contribution from assets = 9 month EFC

33

What if?
• If there were two in the household in college:  IPA is $20,510  Total allowances are $28,014  New AI is $14,713  New PC is $3,276 • New EFC is 3286
34

Resources
• 2007-2008 FSA Handbook, Application & Verification Guide, Chapter 3 • EFC Formula Guide on IFAP

35

Contacts
We appreciate your feedback and comments. We can be reached at:
Marianna Deeken • Phone: (206) 615-2583 • Email: marianna.deeken@ed.gov Claire Micki Roemer • Phone: 202-377-3452 • Email: claire.roemer@ed.gov

36

Please provide any comments regarding this training or the trainers to: Jo Ann Borel Title IV Training Supervisor joann.borel@ed.gov 202-377-3930

37