Financial Aid and How it is Determined

When you’re applying for college, you may also need to apply for financial aid. This process can seem very daunting, and you may be wondering how your eligibility for financial aid is determined from the information on your application. Your eligibility for financial aid depends on many factors that are used to determine how much need you have.

What is Expected Family Contribution?

EFC or Expected Family Contribution is an index number that is used by your college’s financial aid staff to decide the amount of financial aid you would receive if you attend their school. The data you include on your FASFA (Free Application for Federal Student Aid) is used to determine your EFC. The EFC is determined by using the formula that was established by law. Information that can be used to determine the EFC includes your family’s taxed and untaxed income, assets and benefits (benefits can include unemployment or Social Security). Other factors that go into determining this number include the number of family members you have and the number who will attend higher education during the year. Your EFC number also depends on whether you are a dependent student, an independent student without dependents or independent student with dependents other than a spouse. A student who lives with their parents is going to have a different formula that a married student with children. Also, home owners may receive a different EFC than a single mom renting an apartment.

What is the formula for determining need-based aid?

Your school will determine your financial aid need by using the following formula:

Cost of Attendance (COA) minus Expected Family Contribution (EFC) determines the financial need. This financial aid can be received if you have the need and meet the eligible criteria. For example, you cannot receive financial aid for more than your financial need. If your Cost of Attendance (COA) is $18,000 and your Expected Family Contribution (EFC) is $12,000, your financial need is $6,000. This means that you are not eligible for over $6,000 in need-based aid. Some examples of need-based federal student aid programs are:

  • Federal Pell Grant
  • Federal Supplement Education Opportunity Grant
  • Direct Subsidized Loan
  • Federal Work-Study
  • Federal Perkins Loan

How does Cost of Attendance Factor in?

Since we have already discussed what EFC means, let’s discuss the other part of the formula, cost of attendance. If you are attending school at least part-time, your COA is determined by the following:

  • tuition and fees
  • room and board costs (or other living expenses if you live off campus)
  • books, supplies, transportation, loans fees and other school related expenses
  • child care if needed
  • costs related to a disability
  • eligible study-abroad program costs

Why is the EFC so important to your Financial Aid?

Since the EFC is the amount of money the school thinks you could cover, it’s an important number to determining your financial aid need. Your EFC is determined by a dollar figured that counts for the amount of money you and your parents can actually afford to use for the cost of your education. The school uses your EFC to determine need-based aid (grants, loans and work-study) you are eligible for, but it’s not used in determining the amount of other financing you are entitled to. If you have a low EFC, that means you may be eligible for a larger amount of financial aid, while a higher EFC means that you may have to rely on loans to pay for your lack of tuition funds. For some people, their EFC could be as little as $0, while for others it could be as much as the cost of tuition and fees.

Need-based loans are typically preferable to other loans. For example, the Direct Subsidized loan is more cost-effect for parents and students because the government is paying for the accruing interest while you are enrolled. Since the interest continues piling up while your loans sit and grow, it is a nice burden relief for those who have the option over a standard loan.

With this formula, it’s not always a one-size-fits-all situation where everyone involved thinks they are receiving what they need. You always have the option to challenge the lack of need-based aid that has been determined. Also, if your situation has changed from when the FASFA was completed, your school may have room in their budget to max you out.

If you need help calculating and planning for your child’s financial aid, Optimum Ed can help! Give us a call @800-457-1364 or send us a message.


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