How the Calculation Works
The Federal Methodology calculates a student's Expected Family Contribution (EFC), which in turn is then used to calculate federal, state and institutional need-based financial aid. Let’s look at each of the three pieces of the EFC:
1. Student Income Contribution:
Many students hold a job during their high school years. Doing so may actually be beneficial to students on more than one level, but too much work is not a good idea, academically speaking or when it comes to financial aid. For Indiana students during 2015, the student income cutoff is about $7,062 (gross) before the Federal Methodology begins to add 50 cents of every additional dollar earned onto the EFC as a Student Income Contribution. Click here to see an example.
Important
There are some exceptions to this rule under the Federal Methodology. Some students’ incomes are not considered at all OR they can earn more than what the formula normally allows. To find out if one of these exceptions applies to you, be sure to complete the College Costs Estimator on this site.
2. Student Asset Contribution:
If a student has an asset (cash, checking account, savings, investments) in his/her name, the account potentially is subject to a 20% assessment in the form of a Student Asset Contribution. (Accounts where a parent is the owner/custodian of the account are considered a parent asset, not a student asset.) Click here to see an example.
Important
There are some exceptions to this rule under the Federal Methodology. Some students’ assets are not considered at all. To find out if one of these exceptions applies to you, be sure to complete the College Costs Estimator on this site.
3. Parent (Income and Asset) Contribution:
(In the case of Independent Student, parent income and asset information is not collected or factored into the EFC.)
The Parent Contribution looks at both parent income and assets, and then comes up with one Parent Contribution number. This part of the formula is much more complicated than the Student Income and Student Asset Contributions. Just a few of the factors considered:
- Number in the household
- Number of children in the household in college (parents in college are not included except by special consideration by the college)
- Untaxed sources of income (e.g. child support) as well as taxable income
- Marital status (married or single)
- Tax filing status
- Age of the older parent or stepparent
- Number of working parents/stepparent
The starting point for parent income under the Federal Methodology is the parents’ adjusted gross income (AGI). To that, various forms of untaxed income are added and subtracted to arrive at a “financial aid income” figure, the amount parents theoretically have access to help pay college costs in a given year. Click here to see the various additions and subtractions from parent AGI.
Offsetting parent income is a standard income protection allowance (IPA) based on the size of the household and the number of children in the household in college. Click here to see the current amounts of parent income protected under the formula for parents of dependent students. Beyond the IPA, various allowances also are added for federal and state taxes, as well as an employment expense allowance, when applicable. The difference between the parents’ total “financial aid income” and these allowances is then calculated before the formula starts expecting a percentage of remaining “available income” (based on a sliding scale) as a part of the EFC.
Parents also are allowed to protect a certain amount of non-retirement assets under the formula. This protection is based on the number of parents in the household (1 or 2) and the age of the older parent. Keep in mind, however, that not all parent assets are considered.Click here to see the current amount of parent assets protected under the formula for parents of dependent students, beyond which there starts to be a Parent Asset Contribution as a part of the overall Parent Contribution number.
Important
There are some exceptions to these rules under the Federal Methodology. Some parents’ assets are not considered at all. In other cases, parent income is low enough to yield an automatic zero EFC. To find out how your situation stacks up under this formula, be sure to complete the College Costs Estimator on this site.