What is Need-Based Financial Aid (EFC) and How Does it Work?

Last Updated on October 24, 2023 by Lori Pace

Need-based financial aid or Expected Family Contribution (EFC) is a powerful tool for single moms or low-income families to help pay for their kids’ college tuition. Knowledge is power, and what you don’t know can cause you anxiety, so use your EFC number to bring you some peace of mind. 

Paying for university or college is one of the most significant lifetime expenses. Luckily, both government agencies and colleges have developed a crucial tool known as the Expected Family Contribution (EFC). This EFC index plays a pivotal role in determining what parents and students can realistically afford without straining their finances. To give you a clearer picture, let’s dive into the details.

Things To Know About Need-Based Finacial Aid

1. What is Expected Family Contribution?

EFC is a rough estimate of a student, parent, or guardian’s ability to pay the costs of a year of post-secondary education. They use the EFC in the United States student financial aid process to calculate an applicant’s eligibility for need-based federal or college student financial aid. They measure the numbers 0 to 999 999, the highest number meaning a family has the means to pay for college tuition independently.

2. EFC and FAFSA

The EFC is part of the Institutional Student Information Record. They add this to the record after filing a Free Application for Federal Student Aid (FAFSA) form. The FAFSA is a vital part of the financial aid process (more on that later).

3. How Do They Calculate EFC?

The EFC number is subtracted from the college or university cost of attendance (COA) to further value students’ financial needs. If COA > EFC, then a student is considered to have a financial need. Because the cost of textbooks, accommodation, supplies, and food is more than a family can feasibly afford, you should naturally qualify for financial aid.

They calculate this with the EFC formulas, which use the information that students provide on the Free Application for Federal Student Aid (see, the FAFSA is essential).

Net price = (total cost of attendance – the grants and scholarships you receive). It’s a good idea to look into a specific college’s net prices because a college’s net price calculator uses its own financial aid policies to calculate its estimate.

4. Know If You’re an Independent Student or Not

Independent Students Are Either:

  • Married
  • Earning a graduate degree
  • A veteran or serving on active duty in the military
  • In foster care or lost both parents or guardians
  • Homeless or deemed at risk for homelessness by a deemed official
  • Responsible for a child or dependent who receives more than half of their financial support from the student
  • Turning 24 or older before the 1st of January of the school year, they apply for

How Do I Calculate My EFC?

There are many FREE CALCULATORS ON THE WEB to help applicants estimate the EFC, COA, and net price. I’d recommend checking these out before filing the FAFSA.

Here are some you could use:



What Does This Mean?

It’s no secret that pursuing higher education comes with a hefty price tag. As of 2021, the staggering US student loan debt reached a jaw-dropping $1.7 trillion. To put this into perspective, consider that student debt now surpasses the wealth of even the likes of Jeff Bezos, whose net worth stands at ‘only’ $193 billion. But there’s hope. Let’s explore how understanding and managing your Expected Family Contribution (EFC) can be your lifeline in this financial maze.

If you’re looking to avoid being a part of the trillions of dollars in student debt, using your EFC estimate wisely can be a game-changer for your financial planning. In this article, we’ll guide you through the steps to budget and save effectively based on your EFC, ensuring a more secure financial future.

The principle is simple: the lower your Expected Family Contribution (EFC), the higher your eligibility for need-based financial aid. It’s crucial to understand that a low EFC isn’t an automatic guarantee of scholarships or financial aid, as every college has a limited budget for assistance. However, a lower EFC number certainly increases your chances of securing more funding, which can significantly reduce the financial burden on you and your family.

How Need-Based Financial Aid Works:

1. Calculate your EFC using an online calculator.

2. Submit a FAFSA by

  • Using FAFSA on the Web  
  • Using the myStudentAid mobile application
  • Applying electronically through a school
  • Mailing a FAFSA to the Central Processing System (CPS)

3. Get an automatic Zero and Simplified Needs EFC.

A student’s EFC is set to zero if the family’s income is below $26,000 for the year or if they:

  • Received funding from any of the Federal Benefits programs – such as SSI, SNAP (formerly known as the Food Stamp Program), WIC, or Free/Reduced Price Lunch
  • Were eligible to file a 1040A, or 1040EZ, or were not did not need to fill out a tax return
  • The parent is a dislocated worker, meaning – they have been laid off or received a layoff notice from a job.
  • Were self-employed but are now without work due to economic conditions or a natural disaster.
  •  Are the spouses of active duty members of the Armed Forces and have lost employment or are underemployed due to relocating due to a permanent duty station change?
  •  They are a displaced homemaker, someone taking care of a family without pay, do not get support from their spouse, and are unemployed or underemployed.

*Families meeting the above requirements except for having income between $26,000 and $50,000 are eligible for the Simplified Needs Test. They do not use assets in the calculation.

*Independent students without dependents other than a spouse are not eligible for the Automatic Zero or Simplified Needs

4. Considerations that reduce the EFC:

  • Additional family members supported by the head of the household (e.g., siblings or grandparents who are living at home)
  • Additional family members in college. (They split the EFC among the students in college because there is collectively less disposable income)
  • Lower income (especially student income)
  • Fewer assets (especially student assets)

5. Colleges or universities can lower the EFC.

They do this if there are unusual circumstances brought to the financial aid office’s attention. These circumstances include:

  • Loss of employment
  • Loss of child support, alimony, etc.
  • Separation or divorce
  • Death of parent or spouse
  • Significant medical or dental expenses not covered by insurance
  • Income that was abnormally high because of a one-time lump sum that will most likely not occur again

6. Financial issues they do not consider in the EFC:

  • The equity (value of the home minus mortgage repayment) in the family’s main house
  • Parental retirement funds, such as 401ks
  • Consumer debt, such as car and credit card loans

7. The EFC is not always an accurate cost for what the family will pay.

Many families spend more, sometimes much more than the EFC suggests. Here’s a simple equation to remember: the college’s fees minus your EFC equals your student’s financial need. While countless students require financial assistance, it’s important to note that most four-year colleges may not have sufficient need-based financial aid resources to cover all students’ needs. Consequently, parents often find themselves responsible for bridging the financial gap.

8. Exceptional Circumstances:

Should parent(s) have the means to pay, but an unwillingness to support a student will not increase financial aid. The United States Congress determined this.

In some exceptional situations, like instances of parental child abuse or court-ordered restrictions on parental communication with the child, the college’s financial aid office may have the discretion to alter a student’s status from Dependent to Independent. This significant change can mean that students become eligible for student aid based on independent EFC criteria. It’s essential to be aware of these exceptional cases, as they could have a profound impact on your eligibility for financial aid.

In Conclusion

In conclusion, let’s recap the significance of Expected Family Contribution (EFC). Having experienced the financial challenges of the college application process myself, I understand the apprehension that accompanies the uncertainty of education expenses. The EFC isn’t just a number; it’s your key to peace of mind and informed financial planning. We strongly recommend calculating your EFC number to empower yourself in managing the financial aspects of your educational journey.

Lori Pace
Lori Pace

Lori Pace is a single mother of three daughters ages 7 and under. As a working mom from home, she balances kids, work and two crazy dogs with humor and love. Follow Lori as she honestly gives tips and advice based on her own experiences as a single mom!