Expected Family Contribution – The Key Target When Saving For College

When saving money for college education, you should be aware of your Expected Family Contribution (EFC). EFC is how much money your family is expected to contribute to your college education — the lower your EFC, the more financial aid you will receive.

A Brief Note From Plonkee

One of the great things about not having children is that you can make comments on the way other people raise theirs with basically no comeuppance. One of the slightly disturbing things about blogging on personal finance is that because most personal finance bloggers are American, even as a British person, you can end up knowing an awful lot about American finance topics — if it weren’t for the spelling issues I reckon I could go by for months blogging as an American before anyone realised that I wasn’t.

All this brings me to the post at hand. For the reasons that I’ve outlined above (and others including my onetime desire to do a Math PhD at Northwestern) I know a little about U.S. college finances. For reasons unknown to me or anyone else, I have felt a deep-seated need to share that knowledge and offer my opinions.

A Quick Primer On Financial Aid

When students apply to college, many of them look to the financial support from federally and privately funded sources — i.e., financial aid. Financial aid includes loans, grants, scholarships, and work-study programs. In America (as in the U.K.), there are three main sources of financial aid:

  • Government — i.e., State and Federal financial aid.
  • Private Institutions — mostly in form of grants and scholarships.
  • Family (including the student)

and there are two main types:

  • Money you have to pay back (i.e., loans)
  • Money you don’t (i.e., grants and scholarships)

and it’s given for two reasons:

  • Merit
  • Need

For the purposes of this article, I’ll assume that people (students/parents) are aiming to get a degree from the best-fit college at the lowest cost. I’m assuming this because it seems patently sensible to me. Naturally, it’s for individuals to decide what best-fit really means and to make the trade-off between fit and cost. But lowest cost means lowest total of out of pocket plus loans.

Typically students apply to college in the autumn of the senior year. You should know if you have a place, and the financial package they are offering to you in the following spring.

Need-Based Aid And The Expected Family Contribution (EFC)

When colleges consider need-based financial aid, they do it in roughly the following way:

First they work out how much the family is expected to pay (student and parents) — the EFC (expected family contribution). If the cost of tuition is more than this, then there is a need. If the cost of tuition is less than the EFC there is deemed to be no need and no need-based aid will be offered (regardless of whether the family believe they can afford to pay).

Need can be met by a combination of grants and loans — some of which may be expensive private loans. If all the aid is need-based then you will always have to pay your EFC, and very roughly speaking a $100k family income can easily produce a $20k per year EFC. (You can find a good EFC estimator at FinAid.org — broadly speaking, federal methodology is for public colleges and institutional methodology for private colleges.)

Where parents are separated or divorced, both parents may be expected to contribute, plus stepparents income and assets are also taken into account. There is no allowance made for consumer debt (even where this affects what the parents can actually contribute), and the equity of your home may be taken into account under the institutional methodology.

When we’re talking about need-based aid, it doesn’t matter whether the parents are willing to pay the EFC or not. Each college will assume that it will be met by the family (student/parent), and will not provide need-based aid to cover that portion.

Generally, speaking to apply for need-based aid, you need to file a Free Application for Federal Student Aid (FAFSA), plus additional forms for private colleges.

Merit-Based Aid

The situation is actually really similar for merit-based aid. Except that the order generally goes scholarship, EFC and then if there is still need left grants or loans. Most institutions will always give some loans out. Only the really, really rich ones like Harvard promise not to.

This can mean that getting more scholarships does not reduce your out of pocket costs. If you get a merit scholarship, then the university may reduce the amount of need-based grant you get, or the amount of need-based loan you get – it will not reduce the amount the family is expected to contribute unless the total of the merit scholarship plus EFC is greater than the cost of attending the college.

Requirements for institutional scholarships are found on college websites, they may include writing additional essays and attending interviews. Typically only the top applicants for a college will get a scholarship, so you need to be an above average to well above average candidate for that college. Outside scholarships can be worth applying for also, for financial aid purposes the same rule about not reducing your EFC will generally apply.

How About An Example?

Suppose there was a really clever person living in Milwaukee, Wisconsin who applied and was accepted to Harvard University (uber smart Ivy League), Howard University (top historically black college with excellent scholarships), University of Michigan-Ann Arbor (top Midwestern university), University of Wisconsin-Madison (another top Midwestern university) and Milwaukee Area Technical College (local 2-year college).

In order of sticker price from most expensive to least expensive these go:

  1. Harvard
  2. UMich
  3. Howard
  4. UWisc
  5. MATC

But with an EFC of $10k, perfectly possible financial aid offers could look like:


Now, whether you’d rather go to Harvard or Howard probably depends on more than finances — but for the money you certainly might choose one of those private colleges over the public ones, even the 2 year college.

Private colleges may be cheaper than public colleges, especially if you are applying from out of state to a particularly well-known public university, and many private colleges offer substantial scholarships to applicants they really want. On the other hand, in-state tuition can be very reasonable, and many public universities are also world-class academic institutions (e.g. UNC-Chapel Hill, UT-Austin) or offer innovative and unusual programs (e.g. Evergreen State College, The Citadel).

What Does This Mean For College Choice?

It’s perfectly possible for college A to have a higher overall price than college B, but for college B to cost less for one individual student. Also, because financial aid at private colleges is idiosyncratic, you’re not guaranteed any money from anywhere. Always either apply to one college that you can (a) afford to attend at full price, (b) are very, very likely to get in to and (c) would be willing to go to — or be prepared to take a gap year and reapply. This college, by the way, is likely to be a public college in your state.

Similarly, (and more excitingly) students shouldn’t be put off applying to a college just because it is expensive. Look at their financial aid and work out whether you might be able to get a scholarship. If you are true Ivy League material then they will give you substantial need-based aid, and you may get a lot of merit aid at another college. If you are not Ivy League material, there are plenty of excellent colleges that would love to attract a student like you, some of them probably have generous aid programs.

Key terms to look out for, are need blind (good), need aware (not good), and meets full need (very good). A college that is need blind will admit you whether you can afford to pay full price or not. A college that is need aware takes into account whether you need financial aid in making admissions decisions, so if you need a lot of money they may well reject you. A college that meets full need will generally require only the minimal amount of federal loans and work-study on top of the EFC and make the rest up with grants/scholarships.

What Does This Mean For Saving For College?

Honestly (and especially as I don’t have to do it myself) I think this means that parents should be saving up at least enough to pay their share of the EFC (there is a student work / summer work component). Ideally, the EFC plus a little bit more to allow for some of the non-budgeted expenses.

If you are a long way off having a child actually in college, then it’s still possible to make an estimate as to what your EFC is likely to be (good enough for a ball-park figure). Make a guess as to your pay (in 2008 $) when your eldest is 18. Play around to see the effect that adding more savings makes to your EFC. Compare the EFC you get to college cost of attendances which currently run from $5k-$10k for community college, $15k to $25k for in-state public college, and $25k to $55k for private and out of state public colleges.

If you calculate your EFC and it is higher than full-freight college budgets ($50k+) then I think you should be saving up to pay for almost all college expenses – less a reasonable amount of money that your student could earn during term time and/or in the summer vacations. Naturally, encourage the said child to apply for merit scholarships but it seems unduly harsh (if you can avoid it) to restrict your child’s college choice because you will be too rich for them to get need-based aid but you are not willing to contribute your share.

If this is not possible, it means that realistically your son or daughter will be restricted to attending colleges where they can either get a substantial merit scholarship (they may then be much brighter than average at the college) or colleges that you (between student and parents) can pay for in full. Because they won’t be getting any need-based financial aid to cover the money that you didn’t save up (or choose not to give).

Of course, not everyone will be in a position to save enough money. Particularly if your children are older, there may well be less time to save up the money that the financial aid people think you can afford. Never, ever damage your retirement for your children — it is not being kind to make them support you in old age, and you run the risk that they will choose not to do so.

As children approach college age, the most important thing, even if you can’t afford to contribute anything (or choose not to) is to let the student know and understand well in advance what the financial constraints on their college choice are. And by that, I mean by telling them how much money they have to work with and helping them appreciate what that is likely to cover, and the effect that loans are likely to have on their post-college life.

Personal Thoughts

I really hate it when people say that they will only cover public college for their kids. I think it’s stupidly restrictive. It’s absolutely ok to have limits on how much money you’re willing to fork out. And even to refuse to enable someone to take on crippling debt. But restricting college choice based on money, when it’s not necessary is dumb. Taken literally, that’s saying that they’ll pay $45k to send their kid out of state to Berkley or UMich, but won’t spend $30k to send them to a private college. What parents could be saying is that they’ll cover the equivalent of in-state public college, (or half or whatever). This annoys me mostly because, as parents, you don’t get to vicariously live your life over again through your kids — it’s their education, they pick the college, you merely provide limits on what you are willing to do to support that choice. These limits might also include, “I am not driving more than 3 hours away to pick you up”, as my parents said, or “I am not willing to cosign for loans of more than $8k per year”.

I think parents should attempt to cover at a minimum their share of the EFC. I appreciate that in lots and lots of cases, that isn’t possible — particularly if you haven’t got 15+ years to save up. But it’s the minimum that the government thinks you should be able to afford and it will open up a lot more choices for them. The whole point is that it’s a reasonable contribution, taking into account your income, assets, and family situation.

Finally, and if nothing else, I think parents should be honest with their children about how much they are willing to pay, well in advance of anyone beginning a college search. Money limits everything and money issues need to be laid on the table to avoid bitter disappointment later on. You might not want to share details of your financial position with your kids, which is fine, but when it’s effectively their financial position too, they deserve the information they need to make great choices.

Thanks from Plonkee, whose parents provided more than their expected contribution which enabled her to get an excellent degree from a great university in the U.K., and who is also hoping that she’s not obliged to save up for anyone else’s college fund.

Additional Resources

Expected Family Contribution (EFC) Calculators

Expected Family Contribution (EFC) Information

This article was featured in the Carnival of Education at The Reading Workshop.

About the Author

By , on Jan 5, 2009
Plonkee found that commenting on other people’s blogs just didn’t give her enough space to put her points across, since February 2007 Plonkee has been blogging about British personal finance at Plonkee Money.

Leave Your Comment (10 Comments)

  1. Thanks for the article, Plonkee. I think that you are right on a lot of points, especially about how parents shouldn’t choose where their kids are going to go to school. My parents allowed me to chose whichever school I wanted to go to, but I did so knowing that there would be no way that they would be able to help pay for it. (We were fairly poor at the time.) I do understand, however, setting limits for my kids. I’m not going to go into debt to put them through school. I will let them do that.

  2. plonkee says:

    @Dawn: Unless she can emancipate herself for financial aid purposes (I think you need to have supported yourself for 3 years), I would just fill it out with your information. Yes, it’s a pain, but some scholarships and student loans require a FAFSA to be filed, even if no aid will be forthcoming, and sometimes if you don’t file initially for financial aid you can’t get it later on, even if you qualify. Filling out the form doesn’t mean that you have to give her money, but there’s no need to actively hinder her either.

    As for whether you should help her pay for college, at this stage when she’s 20, that depends primarily on your own circumstances. If you have oodles of spare cash lying around, and your retirement is fully funded, and no other kids will be adversely affected (you aren’t spending their money), then consider helping her if it’s likely to be worthwhile – a student that has got their goals sorted at 20 is likely to do better than someone who drifts into college at 18.

    However, at this point I’m not sure that it’s all that likely to be true for you. If she spent the money that you’d saved up, I think you’re more than entitled to say that there isn’t any more, if there isn’t any more. If you claim there’s no money and then jaunt off to Europe for 6 weeks, whilst you are perfectly entitled to do that with your own money, it might damage your relationship. Relationships are more important than money, and you’re best placed to judge the right course of action.

    If you can give your daughter support in an non-financial way, then you definitely should. Choosing to go to college is a good thing, at 20, 30, 40 whenever. Encourage her in whatever way seems appropriate, hopefully you’ll get to do the proud parent thing in a few years at her graduation.

  3. Dawn says:

    Plonkee I’m curious how you feel about this…. my daughter gave up a three year scholarship two years ago and is now asking us to fill out the fasfa form and help her pay for college. She has spent the small amount of money (that we had saved for her) when she was able to withdraw it at 18. She has been living out of our home and claiming herself on her taxes for two years. We don’t feel like it’s our responsibility now….told her if she wasted the free three years that it was very rude for her to ask us later for money. Not to mention that we had her and her brother very young (teenagers) and have had to work very hard to give her a nice home and a good life. According to the calculator we will not qualify for any aid and if she could just use her income on the fasfa she probably wouldn’t either but even though she’s been on her living on her own, supporting herself we have to fill it out. She makes decent money for a 20 yr old without a college degree.

  4. SheRa says:

    Great article! While I think it’s valid to try to get scholarships, etc, I do think it’s honorable to pay what you legitimately can. After all, colleges do cost money to run, so who should pay for it? Yes, they’re overpriced, but I also know people who are choosing not to save any money when their kids are younger when they plainly could (considering some of their other extravagances). In this world, kids are really crippled by not having the chance at a college education, so parents, if you can, this is something you should take a moral responsibility for trying to help provide.

  5. poor boomer says:

    That’s one reason I didn’t get financial aid: I lived in a very high cost of living area, and due to a dysfunctional family situation, a relative (who was not providing support) claimed me as a dependent, and his lower-middle class income was too high for me to qualify for financial aid.

  6. plonkee says:

    Setting limits on your contribution is not the same as restricting choice. If she could work out a way of affording a private school within those limits would you still make her go to a state school?

  7. Snowy Heron says:

    The expected family contribution is, in my opinion, stupid. It does not appear to discriminate between the costs of living in various areas, nor does it take into account the fact that families might have more than one child that they are hoping to send to college, but most of all it does not take into account the fact that parents with college age children might be in their peak earning years, but haven’t been making that much for many of the prior years before college. I took off 6 years when my 3rd child was born, and my husband went several years during that time without a raise due to his company’s problems. Our cash income actually went down during that time due to insurance costs going up. We were not able to save anything during that time.

    I also disagree with the opinion that parents should never say that they are only paying in-state tuition. I probably would not have the $40,000 in consumer debt that I currently have if I had said that. Instead, I have the debt, my oldest daughter has an economics degree from an outstanding university, student loans that will not be paid off for 30 years, and now she wants to be an art teacher. My middle daughter had mental health issues that caused her to fail a year’s worth of classes (thank you HIPAA) and she still hasn’t graduated, but she has about $20,000 in student loans for her time in college.

    So when my youngest came along, I told her she was only going where I could pay the full cost without student loans, which meant state schools. She’s mad at me now, but I think when she graduates and can afford to take an entry level job and (hopefully) live on her own, she will be grateful. At least I hope so.
    Don’t ask me if I am bitter.

  8. plonkee says:

    @poor boomer:
    Whilst that’s true for homeowners under the federal methodology (via FAFSA) it’s not always true for private colleges – they often treat house equity as savings / investments in determining how much aid to offer.

  9. poor boomer says:

    Financial aid is another area where homeowners and other asset holders are given preferential treatment.

  10. poor boomer says:

    I live on $11K per year and can’t get financial aid.

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