Why is My EFC So High?

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The EFC, or Expected Family Contribution, is a measure of your family’s ability to pay for college based on what you entered into your Free Application for Federal Student Aid (FAFSA). It’s a measure that many (though not all) colleges use to determine their financial aid offers for students.


The higher your EFC, the more the federal government estimates your family can pay for your college education. No wonder many families are caught off guard by an EFC they believe to be too high–this could indicate that colleges will be less generous when making financial aid offers to their students.


Here are six reasons your EFC might be high, and what you can do to get more information. Note that all metrics and estimates are for the 2019-2020 school year.

 

1. Your household income is high

 

For most students, a high household income will be the reason for a high EFC. EFC increases as the family’s household income increases, holding all other factors constant.


For a student who is the first in their family of four to go to college with $20,000 in familial assets, this is what the relationship between household income and EFC looks like:



For many middle class students, an increased household income results not just in an increase in EFC, but in an increase in EFC as a percentage of household income. This makes it perhaps the most important factor in the EFC formula.



The EFC formula takes into account both parents’ incomes and the student’s income, with higher-income families expected to contribute more to their student’s education. The formula does NOT ask for the incomes of other household members, and does increase if the student in question has a higher income.

 

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2. You have a lot of non-retirement financial assets (excluding your family home and retirement savings)

 

If your family has accumulated wealth and investments, your EFC can be high, even if your family’s income is low. This includes checking and savings accounts, bonds and stocks, and even the student’s 529 College Savings Plan.


Some kinds of financial assets do not count toward your EFC. Excluded assets include the family’s home (provided you live in it) and retirement savings like a 401k. Parents that withdraw from their 401k to pay for a student’s education are in fact increasing their EFC, because that withdrawal is counted as untaxed income on the FAFSA.


For an example of a student coming from a family with a household income of about $100,000, here’s how different levels of family financial assets change her EFC:



A dollar of assets counts less in the EFC formula than a dollar of income does. Notice that a $5000 change in taxable assets doesn’t produce a significant change in EFC–in this case, it increases EFC by $500-600. But for families with a high level of wealth, this adds up, even holding household income constant.


3. You have a high-value business or farm


Like other kinds of assets, a business or farm owned by your family can contribute to a higher EFC. However, businesses with a net worth somewhere below $660,000 do not count towards the EFC as much as other kinds of assets, due to a “Net Worth Adjustment.” Instead, the net worth adjustment (the portion of the business’s value that is counted in the EFC calculation) changes based on the net worth bracket of the business.


Here’s how the adjusted net worth counts the value of your business towards your assets.


Net Worth of Business/Farm

Marginal Adjusted Net Worth

Less than $1

0%

$1 to $130,000

40%

$130,001 to $395,000

50%

$395,001 to $660,000

60%

$660,001 or more

100%



What this means is that at higher values, the net worth of a business owned by your family can contribute significantly to your EFC–even if it doesn’t add up as quickly as other kinds of assets. So the net worth of the family business could still be driving your estimate upwards.


4. You live in a low-tax state


Because state taxes can contribute greatly to the cost of living, the EFC formula grants higher state tax allowances to families from states with higher tax rates. A higher allowance results in a lower EFC, because it is deducted from your income in the formula.


All else equal, families from high-tax states like California, Maryland, New Jersey, and New York will have lower EFCs; families from low-tax states like Alaska, Nevada, Tennessee, and Washington will have higher EFCs.


5. You have fewer children attending college


The more members of a household that are attending college, the lower each college student’s expected EFC. This mostly occurs because, with more children attending college, the less their parents are expected to contribute to each individual student.


Here’s one example for a household whose income and assets remain constant:



This can actually have the effect of reducing the total EFC of the household (that is, the sum of each college student’s EFC). That said, please note that Edmit does not recommend having additional children to save on educational expenses. Such a tactic can be counterproductive!


Next Steps


If your student has been given a high EFC and any of these above circumstances apply to you or your family, you could now have an explanation for why. 


Not all colleges use the EFC as their main measure of student financial need; many colleges instead use the CSS Profile, which drills even deeper into your financial situation. Click here to learn more about these schools.


Finally, your EFC is just one factor used by colleges to decide how much financial aid to offer students. Colleges’ financial aid offers vary widely depending on the institution, a student’s academic merit, and their financial needs. If you know your EFC, but would like to know how much the colleges on your list might offer in financial aid, start researching costs with a free Edmit account today.

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