What Is Expected Family Contribution?

When you are going to apply for Student Loans, one term you may hear is the Expected Family Contribution or EFC. The definition in the student loan world of the EFC is the amount of money that a family is expected to contribute to their child’s education. The amount of your child’s student loan is based on what the EFC is going to be. This is determined when your child fills out the FAFSA or Free Application for Federal Student Aid. The way these numbers are figured out is separated into two sections; the first is the income and the assets of the parents. The other section is the annual income and the assets of the students.

When it comes to the income of the parents, the calculations start with their adjusted gross income on their tax return. If there are any untaxed items or benefits then these will be added. These benefits will include Social Security, Child Tax Credits and Welfare. Payments taken into consideration are the tax deductible IRA, Simple IRA and Pension Plans just to name a few.

There also may be allowances against the Parent’s Income that must be taken into consideration. In this section the EFC allows for an income credit to be taken for the Federal and State Income Taxes and FICA taxes. For students to qualify for student loans, Contributions from Assets, this formula includes investment value minus investment debt equals net worth of investments. Some of the assets that may be left out of the Expected Family Contribution are Life Insurance Plans, Pension Funds, IRA and Keogh Plans.

When it comes to the Parent’s Contribution the final figure comes from the Total Income and Contribution from the parent’s asset. For student contribution there are a lot less protections. For parents it is requested that give in 12% of assets for the EFC, students are requested 20% of their assets every year that they are in school.

To protect the income and the assets of the family, you should have money put into Keogh Plans and Retirement Plans. To figure out the Expected Family Contribution you can figure out the Need equals the Cost of Attendance minus the Expected Family Contribution and that is how they figure out how much financial aid to give you. .

Your parents must have a College plan for you. If are wondering how you are going to pay for College, it is a good idea to talk to your parents about College financing. If you decide to take out some grants they can be a great help to your College Fund. Grants do not have to be paid back and they will not affect your parents’ assets. Finding College Loans is not too difficult to find, but since your parents are the ones who are most likely to take these loans out, you should discuss with them what goes into applying for these loans. You may want to talk to them about contributing to the repayment of your College Loan.