Like HowStuffWorks on Facebook!

How the FAFSA Works


Calculating the EFC

The Estimated Family Contribution (EFC) is a critical number for determining the amount of financial aid a student receives. The role of the FAFSA is to collect enough financial information to determine how much the student and his or her family is able to pay for college.

A few days after submitting the online version of the FAFSA, you will receive an e-mail with a link to your Student Aid Report (SAR). The SAR includes a detailed summary of the information you submitted on the FAFSA along with your official EFC. If you think your EFC is way off, double-check your financial information. If there's a mistake, you can correct and resend your SAR.

The tricky thing about the EFC is that not every school relies solely on the FAFSA for calculating the amount a student is able to pay. The FAFSA's EFC is calculated using something called the Federal Methodology (FM) created by the Higher Education Act of 1965 [source: FAFSA]. But there's also an alternative formula -- used by roughly 300 private colleges -- called the Institutional Methodology (IM) [source: Stratagee.com]. The IM was developed by the College Board [source: College Board].

What's the difference between the FM and the IM? The FM relies almost exclusively on the adjusted gross income from IRS forms as the indicator of a family's earnings. The IM considers a broader range of assets, including home and farm equity, the assets of a non-custodial divorced parent, and accounting methods that artificially reduce the reported gross income (like depreciation and capital losses) [source: Wake Forest]. The IM also assumes the student will work during the summer to help pay for college. Many schools consider the IM a more accurate picture of family finances.

In order to calculate the EFC using the IM, students must submit a separate financial aid application in addition to the FAFSA called the CSS/Financial Aid PROFILE (or just PROFILE for short).

The bottom line is that the FAFSA's EFC is not the only indicator of how much financial aid you'll be offered by your school. Every school assembles its aid packages using varying amounts of federal and school-based aid. The FAFSA is used to determine eligibility for all Federal aid like Pell Grants, Perkins and Stafford Loans and Federal Work-Study [source: Sallie Mae]. But the school may use the IM or other methods to determine eligibility for institutional grants and scholarships.

Keep clicking for lots more information about paying for college.


More to Explore