Financial need is considered when determining your eligibility for several common federal student aid award instruments—including the Pell Grant, the Subsidized Stafford Loan, and the Federal Perkins Loan.
Financial need often goes hand-in-hand with expected family contribution, or EFC, as this is the metric that the Department of Education uses to evaluate your family’s ability to contribute money towards the costs of your higher education.
Financial need is determined via this formula according to the Department of Education:
- Financial Need = Cost of Attendance (CoA) — Expected Family Contribution (EFC)
Expected family contribution, or EFC is calculated via a predefined formula that is provided by the Department of Education, and primarily takes into account these factors:
- Student’s Income (and assets if independent)
- Parents’ Income (and assets if dependent)
- Household Size
- Number of Family Members Attending Postsecondary Institutions (excluding parents)
This essentially means that your income is going to play the most crucial role in determining your EFC, with the size of your family, and the number of family members attending college also playing a small role. Lower incomes, higher family sizes, and an increased number of family members attending university will contribute to a lower EFC value.
The actual EFC figure that is calculated will then be an actual representation of what the Department of Education thinks you, and your family can put towards your education costs directly out-of-pocket. It therefore makes sense to subtract your EFC from your cost of attendance in order to get your Financial Need, as this will be the amount of money you will have to come up with to attend college for that particular school year.
Getting Your EFC
You can determine your EFC once you have successfully completed the FAFSA. A Student Aid Report is generated for each student that completes this application, and within this SAR you will be able to see your estimated EFC value for that award year.
Check your EFC to see if it makes sense, and to make sure that you completed the FAFSA correctly. If there is a discrepancy don’t hesitate to edit the information that you provided, as you should be able to do this online quite easily.
While the EFC isn’t the only factor that is going to determine your financial need, it plays a very critical role, and should therefore be understood whenever you are planning out how you are going to pay for college. It is heavily reliant on whether or not you are a dependent, or independent student, as most dependent students will not have their families’ income or assets included in the final calculation, thus providing for lower EFC values.