FAFSA’s EFC Is Going Away: Here’s What You Need to Know

Updated on January 15th, 2021

In years past, a student’s expected family contribution (EFC) played a big role in their college financial aid package. Essentially, the EFC – is calculated based on data students enter on their Free Application for Federal Student Aid (FAFSA) – determined how much a student was going to have to pay out-of-pocket for their college expenses. But, now, things may be different.

On December 27, 2020, President Donald Trump signed a bill into law that ends the reign of the EFC and replaces it with something new. If you wonder how the new law may impact your student’s financial aid, here’s what you need to know.

If you and your student want to find out more about landing college scholarships, sign up for our free college scholarship webinar! You can head to http://thescholarshipsystem.com/freewebinar to reserve your spot today.

Confusion Surrounding the EFC

Many students (and their parents) found the EFC calculations baffling. Generally speaking, the EFC took into account a household’s income and the value of its assets, along with some other details, like family size and how many household members were currently college students.

However, it didn’t factor in other financial data, like whether a student’s parents were currently repaying student loans or how much debt the household was shouldering. As a result, many students saw EFCs that were incredibly large, at times intimidatingly so.

Additionally, the fact that the number was an expected dollar amount made it seem mandatory. If the number was particularly large, some students might have assumed that college was unaffordable, even if it might not be. But since it was also labeled a contribution, that seemed to soften the requirement, making it seem like “help” of some kind.

Another issue was that some students assumed that the EFC represented the maximum amount they would have to pay – either out of pocket or with student loans – for a particular school year. In reality, that isn’t the case, and students could end up with debts substantially larger than the figure they were presented.

For many households, simply understanding what the EFC meant was a challenge. Additionally, how it was calculated and why it deemed a certain dollar amount reasonable often felt like a mystery.

Luckily, the EFC is likely on the way out.

What Will Replace the EFC

Based on the newly signed law – the Consolidated Appropriations Act of 2021 – the EFC will be replaced with a “student aid index” or SAI. In some ways, SAI is just a new term for a similar calculation. However, there are some differences in how need-based aid will be awarded, as well as changes to how some students complete their FAFSA.

How the SAI Alters Financial Aid Eligibility and Amounts

The SAI does adjust the math a bit, altering how much some students will be eligible to receive certain types of financial aid. For example, in some cases, it adjusts how much students receive through the Pell Grant or what they can receive as Direct Loans.

It is important to note that maximum and minimum Pell Grant awards aren’t altered by the introduction of the SAI. Who is eligible to receive Pell Grant funds will be solely determined by the household’s size and its adjusted gross income (AGI). However, the SAI figure will play a role in Pell Grant amounts for families with incomes in the middle ranges.

The SAI doesn’t factor in the size of a student’s household in the same fashion as the EFC. Additionally, while the EFC cannot fall below zero, it is possible to end up with an SAI figure as low as -$1,500. This makes it easier to identify particularly high-need students.

Another facet of the SAI is that it will create a framework where low-income students with significant financial need based on their FAFSA could receive Direct Loans and Pell Grants with values that exceed the student’s cost of attendance (COA) for going to a specific college. With that, students may be eligible for financial aid that could support certain non-school-related costs, like living expenses. That’s something the EFC didn’t offer.

The Consolidated Appropriations Act of 2021 also repealed a limitation restricting the amount of subsidized student loans a student could access during their lifetime. The subsidized usage limit applies (SULA) prevented students from accessing subsidized Direct Loans totaling over 150 percent of their college program’s published length.

Simplifying the FAFSA

Additional changes are also covered in the Consolidated Appropriations Act of 2021 that will impact students. Certain FAFSA simplifications are part of the equation, particularly for students with household incomes below the $60,000 mark.

For example, if a student is a dependent student, their parent’s income is under $60,000 a year, and their parents file simple tax returns, the student can use the simplified needs test when completing their FAFSA. With that, they aren’t required to provide asset information.

Previously, the cutoff for the simplified needs test was $49,999. This means that many students who had to gather asset information in the past will no longer have to do so.

When Will the EFC Go Away?

The Consolidated Appropriations Act of 2021 outlines a wide range of changes beyond just those outlined above. As the rollout gets closer, additional details will become more widely available, making it easier to anticipate the potential impact on students.

As for when the changes will go into effect, that may vary. In most cases, July 1, 2023, is the latest most provisions would need to go into effect. This means it would affect the 2023-2024 FAFSA, which opens up to students on October 1, 2022.

In some cases, the Secretary of Education can decide to move forward on certain provisions early. There’s no guarantee that will occur, but it is technically on the table.

Finally, any new legislation that alters what’s outlined in the Consolidated Appropriations Act of 2021 is also a factor. New laws can remove or change the various provisions, so it’s important to keep that in mind.

If you and your student want to find out more about landing college scholarships, sign up for our free college scholarship webinar! You can head to http://thescholarshipsystem.com/freewebinar to reserve your spot today.