Updated on October 4th, 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.
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still having a difficult time understanding the difference between the scholarship program and the DFD program. And which one I should apply for. HEre’s my situtation, this may help you direct me to the right program
1. I have a student who already graduated (2014) and we still owe 60K for him (I know right???)
2. our second child is a sophmore in college (Junior is standing) at an out of state school. She has almost full ride tuition. She pays approx 4k and we cover housing and food at about 700 month
3. we have a senior in HS. She received a small athletic scholarship that was cut almost 60% due to covid & a merit scholarship. Full cost of attendance is about 43K, scholarship+merit are total of 11K. potential for added athletic funding as seniors graduate who were given extra year of eligibility due to covid. She’s signed a letter of commitment & already turned down other universities because she wanted to stay close to home & attend a small university.
we are hoping to appeal the financial aide since FAFSA doesnt take into account expenses, high cost of living area or the fact that we are still paying for a third child tho he is graduated. Eventuallly my husband & I want to retire, but at this point I dont see how when we have EFC of 30K for each of the 2 kids.
So based on that, which program would you recommend. And then how do I sign up.
thank you, Gina
Good morning! I would suggest The DFD Lab first, because doors only open a few times a year and you can lock-in the pricing. It has a ton of information on financial aid and appeals, as well as lessons on scholarships. Then, if you decide your students need more assistance with scholarships, you can sign up for The Scholarship System since membership is open all year round. Prices for The Scholarship System will be increasing in April. We will be offering a special sale on The Scholarship System in March. (Don’t tell anyone, it has not been announced ;)) It is a one-time payment for 12 months of access and then members can renew for just $97 annually. Many members join DFD Lab first and then add on The Scholarship System if they feel like they need more in-depth assistance with scholarships. Some members find DFD Lab fits their needs completely.
Here is the link to DFD Lab: https://thescholarshipsystem.com/jointhelab/ We offer a 30-day money-back guarantee so you can decide if it is right for you!