Know Your Expected Family Contribution

Many families don't know what their EFC is, but you should know it before your kids apply to school.

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Do you know what your Expected Family Contribution is?

If you don't, you should make it a priority to obtain this number.

I'd argue that you need to know what your preliminary EFC is before you begin looking at colleges. Unfortunately, most families don't have a clue about what their EFC is until their children are seniors in high school and they've applied for financial aid.

[See 7 steps for finding an affordable college.]

I'm going to explain why you need this critical dollar figure, as well as how you can get your EFC, but first you need to know what it is.

Your EFC represents what a college will expect you to pay at a minimum for one year of a child's college. The EFC, which is expressed as a dollar figure, is calculated based on such factors as family income, certain investment assets, number of people in the household and, in some cases, home equity.

Plenty of families are shocked when they obtain their EFC. Parents with a lot of debt can be particularly upset. The EFC formulas don't consider household debt, so the EFC can be a fairly harsh assessment of a family's ability to pay for college.

[Learn more about the controversial EFC formulas.]

Some low-income families can have an EFC as low as $0. An EFC of $0 means that the family has no ability to pay for college. Families with low EFC's will want to look at schools that give generous need-based financial aid packages. By contrast, there is no EFC ceiling for wealthy students. The highest EFC that I have seen personally was $108,000 and the father in that household was a corporate executive. Families with high EFCs should look for schools that give merit money to affluent families—and most institutions do.

[Read 8 rules for maximizing merit aid.]

Why do you need to know what your EFC is? You will get some idea of the costs that your family will face for one year of college and what kind of financial aid you might expect. But that figure alone won't tell you anything until you look at the price tag of a particular school. Let's look at an example:

School No. 1: Private College

Family EFC: $24,000

Cost of attendance: $52,000

Potential financial aid award: $28,000

School No. 2: State University

Family EFC: $24,000

Cost of attendance: $14,000

Potential financial aid award: $0

As a practical matter, the vast majority of schools will not meet 100 percent of a family's need. The students who capture the best financial aid packages are typically the ones whom a college or university covets. Teenagers will often get a better deal if they are in the top 25 percent to 33 percent of the latest crop of applicants.

[See which colleges claim to meet students' full need.]

To obtain your EFC, you can find free EFC calculators online, including at the College Board's website, but my favorite place to obtain these figures is TuitionCoach, which until a couple of weeks ago was a paid service. TuitionCoach has a lot of great resources on its site that covers a variety of financial aid topics and it can also help families attempt to lower their Expected Family Contribution.