For decades, the Expected Family Contribution (EFC) has been a critical number for all students and their families as they consider the costs of college.
However, the FAFSA Simplification Act is changing everything by replacing the EFC with the Student Aid Index (SAI).
Although the act was passed in 2021, the changes will not be implemented until the 2023-2024 academic year. The delay will allow the Department of Education to prepare for the changes. Here’s what you need to know about the EFC and its replacement.
What Is The EFC?
The EFC, Expected Family Contribution, is a number determined by the federal government and colleges through the FAFSA. Essentially, it represents the dollar amount that a family is expected to pay for college within a single year.
Your EFC determines how much needs-based financial aid, such as subsidized loans and Pell Grants, you're eligible for. For example, if you're school's annual tuition is $15,000 and your EFC is $5,000, you could qualify for up to $10,000 of needs-based aid.
Often it turns out to that a family's EFC (the amount of education cost they're supposed to cover from their own resources) is well beyond their financial reach. When that happens, parents and students may turn to merit-aid scholarships or unsubsidized student loans to fund the difference between the EFC and what they can actually afford.
Related: Understanding Subsidized vs. Unsubsidized Student Loans
Why Is The EFC Being Replaced?
The EFC will be replaced with the Student Aid Index (SAI). Both are calculated through formulas with information derived from the FAFSA form. The big reason behind the change is to create a better reflection on the true cost of colleges.
In the past, many families have interpreted the EFC as the total cost that they will be expected to pay. However, many face higher costs because colleges don’t meet the full need of students or include loans as a part of the financial aid package.
Additionally, some in higher education took have taken issue with the term "Expected Family Contribution." EFC detractors say that the term puts undue pressure on parents to finance their children's college costs.
The new term, Student Aid Index, can't erase the feelings that parents face when confronted with the costs of higher education. But it may allow parents and students paying for college to approach the financial challenge with fewer perceived expectations. With a more general term, parents may not feel solely responsible for funding their child’s higher education.
What Is The Student Aid Index (SAI)?
Due to the confusing nature of the EFC, lawmakers have decided to make a change. However, the reality is that the change is mostly in name.
The basics of the formula that calculator the resulting number will remain the same. However, the FAFSA Simplification Act has brought a few updates to the formula that will change the way colleges calculate a student’s financial needs.
How Will The SAI Change The FAFSA?
The FAFSA Simplification Act was included within the Consolidated Appropriations Act of 2021. The goal of the new law is to make things more simple for students and parents paying for college. Let’s take a look at some of the changes to the formula.
Streamlined FAFSA Form
A major change is a more streamlined FAFSA form. Instead of answering over 100 questions, the FAFSA is only a few dozen questions. This should save students and parents time when applying for financial aid.
Cost Of Attendance Changes
The Cost of Attendance (COA) is another important number when sorting through college costs. Here are some of the changes including in the new law:
Multiple Students Will Be Treated Differently
In the past, families with multiple students attending college at the same time on at least a part-time basis received special treatment. The parent assessment was divided by the number of family members in college.
Also, independent students had their family contribution divided by the number of students attending college on a half-time basis.
The SAI will not be divided based on the number of students in college within a family. With that, middle and high-income families may miss out on previous opportunities to save.
New Pell Grant Eligibility
Eligibility for Pell Grants will be based on a multiple of the poverty line. Households may qualify with incomes between zero and 175% to 400% of the poverty line. Additionally, incarcerated students will be eligible for the Pell Grant.
Negative SAI Will Be Possible
If the student is eligible for the maximum federal Pell Grant, the Student Aid Index will be set to 0. But the financial aid formula can allow for an SAI to be below zero, as low as -$1,500. This can help colleges more accurately determine a student’s financial needs.
Final Thoughts
Although we have not touched on every single change created by the FAFSA Simplification Act, the real question is will the changes help more families and students.
The answer will likely depend on your situation. Many of the changes seem to help low-income families with college costs. While middle-and-high-income earners could be receiving less help from the new index, especially if you have multiple children in college at the same time.
Additionally, the name change from EFC to SAI may help to mitigate some of the expectations facing parents. And just about everyone can agree that a streamlined FAFSA form is a win for everyone.
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him on the About Page, or on his personal site RobertFarrington.com.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.
