The Federal Methodology (FM) is the formula used by the federal government to determine your Expected Family Contribution (EFC) for a Federal Pell Grant, campus-based programs, and Federal Subsidized Stafford and Direct Subsidized Loan Programs. For non-need-based Federal Unsubsidized Stafford and Direct Unsubsidized Loans, your EFC is not a factor.
Depending on your financial circumstances, the FM uses one of three models to determine your EFC: the regular, the simplified, and the automatically-assessed formulas. Which one is applied depends on your financial situation.
The regular formula for federal student aid
For most people, this is the formula that will be applied. It evaluates your assets and income and determines how much your family can contribute. That amount is then used to determine the amount and type of aid — such as federal work study, loans, or grants — that you are eligible to receive.
Basically, for the regular formula, what you own that has monetary value (checking accounts, savings accounts, etc) is combined with what you earn. Here’s how it works:
Asset assessment
The assets you report on your FAFSA are added to determine your family’s financial strength. (If it’s less than zero, then it’s calculated as zero). If you own a farm or business, your net worth is adjusted to help protect these assets. The FM then waives a portion of your net worth for education savings and asset protection and what’s left over is your discretionary net worth — basically cash and what can be converted to cash. (It’s possible that your discretionary net worth could be less than zero.) This amount is multiplied by an asset-conversion rate — the portion of your assets the federal government thinks you’ll be able to contribute to college costs. If the amount comes out as less than zero, then your asset contribution is set at zero.
Income assessment
Your asset contribution is added to your available income to establish your “adjusted available income.” (If you’ve ever filled out a tax return, this may sound vaguely familiar.) This total is multiplied by a rate that varies depending on your adjusted available income — the more you have, the higher the percentage. Finally, the FM arrives at your EFC for that year. If more than one child in a family attends college at least half-time, the EFC is divided equally among them. So, if two kids are in college and the EFC is $5,000, then $2,500 is allotted to the EFC for each child.
The simplified formula for federal financial aid
Sometimes, the FM ignores your assets altogether and uses your income only to calculate your EFC. Once again, as with the regular formula, the amount that you can contribute is used to determine what kind of student aid, such as federal work study or the FSEOG, you are eligible to receive.
You might qualify for this simple formula if you meet these criteria:
- You or your parents filed or can file a 1040A or 1040EZ, or don’t have to file any tax returns at all
- Your parents’ (if you’re a dependent) adjusted gross income on their return (or on their W-2s if they aren’t required to file) is $49,999 or below
What matters here is whether or not you (or your parents) are eligible to file a 1040A or 1040EZ — not if you actually filed them. A family may have filed a 1040, but if their combined income was less than $50,000 and they were eligible to file a 1040A or 1040EZ, the qualifications for the simplified formula have been met.
The automatically-assessed formula for federal student aid
For the last FM model, there isn’t much to evaluate. If you or your family qualifies, the EFC assessed is automatically $0! If you’re an undergrad, that makes you eligible for the maximum Federal Pell Grant. You may also be eligible for a Federal Supplemental Educational Opportunity Grant (FSEOG).
The criteria are simple:
- You or your parents filed or can file a 1040A or 1040 EZ, or you and your parents are not required to file any tax returns at all; and
- Your or your parents’ adjusted gross income on their return (or on their W-2s if they aren’t required to file) is $20,000 or less.
Special circumstances for your federal financial aid
Sometimes, the income reported on your FAFSA doesn’t accurately reflect your financial situation, or aspects of the FM don’t reasonably depict your ability to contribute to educational expenses. An aid administrator can sometimes change the FM data elements to better measure your ability to pay for school. This is a professional judgment call and may be made only if you can provide adequate documentation of unusual or extenuating circumstances.
An example of extenuating circumstances might be a significant loss of income due to job loss or reduction of work hours. So long as you can sufficiently prove your circumstances, a financial aid administrator may use your new projected income in the formula, rather than the original amount reported. If you’ve experienced a significant change in your financial situation, contact your financial aid office for more information about what you need to do.
