Federal Student Aid: Need Analysis Formulas and Expected Family Contribution
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Federal Student Aid: Need Analysis Formulas
and Expected Family Contribution
Updated December 21, 2021
Congressional Research Service
https://crsreports.congress.gov
R44503
Federal Student Aid: Need Analysis Formulas and Expected Family Contribution
Summary
This report describes the need analysis formulas used to calculate the Expected Family
Contribution (EFC) for federal student aid applicants. The formulas are codified in Title IV of the
Higher Education Act (HEA), as amended. The Free Application for Federal Student Aid
(FAFSA) is the data collection instrument through which students submit the information that is
used to calculate the EFC.
The FAFSA Simplification Act of 2021 (FSA; part of P.L. 116-260) makes significant changes to
the formulas used to determine need for the purposes of student aid and is scheduled to take effect
July 1, 2023, coinciding with the beginning of the 2023-2024 award year. This report describes
the EFC formulas prior to the FSA taking effect.
The HEA has three EFC formulas: one for dependent students and one each for independent
students with and without dependents. A student’s dependency status is determined by the
student’s age and other characteristics. The dependent student formula considers the financial
resources of the student and the student’s parents. The independent student formulas consider the
financial resources of the student and, if applicable, the student’s spouse.
The financial resources considered by the EFC formulas are divided into income and assets. The
EFC formulas’ definition of a family’s income is fairly inclusive and includes many forms of
taxable and nontaxable income. The EFC formulas’ definition of assets includes balances of
qualified bank accounts, investments, business equity, and real estate. There are substantial
exemptions in the calculation of assets, including a family’s primary residence, retirement
accounts, and a family-owned small business.
The EFC formulas provide a number of allowances against income and assets (also known as
“protections”). Only income and assets in excess of these allowances (“available” income and
assets) are considered when calculating the EFC. If the family’s income is below the income
protection allowance level, the family will have no available income and therefore no
contribution from income. Similarly, if the family is required to report assets and the amount of
assets is below the asset protection allowance level, the family will have no available assets and
therefore no contribution from assets.
Assessment of available income and/or assets is the calculation of the actual EFC or components
thereof. The assessment rate is the portion of available income or available assets that contribute
to the EFC. For example, the assessment rate for available income of an independent student
without dependents is 50%, meaning that each dollar of income in excess of the income
allowances increases the family’s expected contribution by 50 cents. Assessment rates vary by
dependency status and type of financial resource (i.e., income or assets). Generally speaking,
additional available income is assessed at a higher rate than additional available assets.
In cases where an applicant’s income is below statutorily-specified levels, the family may be
eligible for a simplified needs test (SNT) in which the family is not required to report information
on assets. In cases where an applicant qualifies for the SNT and meets certain additional income
criteria, the applicant may be eligible for an “automatic zero” EFC.
The HEA contains provisions that allow for adjustments for families in specified circumstances.
For example, a family with multiple students enrolled in postsecondary education has its EFC
divided among the enrolled students. The HEA also contains provisions that allow an individual
school’s financial aid administrator to exercise professional judgment and adjust certain data used
to calculate the EFC to reflect unusual circumstances like job loss, atypically high medical
expenses, or other exceptional situations.
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Federal Student Aid: Need Analysis Formulas and Expected Family Contribution
Contents
Introduction ..................................................................................................................................... 1
Collection and Processing of Student Information .......................................................................... 2
Individual Filing of the FAFSA ................................................................................................ 2
Processing of the FAFSA .......................................................................................................... 2
Availability of the FAFSA and Reference Year ......................................................................... 3
Determination of Dependency Status and Eligibility for the Simplified Needs Test ...................... 3
Determining Dependency Status ............................................................................................... 4
Criteria for Independent Student ......................................................................................... 4
Independent Student with Dependents................................................................................ 5
Determining Eligibility for the Simplified Needs Test.............................................................. 5
Automatic Zero EFC ........................................................................................................... 6
General Framework and Common Components of the EFC Formulas ........................................... 7
Formula A: Calculation of EFC for Dependent Students ............................................................... 11
Calculating the Contribution for a Dependent Student’s Parents............................................. 11
Definition of a Parent ......................................................................................................... 11
Parental Available Income ................................................................................................ 12
Parental Available Assets and Asset Conversion .............................................................. 12
Parental Adjusted Available Income, Assessment, and Calculation of Parental
Contribution ................................................................................................................... 12
Calculating the Contribution for a Dependent Student ........................................................... 13
Dependent Student Available Income, Assessment, and Contribution from Income ........ 13
Dependent Student Assets, Assessment, and Contribution from Assets ........................... 14
Dependent Student Contribution....................................................................................... 14
Final EFC for a Dependent Student ........................................................................................ 14
Formula B: Calculation of EFC for Independent Students without Dependents........................... 14
Available Income, Assessment, and Contribution from Income ............................................. 15
Available Assets, Asset Conversion Rate, and Contribution from Assets ............................... 15
Calculation of EFC.................................................................................................................. 15
Formula C: Calculation of EFC for Independent Students with Dependents ................................ 16
Available Income..................................................................................................................... 16
Available Assets and Asset Conversion .................................................................................. 17
Adjusted Available Income, Assessment, and Calculation of EFC ......................................... 17
Professional Judgment and Students with Unusual Circumstances .............................................. 18
Forthcoming Changes to the Need Analysis Formulas under the FAFSA Simplification
Act .............................................................................................................................................. 19
Figures
Figure 1. Determination of Dependency Status and Applicable EFC Formula ............................... 7
Figure 2. General Framework of EFC Calculation.......................................................................... 9
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Tables
Table 1. Components of the Expected Family Contribution Formula ........................................... 10
Table 2. Assessment Rates and Parental Contribution from Adjusted Available Income ............. 13
Table 3. Assessment Rates and Expected Family Contribution from AAI, Independent
Students with Dependents .......................................................................................................... 17
Table 4. Summary of Final Assessment by Dependency Status .................................................... 18
Table A-1. Income Protection Allowances for Parents of Dependent Students............................. 23
Table A-2. Income Protection Allowance for Dependent Students ............................................... 24
Table A-3. Income Protection Allowance for Independent Students without Dependents ............ 24
Table A-4. Income Protection Allowances for Independent Students with Dependents ............... 24
Table A-5. Allowances for State and Other Taxes by Dependency Status .................................... 25
Table A-6. Asset Protection Allowance, Parents of Dependent Students ...................................... 29
Appendixes
Appendix A. Detailed Definitions and AY2021-2022 Levels ....................................................... 21
Appendix B. Legislative History ................................................................................................... 32
Contacts
Author Information........................................................................................................................ 36
Acknowledgments ......................................................................................................................... 36
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Federal Student Aid: Need Analysis Formulas and Expected Family Contribution
Introduction
Title IV of the Higher Education Act (HEA) authorizes a group of federal student aid programs.1
Eligibility for many of these aid programs is contingent on student financial need. Student
financial need is defined as the difference between a school’s cost of attendance (COA) and the
student’s expected family contribution (EFC). A student’s EFC is determined by a group of
formulas in Part F of Title IV. The formulas define the applicable family unit and establish a
process to calculate the EFC for the award year on the basis of the income and assets of the
student and, if applicable, the student’s parents or spouse.2
The EFC formulas in the HEA are also known as the “federal methodology.”3 This report will
discuss the EFC formulas and how current law and the Department of Education (ED) consider
the financial resources and other characteristics of a student’s family in calculating the EFC.4
Where applicable, the report will use examples from the current 2021-2022 award year (AY20212022).5 This report focuses on the calculation of the EFC; it will not discuss the subsequent
application of the EFC in determining and packaging student aid.
The next section of this report will discuss how ED collects and processes information from
prospective students using the Free Application for Federal Student Aid (FAFSA). The following
section will discuss how the information from the FAFSA is used to determine the student’s
dependency status and applicable EFC formula. The subsequent sections will describe how each
of these formulas translates the financial characteristics of a student’s family into an EFC.
Forthcoming Formula Changes
The FAFSA Simplification Act (FSA; Title VII, Division FF, P.L. 116-260) makes significant changes to the need
analysis components of federal student aid. The need analysis provisions of the FSA are scheduled to take effect
with the 2023-2024 award year, which begins July 1, 2023. The Department of Education has announced that
some components of the FSA may not be implemented until the subsequent 2024-2025 award year.
This report describes the EFC formula prior to the FSA taking effect.
For a brief description of the forthcoming changes, see the “Forthcoming Changes to the Need Analysis Formulas
under the FAFSA Simplification Act” section at the end of this report. For more information on the forthcoming
changes, see CRS Report R46909, The FAFSA Simplification Act.
1 These federal student aid programs are often collectively referred to as “Title IV programs.” The HEA is a broad-
reaching law that touches on many aspects of higher education. For an overview of the law, see CRS Report R43351,
The Higher Education Act (HEA): A Primer.
2 While the EFC assesses how much a student and his or her family is expected to contribute toward educational
expenses, there is no federal requirement that they actually contribute that amount. As such, non-need-based federal
student aid (such as certain types of unsubsidized loans) may be used to substitute for the EFC.
3 The term “federal methodology” distinguishes the formula in the HEA from separate methodologies that may be used
by states or institutions. State and institutional methodologies may or may not be based on the federal methodology.
4 Appendix B provides historical background on the role and determination of student need in federal student aid.
5 AY2021-2022 began on July 1, 2021 and will end June 30, 2022. The report will refer to the AY2021-2022 FAFSA
form, which is available in its paper version at https://studentaid.gov/sites/default/files/2021-22-fafsa.pdf. The 20212022 EFC Formula Guide is available at https://fsapartners.ed.gov/sites/default/files/attachments/2020-08/
2122EFCFormulaGuide.pdf.
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Collection and Processing of Student Information
The FAFSA is the data collection instrument for information used to calculate the EFC.6 The EFC
is calculated on the basis of information provided on the FAFSA by the student on income, assets,
and other characteristics. Students who do not meet the “independent student” criteria in statute
must report information on their parents. Students who are married must report information on
their spouses.
Information from the FAFSA is shared with state agencies and institutions of higher education to
help determine federal and nonfederal aid.7 Some questions gather information that is relevant to
state and institutional aid programs but not relevant to federal aid programs. Responses to these
questions do not affect the EFC and corresponding federal aid.8
Individual Filing of the FAFSA
The vast majority of student aid applicants complete the FAFSA online, though it is also possible
to complete a paper form.9 The online FAFSA is designed to prompt applicants only for necessary
data. For example, if an applicant’s initial responses indicate that he or she meets the criteria to be
classified as an “independent” student, the online form will not ask questions about the student’s
parents. This “skip logic” simplifies the application process by allowing users to only provide
necessary information.
An applicant who files the FAFSA online and has already completed their tax returns for the
applicable reference year has the option of using the Internal Revenue Service Data Retrieval
Tool (IRS-DRT). The tool provides tax data to the applicant that the applicant can then choose to
import into the FAFSA. Some FAFSA items do not have tax form equivalents and therefore must
be completed manually, even if the applicant uses the IRS-DRT.
Processing of the FAFSA
After an applicant submits a FAFSA, the form is processed by the Central Processing System
(CPS). The CPS uses the applicant’s responses to calculate an EFC and checks the application’s
data against several existing databases (such as the Social Security Administration) to verify the
student’s identity and eligibility for federal student aid. The CPS also checks the FAFSA for
possible inconsistencies or mistakes that require correction.
After processing the FAFSA data, the CPS produces two types of output documents. The Student
Aid Report (SAR) provides the student with his or her EFC and other information. Institutional
Student Information Records (ISIRs) are provided to institutions that the student specified on his
or her FAFSA. The ISIR provides the student’s EFC and other data from the FAFSA that can
influence institutional need-based aid.10
6 The statutory authorization for the FAFSA is in Section 483 of the HEA (20 U.S.C. §1090).
7 See Section 483(a)(10) of the HEA (20 U.S.C. §1090(a)(10)).
8 For example, the FAFSA asks the highest level of education completed by each of the student’s parents. This question
allows states and institutions to target aid to first-generation college students. No federal Title IV programs target funds
on the basis of the student’s parents’ educational attainment.
9 The online FAFSA can be completed and submitted at https://studentaid.gov/. The paper FAFSA for award year
2021-2022 is available at https://studentaid.gov/sites/default/files/2021-22-fafsa.pdf.
10 For more information on the SAR and ISIR, see p. AVG-6 of the Student Aid Handbook at https://fsapartners.ed.gov/
sites/default/files/2021-07/2122FSAHbkAVGMaster_1.pdf.
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Availability of the FAFSA and Reference Year
The FAFSA becomes available on October 1 of the year prior to the applicable award year (AY).
For example, the FAFSA for AY2021-2022 became available October 1, 2020. The FAFSA is
completed using income and tax information from the year that is two years prior to the
applicable award year. To continue the same example, the FAFSA for AY2021-2022 is completed
using income and tax information from calendar year 2019.
Prior to AY2017-2018, the FAFSA became available on January 1 of the award year and was
completed using income and tax information from the year prior to the award year. For example,
the FAFSA for AY2015-2016 became available on January 1, 2015, and was completed using
income and tax information from calendar year 2014.
The move to make the FAFSA available earlier and shift from using the prior year’s income and
tax information to using information from the “prior-prior year” was accomplished through ED’s
exercise of an authority specified in the HEA.11 ED stated that the shift will allow students to
apply for aid earlier and better align the financial aid application process with the college
application timeline.12 The change in timing may also increase the likelihood that families will be
able to import tax information to the FAFSA using the IRT-DRT because it is likely that
applicable family members will have filed taxes for the applicable year by the time the FAFSA
becomes available.
Determination of Dependency Status and Eligibility
for the Simplified Needs Test
Data from the FAFSA are used to determine a student’s dependency status and the applicable
formula within that dependency status. This is typically a two-step process.
The first step is determining the student’s dependency status. If the student meets the criteria to
be classified as independent, the EFC calculation will only consider the financial resources of the
student and, if applicable, the student’s spouse. If the student does not meet the criteria for an
independent student, the student is classified as dependent and the EFC formula will consider the
financial resources of both the student and the student’s parents.13
The second step is determining the applicant’s eligibility for a simplified needs test (SNT). If the
applicant is eligible for the SNT, the student’s EFC will be determined on the basis of a reduced
number of income-based factors and assets will not be considered in EFC calculations. Some
applicants who are eligible for the SNT may be further eligible for an “automatic zero” EFC. If an
applicant is not eligible for the SNT, the EFC will be determined on the basis of the full formula,
which considers both income and assets.
11 The authority for ED to make this change is established in Section 480(a)(1)(B) of the HEA (20 U.S.C.
§1087vv(a)(1)(B)).
12 See Department of Education, “Changes Impacting the 2017-2018 FAFSA,” https://financialaidtoolkit.ed.gov/
resources/fafsa-changes-17-18-faq.pdf.
13 Notably, a student who is married is automatically classified as independent of his or her parents. As such, there is no
circumstance in which the EFC formula would consider the financial resources of both the student’s parents and the
student’s spouse.
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Determining Dependency Status
The HEA has different formulas for each of three dependency statuses:
dependent students;
independent students without dependents; and
independent students with dependents.14
As noted previously, the formula for dependent students considers the financial resources of the
students’ parents while the formulas for independent students do not. In cases where a student is
married, the financial resources of the student’s spouse are always considered.
Criteria for Independent Student
The HEA specifies that a student who does not meet the criteria for an independent student is
treated as a dependent student. An independent student is defined as a student who meets any of
the following criteria:15
is 24 years of age or older by December 31 of the award year;16
is an orphan, in foster care, or a ward of the court; or was an orphan, in foster
care, or a ward of the court at any time when the individual was 13 years of age
or older;
is, or was immediately prior to attaining the age of majority, an emancipated
minor or in legal guardianship as determined by a court of competent jurisdiction
in the individual’s state of legal residence;
is a veteran of the Armed Forces of the United States or is currently serving on
active duty in the Armed Forces for other than training purposes;
is a graduate or professional student;
is a married individual;
has legal dependents other than a spouse; or
has been verified, by a qualified authority during the school year in which the
application is submitted, as either an unaccompanied youth who is a homeless
child or youth, or as unaccompanied, at risk of homelessness, and selfsupporting.
A student who does not meet any of the above criteria is considered a dependent student for the
purposes of the EFC formula.17 Notably, a student’s financial independence does not, by itself,
14 Statute labels the two groups of independent students as “independent students without dependents other than a
spouse” and “independent students with dependents other than a spouse.” The definition of a dependent of a student in
Section 480(k)(2) of the HEA (20 U.S.C. §1087vv(k)(2)) specifies that, for purposes of federal student aid, a spouse
cannot be a dependent of an independent student. In the interest of brevity, this report will omit “other than a spouse”
and refer to “independent students without dependents” and “independent students with dependents.”
15 For complete legislative language related to independent student criteria, see Section 480(d) of the HEA (20 U.S.C.
§1087vv(d)).
16 The award year runs from July 1 to June 30. The FAFSA for a given year presents this criterion in terms of a
birthdate. For example, the AY2021-2022 FAFSA asks if a student was born prior to January 1, 1998.
17 In very limited cases, a school’s financial aid administrator may be able to perform a “dependency override” and
classify as independent a student who does not meet any of the statutory criteria for an independent student. For more
information, see the “Professional Judgment and Students with Unusual Circumstances ” section later in this report.
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make the student independent for federal student aid purposes. Similarly, whether or not a parent
declares a student as a dependent on the parent’s tax return has no effect on the student’s
dependency status for the purposes of the FAFSA and federal student aid.
Independent Student with Dependents
There are separate EFC formulas for independent students with and without dependents. Thus,
once a student meets the criteria for an independent student, it must be determined if the
independent student has dependents. Dependents of the student are defined as “the student’s
dependent children and other persons (except the student’s spouse) who live with and receive
more than one-half of their support from the student and will continue to receive more than half
of their support from the student during the award year.”18
Whose financial resources are considered when calculating the EFC?
If the student meets any of the independent student criteria, the student is considered to be an independent
student and the EFC formula considers the financial resources of the student and, if the student is married,
the student’s spouse. For married independent students, the EFC formula considers the income and assets of
the student and the student’s spouse collectively and generally does not distinguish who the income or assets
are associated with.
If the student does not meet any of the independent student criteria, the student is considered to be a
dependent student and the EFC formula considers the financial resources of both the student and the
student’s parents. For students with divorced or separated parents, only one parent is required to report
information on the FAFSA; see “Definition of a Parent” later in this report. For dependent students, the EFC
formula has distinct treatments for income and assets depending on whether they are associated with the
student or the student’s parents.
Determining Eligibility for the Simplified Needs Test19
The full EFC formulas consider a range of data elements related to income and assets and make a
number of intermediate calculations to determine a student’s EFC. Not all students, however, are
subject to the full formulas. Applicants with certain characteristics and incomes below a specified
level are eligible for a simplified needs test (SNT) or an automatic zero EFC. The SNT does not
consider an applicant’s assets when calculating the EFC. Applicants who are eligible for the SNT
and fill out the FAFSA online are typically not prompted to enter asset information. This reduces
the number of questions these students must answer when completing the FAFSA.20
To be eligible for the SNT, the applicant must have an adjusted gross income (AGI) of less than
$50,000 and meet other criteria. For dependent students, the AGI limit applies only to the
student’s parents. For independent students, the AGI limit applies to the combined AGI of the
student and the student’s spouse, if any.
In addition to meeting the AGI limit, an applicant must meet at least one further qualification
from a list of criteria. For dependent students, these criteria generally apply to the student’s
18 See Section 480(k)(2) of the HEA (20 U.S.C. §1087vv(k)(2)).
19 The simplified needs test is established in Section 479 of the HEA (20 U.S.C. §1087ss). ED has issued clarified
eligibility criteria on this issue through the FAFSA and other guidance.
20 Some states require asset information for all applicants to determine eligibility for state-based aid. Because states get
data from the FAFSA, students who are residents of these states may be required to provide asset information even
though such information is not necessary for federal aid purposes.
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parents. For independent students, these criteria apply to the student and the student’s spouse, if
any. The statutory criteria are the following:21
Files a qualified tax form. Statute specifies that a student (or in the case of a
dependent student, a student’s parent) who files a 1040A or 1040EZ tax form
may be eligible for the SNT. The 1040A and 1040EZ tax forms were last used in
tax year 2017. More recent FAFSA forms ask about the filing of a Schedule 1
form for the purposes of determining SNT eligibility.22
Is not required to file a tax return. Dependent students are eligible if their parents
are not required to file a tax return. Independent students are eligible if neither
the student nor the student’s spouse, if any, is required to file a tax return.
Is a dislocated worker. Dependent students are eligible if one parent is a
dislocated worker. Independent students are eligible if the student or the student’s
spouse is a dislocated worker. A dislocated worker is a worker who has
involuntarily lost his or her job and meets other criteria.23
Received a qualified means-tested benefit in the prior 24 months. Qualified
benefits include Supplemental Security Income (SSI); the Supplemental Nutrition
Assistance Program (SNAP, formerly known as food stamps); free and reduced
price school lunch; Temporary Assistance for Needy Families (TANF); the
special supplemental nutrition program for women, infants, and children (WIC);
and other programs identified by the Secretary.24 ED has used this secretarial
discretion to add Medicaid to the qualified means-tested benefits.25
Automatic Zero EFC26
Some applicants who are eligible for the SNT may be further eligible for an automatic zero EFC.
This means that, regardless of other financial characteristics, the student qualifies for a zero EFC.
A zero EFC entitles the student to receive the maximum amount of need-based federal student
aid, given the student’s cost of attendance and enrollment rate. The automatic zero EFC is only
available to dependent students and independent students with dependents; it is not available to
independent students without dependents.
In AY2021-2022, a dependent student is eligible for the automatic zero EFC if the applicant is
eligible for the SNT and the student’s parents’ AGI was $27,000 or less. An independent student
21 See Section 479(b) of the HEA (20 U.S.C. §1087ss(b)) for full statutory language.
22 See, for example, question 35 of the AY2021-2022 FAFSA.
23 The HEA follows the definition of a dislocated worker in the Workforce Innovation and Opportunity Act (WIOA).
WIOA defines a dislocated worker as an individual who has been laid off, demonstrates labor force attachment (usually
through eligibility for unemployment compensation), and is unlikely to return to the same industry or occupation. See
29 U.S.C. 3102(15).
24 According to Section 479 the HEA (20 U.S.C. §1087ss), dependent students are eligible if the student or the
student’s parent received a qualified benefit. Independent students are eligible if the student or the student’s spouse
received a benefit. Subregulatory guidance has expanded this policy to include any person in the applicant family’s
household. For example, see questions 95-99 on the AY2021-2022 FAFSA.
25 See question 95 on the AY2021-22 FAFSA.
26 The “automatic zero” criteria are established in Section 479(c) of the HEA (20 U.S.C. §1087ss(c)). The income
levels in statute are updated annually per Section 478 (20 U.S.C. §1087rr).
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with dependents is eligible for the automatic zero EFC if the student is eligible for the SNT and
the AGI of the student and the student’s spouse (if applicable) was $27,000 or less.27
The automatic zero EFC is not the only way that an applicant may be eligible for a zero EFC. It is
possible that a student may have a zero EFC as a result of the SNT or a full EFC formula.
Figure 1. Determination of Dependency Status and Applicable EFC Formula
Source: CRS analysis of Part F of Title IV of the Higher Education Act.
Notes: Full criteria for the simplified needs test are in Section 479 of the HEA (20 U.S.C. §1087ss). Automatic
zero income threshold is based on AY2021-2022 levels and may be updated in subsequent years.
General Framework and Common Components of
the EFC Formulas
As noted previously, the EFC formulas consider the income and assets of the student and, if
applicable, the income and assets of the student’s parents or spouse. In the simplest terms, the
27 For the 2021-2022 automatic zero threshold, see ED’s 2021-2022 EFC Formula Guide at https://fsapartners.ed.gov/
sites/default/files/attachments/2020-08/2122EFCFormulaGuide.pdf.
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EFC is a specified portion of the applicant’s “available” income and assets in excess of allowable
“protections.” To calculate available income (or assets) it is necessary to calculate total income
(or assets) and then subtract the allowable protections.
Figure 2 illustrates the major steps in the calculation of the EFC for each dependency status.
There is some variation in the steps based on dependency status:
For dependent students, separate contributions are calculated on the basis of the
student’s financial resources and the financial resources of the student’s parents.
These contributions are then added together for the final EFC.
For parents of dependent students (but not dependent students themselves), and
independent students with dependents, there is an intermediate calculation of
“adjusted available income” (AAI). AAI is the sum of available income and the
contribution from assets. The AAI is used as the base to calculate the parents’ or
independent student’s final contribution.
For dependent students and independent students without dependents,
contributions from income and assets are calculated separately and then added
together. There is no AAI step for these students.
For parents of dependent students with more than one child in college, the parental contribution is
divided by the number of students in college before being added to the contribution of the student
for the final EFC. Similarly, independent students from families with more than one college
student have their final contributions divided by the number of family members in college.
Table 1 provides brief descriptions of the major factors used in the EFC formulas. This table is
followed by a more thorough description of the EFC formula for each dependency status.
Detailed descriptions of the factors used in the EFC formulas are in Appendix A of this report.
Notably, there is no difference in what financial resources are considered for students and relevant
family members of each dependency status, though there are differences in how these financial
resources are treated. For example, total income has the same definition across dependency
statuses, but the process to determine how much of an applicant’s income contributes to the EFC
varies across dependency statuses.
Which year’s tax information is reported on the FAFSA?
Since AY2017-2018, ED has exercised an authority in law that allows a student’s EFC to be calculated using
income and tax information from the year that is two years prior to the award year. For example, when
completing the FAFSA for AY2021-2022, students and relevant family members use tax information from calendar
year 2019.
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Figure 2. General Framework of EFC Calculation
For students subject to the full needs test
Source: CRS analysis of Part F of Title IV of the Higher Education Act.
Notes: For married independent students, the income and assets of the student’s spouse are considered with
the student’s income and assets. Assessment rates vary for income and assets and by dependency status.
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Table 1. Components of the Expected Family Contribution Formula
Factor or Components
Description
Total income =
Adjusted gross income
Taken from tax return; non-filers report earnings from work
+ Untaxed income
Income that is not considered for federal taxation but is considered by the EFC
formulas
- Excludable income
Income that is not considered by the EFC formulas
Available income =
Total income
Defined above
- Income protection allowance
Standard allowance based on dependency status, family size, and number of
students in college
- Federal income tax allowance
Allowance equal to actual federal income taxes
- Payroll tax allowance
Allowance equal to actual Social Security and Medicare taxes
- State and other tax allowance
Allowance calculated on the basis of total income and state of residence
- Employment expense allowance
Allowance for applicants from two-parent families in which both parents have
earnings or applicants from single-parent families with earnings
Available assets =
Total assets
Sum of cash, investments, and real estate; exemptions include retirement
accounts, equity in a primary residence, and qualified small businesses
- Asset protection allowance
A protection amount based on the age and marital status of the student (or, if
applicable, the student’s parents or spouse)
Contribution from assets =
Available assets
Defined above
x Asset conversion rate
The portion of available assets that may contribute to adjusted available income
or EFC
Adjusted available income =
Intermediate calculation; only used for parents of dependent students and
independent students with dependents
Available income
Defined above
+ Contribution from assets
Defined above
Contribution from available income / available
assets / adjusted available income =
Amount contributed to the EFC from each financial resource
Available income / available assets /
adjusted available income
Defined above
x Assessment rate
Percentage of applicable financial resource that contributes to the EFC
Source: CRS analysis of Part F of Title IV of the Higher Education Act.
Note: More detailed definitions for each term are in Appendix A.
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Formula A: Calculation of EFC for
Dependent Students28
The EFC formula for dependent students is different than the formulas for independent students
in that it considers the financial resources of both the student and the student’s parents. Under this
formula, one contribution is calculated for the student’s parents and a second contribution is
calculated for the student. The sum of the two contributions is the applicant’s EFC.
This section describes the full formula for dependent students. As noted previously, however, not
all applicants are subject to the full formula. Dependent students with parental income and other
characteristics that qualify for the simplified needs test are only subject to the income component
of the EFC formula (not the assets component). Applicants who qualify for the simplified needs
test with parental income that qualifies them for the automatic zero EFC are not subject to the
formula and receive a zero EFC.
Detailed definitions for terms in italics in this section are provided in Appendix A.
Calculating the Contribution for a Dependent Student’s Parents
Definition of a Parent
If the student’s parents are married, the EFC formula considers the income and assets of both
parents. Guidance has clarified that if the student’s parents are unmarried but living together, the
EFC formula will consider the financial resources of both parents.29
If the student’s parents are divorced or separated and living apart, the EFC formula only directly
considers, and the FAFSA only requires, financial information of one parent. The parent whose
finances are considered is the parent with whom the student resided with for the greater portion of
the 12-month period preceding the date of application. If that criterion does not apply, the EFC
formula considers the information of the parent who provided the greater portion of the student’s
support for the 12-month period preceding the date of application. If neither of the
aforementioned criteria apply, the formula considers the financial information of the parent who
provided the greater support during the most recent calendar year in which support was provided.
If the parent whose financial resources are considered by the EFC formula has remarried, the
financial resources of both the parent and stepparent are considered.30
There are several components of the EFC formula that may consider support from a parent who is
not formally included in the EFC calculation (e.g., a parent the student does not live with). Child
support received is considered untaxed income for the recipient parent. Money paid to or on
behalf of a child from a noncustodial parent that is not part of a legal child support agreement is
considered untaxed income for the student.31
28 This formula is established and described in Section 475 of the HEA (20 U.S.C. §1087oo).
29 Department of Education, Dear Colleague Letter GEN-13-12, April 29, 2013, http://www.ifap.ed.gov/dpcletters/
attachments/GEN1312.pdf.
30 See Section 475(f)(3) of the HEA (20 U.S.C. §1087oo(f)(3)).
31 See Section 480(b)(1)(F) of the HEA (20 U.S.C. §1087vv(b)(1)(F)) and question 44(i) of the AY2021-2022 FAFSA.
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Parental Available Income
Available income for parents of dependent students is equal to total income minus total
allowances against income. There are five allowances against income:
Income protection allowance (IPA). The IPA for parents of dependent students is
determined by the number of persons in the parents’ household and the number of
college students in the household. In AY2021-2022, the IPA for a family of four
with one student in college is $29,890.
Allowance for federal income taxes. This is equal to actual federal income taxes
paid.
Allowance for payroll taxes. This is equal to actual Social Security and Medicare
payroll taxes paid.
Allowance for state and other taxes. This is determined by the applicant’s total
income and state of residence. In AY2021-2022, the allowance varies from 1% to
9% of total income.32
Employment expense allowance (EEA). The EEA is an additional allowance
available to two-parent families in which both parents have earnings from work
or in one-parent families in which the parent has earnings from work.
The amount by which total income exceeds total allowances is considered available income.
Available income is one component of adjusted available income, which is described in a
subsequent step.
Parental Available Assets and Asset Conversion
Available assets for parents of dependent students equal total assets minus the asset protection
allowance (APA). The APA varies by the parent’s age (if a single parent) or the age of the older
parent (if married).
Parental available assets are then subject to an asset conversion rate of 12%. This means that 12%
of parental assets in excess of the APA contribute to adjusted available income, which is
described in the next step.
Parental Adjusted Available Income, Assessment, and Calculation of Parental
Contribution
Adjusted available income (AAI) for parents is equal to the sum of 100% of parental available
income and 12% (the asset conversion rate) of parental available assets. The AAI for parents of
dependent students is assessed at progressive rates. AAI levels, assessment rates, and
corresponding contributions are presented in Table 2. In cases where a family has more than one
student in college on at least a half-time basis, the parental contribution is divided by the number
of students enrolled in or accepted for enrollment in college. If, for instance, a family has two
students in college, the parental contribution is divided in half.
32 These percentages are for parents with income of $15,000 or more. The allowance for state and other taxes for
independent students with dependents and income of less than $15,000 is 1% higher in each state and ranges from 2%
to 10%.
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Table 2. Assessment Rates and Parental Contribution from
Adjusted Available Income
Award Year 2021-2022
If parental AAI is
Parental contribution is
Up to $17,400
22% of AAI
$17,401 to $21,800
$3,828 + 25% of AAI over $17,400
$21,801 to $26,200
$4,928 + 29% of AAI over $21,800
$26,201 to $30,700
$6,204 + 34% of AAI over $26,200
$30,701 to $35,100
$7,734 + 40% of AAI over $30,700
$35,101 or more
$9,494 + 47% of AAI over $35,100
Source: 2021-2022 EFC Formula Guide, Table 8, https://fsapartners.ed.gov/sites/default/files/attachments/202008/2122EFCFormulaGuide.pdf, based on Sections 475 and 478 of the Higher Education Act.
a. In cases where the AAI is negative, the contribution is adjusted to zero. See Formula A, line 28 in the
Formula Guide and Section 475(b)(3) of the HEA.
Similar to progressive rates in the income tax system, higher assessment rates only apply to the
portion of AAI above the threshold. For example, a parental unit with one student in college and
an AAI of $23,000 in AY2021-2022 would have the first $17,400 assessed at 22% (contributing
$3,828 to the EFC), the next $4,400 assessed at 25% (adding $1,100 to the EFC), and the
remaining $1,200 assessed at 29% (adding $348 to the EFC). The final parental contribution to
the EFC in this scenario would be $5,276 ($3,828+$1,100+$348).
The 12% asset conversion rate in the prior step means that assets are assessed in two stages. In
practice, this means that additional dollars of income and additional dollars of assets have
different effects on the EFC. For example, if a dependent student’s parents have one child in
college and an AAI above $35,100 (therefore subjecting additional financial resources to the
highest 47% assessment rate) and the parents’ available income increases by $100, the parents’
AAI will increase by $100 and parental contribution to the EFC will increase by $47. Conversely,
if the same parents instead report a $100 increase in available assets, the AAI will only increase
by $12 due to the 12% asset conversion rate in the prior step and the parental contribution to the
EFC will only increase by $5.64 (47% of $12).
Calculating the Contribution for a Dependent Student
In addition to the parents’ financial resources, the EFC formula for a dependent student considers
the personal financial resources of the student. Financial support from a student’s parents whose
financial information is reported on the FAFSA is not considered in calculating a dependent
student’s income or assets.
Dependent Student Available Income, Assessment, and Contribution
from Income
Available income for dependent students is total income minus total allowances against income.
Four allowances against income are applied to dependent students’ total income:33
33 The fifth allowance against income, the Employment Expense Allowance, is not available to dependent students.
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Income protection allowance (IPA). The IPA for dependent students in AY20212022 is $6,970.
Allowance for federal income taxes. This is equal to actual federal income taxes
paid.
Allowance for payroll taxes. This is equal to actual Social Security and Medicare
payroll taxes paid.
Allowance for state and other taxes. This is determined by the dependent
student’s total income and state of residence. In AY2021-2022, this allowance
ranges from 0% to 7% of total income.
The assessment rate for available income for dependent students is 50%. In practice, this means
that once a student’s income exceeds allowances, an increase in income of $2 will increase the
student’s contribution by $1.
Dependent Student Assets, Assessment, and Contribution from Assets
There is no asset protection allowance for dependent students. Thus, a dependent student’s total
assets are considered available assets and are assessed at a 20% rate.
A notable exception to this treatment of assets is the treatment of an education savings account
(such as a 529 account) that is owned by a dependent student. In this case, the education savings
account is considered an asset of the student’s parent. This leads to a more favorable treatment of
the asset than if it was assessed as a dependent student’s asset.
Dependent Student Contribution
The contribution of a dependent student is the sum of the dependent student’s contribution from
income and contribution from assets.
Final EFC for a Dependent Student
The final EFC for a dependent student is the sum of the parental contribution and the dependent
student’s contribution. In cases where the family has more than one student enrolled in or
accepted to college for the award year, the parental contribution is divided by the number of
students expected to be enrolled in the upcoming year. The contribution of the dependent student
is not divided by the number of students in college.
Formula B: Calculation of EFC for Independent
Students without Dependents34
The calculation of the EFC for an independent student without dependents considers the financial
resources of the student and, if applicable, the student’s spouse. For the purposes of calculating
total income and total assets of a married student, the couple is considered a single unit.
This section describes the full formula for independent students without dependents. Some
independent students without dependents may qualify for the simplified needs test and therefore
not be subject to the full formula.
34 See Section 476 of the HEA (20 U.S.C. §1087pp).
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Detailed definitions for each term in italics are provided in Appendix A.
Available Income, Assessment, and Contribution from Income
Available income is total income minus total allowances against income. There are five
allowances against income:
Income protection allowance (IPA). The IPA for an independent student without
dependents in AY2021-2022 is $10,840 for an unmarried student or a married
student whose spouse is enrolled at least half time. The AY2021-2022 IPA for a
married student whose spouse is not enrolled in higher education at least half
time is $17,380.
Allowance for federal income taxes. This is equal to actual federal income taxes
paid.
Allowance for payroll taxes. This is equal to actual Social Security and Medicare
payroll taxes paid.
Allowance for state and other taxes. This is determined by the applicant’s total
income and state of residence. In AY2021-2022, the allowance varies from 0% to
7% of total income.
Employment expense allowance (EEA). Independent students are eligible for the
EEA only if (1) the student is married and (2) both the student and the student’s
spouse have earnings from work.
The “contribution from income” for independent students without dependents is equal to 50% of
available income. In practice, this means that a $2 increase to the available income of an
independent student without dependents will increase the student’s contribution from income
by $1.
Available Assets, Asset Conversion Rate, and Contribution
from Assets
For independent students, available assets are total assets minus the asset protection allowance
(APA). The asset protection allowance for independent students is based on the marital status and
age of the student. APA levels are presented in Appendix A. As noted previously, the APA levels
for independent students are the same as the APA levels for parents of dependent students, except
that the age variable aligns with the age of the student instead of the age of the older parent.
The asset conversion rate for independent students without dependents is 20%. Thus, the
“contribution from assets” is 20% of assets in excess of the APA.
Calculation of EFC
The EFC is the sum of the applicant family’s contribution from income and contribution from
assets. The EFC can also be considered the sum of 50% of the applicant family’s available
income and 20% of the applicant family’s available assets. In cases where both the student and
the student’s spouse are enrolled in college, each student’s EFC is divided by two.
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Formula C: Calculation of EFC for Independent
Students with Dependents35
The calculation of the EFC for an independent student with dependents considers the financial
resources of the student and, if applicable, the student’s spouse. For the purposes of calculating
total income and total assets of a married student, the couple is considered a single unit. Income
or assets of an independent student’s dependents are not considered by the EFC formula.
This section describes the full formula for independent students with dependents. As noted in the
“Determining Eligibility for the Simplified Needs Test” section, an independent student who
qualifies for the simplified needs test is only subject to the income components of the EFC
formula (not the assets components). An independent student with dependents who qualifies for
the simplified needs test and the automatic zero is not subject to the formula and receives a zero
EFC.
Detailed definitions for the terms in italics are provided in Appendix A.
Available Income
Available income is total income minus total allowances against income. There are five
allowances against income:
Income protection allowance (IPA). The IPA is determined on the basis of the
number of persons in the student’s household and the number of college students
in the household. In AY2021-2022, the IPA level for a student from a family of
four with one person in college is $42,200.
Allowance for federal income taxes. This is equal to actual federal income taxes
paid.
Allowance for payroll taxes. This is equal to actual Social Security and Medicare
payroll taxes paid.
Allowance for state and other taxes. This is determined by the applicant’s total
income and state of residence. In AY2021-2022, the allowance varies from 1% to
9% of total income.36
Employment expense allowance (EEA). The EEA is available to two-parent
families in which both parents have earnings from work or in one-parent families
in which the parent has earnings from work.
The amount by which total income exceeds total allowances is considered available income.
Available income is one component of adjusted available income, which is described in a
subsequent step.
35 See Section 477 of the HEA (20 U.S.C. §1087qq).
36 These percentages are for independent students with dependents with income of $15,000 or more. The allowance for
state and other taxes for independent students with dependents and income of less than $15,000 is 1% higher in each
state and ranges from 2% to 10%.
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Available Assets and Asset Conversion
Available assets equal total assets minus the asset protection allowance (APA). The APA varies
by the student’s marital status and the age of the student. The APA levels for independent students
with and without dependents are the same.
Available assets are then subject to an asset conversion rate of 7%. This means that 7% of assets
in excess of the APA contribute to adjusted available income, which is described in the next step.
Adjusted Available Income, Assessment, and Calculation of EFC
Adjusted available income (AAI) for independent students is the sum of 100% of available
income and 7% (the asset conversion rate) of available assets of the student and, if applicable, the
student’s spouse. The AAI is assessed to calculate EFC. In cases where a family has more than
one student enrolled in or accepted for enrollment in college, the EFC is divided by the number of
students.
AAI is assessed at a progressive rate. AAI levels, assessment rates, and corresponding
contributions are presented in Table 3.37
Table 3. Assessment Rates and Expected Family Contribution from AAI,
Independent Students with Dependents
Award Year 2021-2022
If the applicant’s AAI is
Contribution from AAI
Up to $17,400a
22% of AAI
$17,401 to $21,800
$3,828 + 25% of AAI over $17,400
$21,801 to $26,200
$4,928 + 29% of AAI over $21,800
$26,201 to $30,700
$6,204 + 34% of AAI over $26,200
$30,701 to $35,100
$7,734 + 40% of AAI over $30,700
$35,101 or more
$9,494 + 47% of AAI over $35,100
Source: 2021-2022 EFC Formula Guide, Table 8, https://fsapartners.ed.gov/sites/default/files/attachments/202008/2122EFCFormulaGuide.pdf, based on Sections 477 and 478 of the HEA.
a. In cases where the AAI is negative, the contribution is adjusted to zero. See Formula C, line 26 in the
Formula Guide and Section 477(a)(4)(B) of the HEA.
Similar to progressive rates in the income tax system, higher assessment rates only apply to the
portion of AAI above the threshold. For example, a parental unit with one student in college and
an AAI of $23,000 in AY2021-2022 would have the first $17,400 assessed at 22% (contributing
$3,828 to the EFC), the next $4,400 assessed at 25% (adding $1,100 to the EFC), and the
remaining $1,200 assessed at 29% (adding $348 to the EFC). The final parental contribution to
the EFC in this scenario would be $5,276 ($3,828+$1,100+$348).
The 7% asset conversion in the prior step means that assets are assessed in two stages. In practice,
this means that additional dollars of income have a substantially larger effect on the EFC than an
equal number of additional dollars of assets. For example, if an applicant has an AAI above
37 The assessment thresholds and rates for independent students with dependents are the same as those for parents of
dependent students. Because independent students with dependents are subject to a higher IPA than parents of
dependent students, independent students with dependents will typically have a lower EFC than financially similar
parents of dependent students, in spite of the common assessment thresholds and rates.
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$35,100 (therefore subjecting additional financial resources to the highest 47% assessment rate)
and the applicant’s available income increases by $100, the applicant’s AAI will increase by $100
and the EFC will increase by $47. Conversely, if the same applicant instead sees a $100 increase
in available assets, the applicant’s AAI will only increase by $7 due to the 7% asset conversion
rate in the prior step and the EFC will only increase by $3.29 (47% of $70).
Table 4. Summary of Final Assessment by Dependency Status
Dependency Status
Effect on EFC of
Additional $100 of
Income or Assets
What is Assessed
Assessment Rate
Parents of
dependent student
Adjusted available
income
(Sum of 100% of
available income and
12% of available assets)
22% to 47%, with higher
levels of adjusted
available income
assessed at higher rates
(see Table 2)
$100 increase in
available income will
increase EFC between
$22 and $47
$100 increase in
available assets will
increase EFC between
$2.64 and $5.64.
Dependent student
Available income,
Available assets
50% of available income,
20% of available assets
$100 increase in
available income will
increase EFC by $50.
$100 increase in
available assets will
increase EFC by $20.
Independent student
without dependents
Available income,
Available assets
50% of available income,
20% of available assets
$100 increase in
available income will
increase EFC by $50.
$100 increase in
available assets will
increase income by $20.
Independent student
with dependents
Adjusted available
income
(Sum of 100% of
available income and 7%
of available assets)
22% to 47%, with higher
levels of adjusted
available income
assessed at higher rates
(see Table 3)
$100 increase in
available income will
increase EFC between
$22 and $47.
$100 increase in
available assets will
increase EFC between
$1.54 and $3.29.
Dependent student
Source: CRS analysis of Part F of Title IV the Higher Education Act.
Notes: Effect on the EFC assumes one student in college. Effect of additional assets assumes available assets
above zero.
Professional Judgment and Students with Unusual
Circumstances
In some cases where a family is subject to unusual financial circumstances, the EFC formulas
may not accurately reflect a family’s current ability to contribute to educational expenses. The
HEA gives individual schools’ financial aid administrators (FAAs) limited authority “on the basis
of adequate documentation, to make adjustments on a case-by-case basis to the cost of attendance
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or the values of the data items required to calculate the expected student or parent contribution (or
both) to allow for treatment of an individual eligible applicant with special circumstances.”38
Such adjustments are commonly known as professional judgment (PJ).
The HEA provides a nonexhaustive list of circumstances that might qualify for PJ. These include
unusually high medical, dental, or nursing home expenses as well as unusually high dependent
care costs. An applicant may also be eligible for PJ if the data provided on the FAFSA do not
accurately reflect the family’s current financial circumstances. For example, a student may
request PJ if the family recently experienced a job loss of a primary earner or other substantial
changes to the family’s income or assets.
When exercising PJ, the FAA may not directly change the student’s EFC. The administrator may
only change suitable input data that may reduce the EFC. For example, if a family experienced
the job loss of a primary earner, the FAA may reduce the applicant’s income level to more
accurately reflect the family’s anticipated income in the coming year.
In very limited cases, FAAs may be able to classify a student as independent when the student
does not meet any of the statutory criteria for independent students (“dependency override”).
Guidance from ED notes that a student may not be classified as independent on the basis of total
self-sufficiency or because the student’s parents refuse to provide information or contribute
financially to the student’s education. Circumstances that may trigger a dependency override
include abandonment by parents, an abusive family environment that threatens the student’s
safety or health, or the student being unable to locate his or her parents.39
In all cases of PJ, the FAA is required to document evidence of the circumstances. This
documentation may be necessary if the school is audited and has to produce evidence for the
adjustment of data used to calculate the EFC.
Forthcoming Changes to the Need Analysis
Formulas under the FAFSA Simplification Act
As noted at the beginning of the report, the FAFSA Simplification Act (FSA; Title VII, Division
FF, P.L. 116-260) will make significant changes to the HEA’s need analysis approach and
formulas. This section briefly describes some major provisions and compares them to current law.
For a more detailed description of the FSA, see CRS Report R46909, The FAFSA Simplification
Act.
The statute specifies that the changes under the FSA will take effect on July 1, 2023, to coincide
with the beginning of the 2023-2024 award year. The Department of Education has announced
that some changes authorized by the FSA may not be fully implemented until the 2024-2025
award year.40
38 See Section 479A of the HEA (20 U.S.C. §1087tt).
39 More information on PJ and dependency overrides is in the “Application and Verification Guide” section of the
2021-2022 Federal Student Aid Handbook, beginning on p. AVG-87. The full Application and Verification Guide is
available at https://fsapartners.ed.gov/sites/default/files/2021-07/2122FSAHbkAVGMaster_1.pdf.
40 U.S. Department of Education, “Beginning Phased Implementation of the FAFSA Simplification Act,” June 11,
2021, GEN-21-39, at https://fsapartners.ed.gov/knowledge-center/library/electronic-announcements/2021-06-11/
beginning-phased-implementation-fafsa-simplification-act-ea-id-general-21-39.
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Significant need analysis in the FSA changes include the following:
Rename the EFC the student aid index or SAI and allow negative SAI levels.
The SAI is a similar indicator to the EFC. It is a dollar amount that synthesizes
personal and financial characteristics to estimate the ability of applicants to pay
for postsecondary education. Unlike the EFC, the SAI can be a negative
number.41
Reduction of formula factors. The FSA will eliminate a number of formula
factors (primarily untaxed income and excludable income) that were considered
in the calculation EFC but will not be considered in the calculation SAI. The
reduction of factors, combined with the implementation of provisions of the
FUTURE Act (P.L. 116-91) that require student aid applicants to authorize the
Internal Revenue Service to share certain elements of tax returns for FAFSA
completion purposes, will likely reduce the amount of information that applicants
must provide when completing the FAFSA.42
Replace Automatic Zero EFC with simplified need determinations based on
eligible adjusted gross income (AGI) levels. Applicants with an AGI above zero
and below specified percentages of poverty and applicants who are not required
to file tax returns will qualify for a maximum Pell Grant and an SAI of zero or
less. The maximum grant threshold is an AGI of either (1) 225% of poverty for
single parents of dependent students and single independent students with
dependents or (2) 175% of poverty for married parents of dependent students,
independent students without dependents, and married independent students with
dependents.
Changes to the family-specific procedures. The FSA makes several changes
regarding how family-specific factors will impact need calculations. Dependent
students with divorced or separated parents will now report the information of
“the parent who provides the greater portion of the student’s financial support.”
The SAI formula will no longer make adjustments for families with more than
one member in college.
Changes to IPA levels. The FSA will increase IPA levels, protecting a greater
amount of income and reducing the amount of income that is considered when
calculating the SAI. Relative to prior levels, the increases for parents of
dependent students are less than the increases for dependent students,
independent students without dependents, and independent students with
dependents.
Elimination of allowance for state and local taxes. The SAI calculation will
not include an allowance for state and local taxes.
Modification to dependency override procedures and provisional
independent student status. The law codifies new procedures related to
dependency overrides and establishes a procedure by which certain students can
complete the FAFSA as a provisional independent student prior to formally
establishing eligibility for a dependency override.
41 The SAI may not be less than -$1,500. A negative SAI does not entitle a student to a higher Pell Grant or more
access to subsidized loans than a zero SAI.
42 The FUTURE Act will require FAFSA filers to grant consent for the IRS to share relevant tax return information
directly with ED for the purposes of completing the FAFSA. For more information, see CRS Report R46400, The
FUTURE Act (P.L. 116-91): Amendments to the Higher Education Act and Internal Revenue Code.
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Appendix A. Detailed Definitions and
AY2021-2022 Levels
A number of terms and formula factors are defined similarly across EFC formulas. This appendix
provides detailed definitions of each of these terms and factors. The definitions in this report are a
combination of statute and subsequent agency guidance. In cases where a factor is quantitative
and revised annually, this report provides the most recent level from AY2021-2022.43
Total income
Total income consists of three factors: (1) adjusted gross income (AGI) and (2) untaxed income,
both of which contribute to the total income; and (3) excludable income, which reduces it.
Total Income = Adjusted Gross Income + Untaxed Income – Excludable Income
AGI comes from the applicant’s prior-year tax return. AGI is the sum of income that is
considered for the purposes of federal taxation.44 If the applicant did not have to file a tax return
in the prior year, the applicant declares any earnings from the prior year and these earnings
substitute for the AGI.
Untaxed Income
The EFC formulas consider some forms of income that are excluded from federal taxation.
Untaxed income that is considered by the EFC formulas includes the following:45
child support received for any of a parent’s children, but not including foster care
or adoption payments;
payments to tax-deferred pension and retirement savings plans;
IRA deductions and payments to self-employed SEP, SIMPLE, Keogh, and other
qualified plans;
tax-exempt interest income;
untaxed portions of IRA distributions, excluding rollovers;
untaxed portions of pensions, excluding rollovers;
housing, food, and other living allowances paid to members of the military,
clergy, and others (including cash payments and cash value of benefits), not
including the value of on-base military housing or the value of a basic military
allowance for housing;
veterans noneducation benefits, such as Disability, Death Pension, or
Dependency and Indemnity Compensation and/or VA Educational Work-Study
allowances;
43 Updated factor levels were published (and in some cases, corrected) throughout the year in the Federal Register.
Final levels were collected in the 2021-2022 EFC Formula Guide at https://fsapartners.ed.gov/sites/default/files/
attachments/2020-08/2122EFCFormulaGuide.pdf.
44 Taxable income may be lower than AGI due to exemptions and deductions.
45 See Section 480(b) of the HEA (20 U.S.C. §1087vv((b)). Definitions in this report also reflect additional clarification
and instruction from the AY2021-2022 FAFSA.
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money received, or paid on the student’s behalf, not reported elsewhere on the
FAFSA, including money received from a parent whose financial information is
not reported on the FAFSA and that is not part of a legal child support agreement,
but excluding money paid on a dependent student’s behalf by parents whose
information is included on the FAFSA; and
other untaxed income not otherwise reported, such as workers’ compensation,
disability, etc., but not including extended foster care benefits, student aid, earned
income credit, additional child tax credit, welfare payments, untaxed Social
Security benefits, Supplemental Security Income, Workforce Innovation and
Opportunity Act educational benefits, on-base military housing or a military
housing allowance, combat pay, benefits from flexible spending arrangements
(e.g., cafeteria plans), foreign income exclusion, or credit for federal tax on
special fuels.
Excludable Income
Excludable income is income not considered for the purposes of federal student aid. Excludable
income is subtracted from the sum of AGI and untaxed income. Excludable income includes the
following:46
education tax credits claimed under Section 25A of the Internal Revenue Code;47
child support paid by the student or parent because of a divorce or separation or
as a result of a legal requirement;
taxable earnings from a need-based employment program, such as federal work
study and need-based employment portions of fellowships to assistantships;
taxable student grant and scholarship aid reported to the IRS in adjusted gross
income, including AmeriCorps benefits as well as grant and scholarship portions
of fellowships and assistantships;
taxable combat pay, including special combat pay; and
earnings from work under a cooperative education program offered by an
institution of higher education.
Allowances Against Income
Allowances against income (also known as “protections”) offset total income as calculated in the
prior step. Allowances have the effect of exempting some (or potentially all) of the applicant’s
income from contributing to the EFC. The allowances are designed to exempt nondiscretionary
income (such as taxes and very basic living expenses) from the EFC calculation. The allowances
46 See Section 480(e) of the HEA. Definitions in the report also reflect additional clarification and instruction from the
AY2018-2019 FAFSA. On the FAFSA, information related to excludable income is collected under the heading
“Additional Financial Information.”
47 Information on education tax credits is collected alongside excludable income on the FAFSA and is added to other
forms of excludable income on the EFC worksheets and formula guides. In statute, however, education tax credits are
not listed as a form of excludable income in Section 480(e) and are instead listed as an allowance within the formulas
for each dependency status (for example, see Section 476(b)(1)(A)(v) for its application in the formula for independent
students without dependents). This report follows the EFC worksheets and formula guides and includes education tax
credits as a form of excludable income. Whether education tax credits are considered as part of excludable income or as
a separate allowance has no effect on the EFC.
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mean that applicants are not expected to contribute to educational expenses from their “first
dollar” of income.
There are five allowances against income.48 The sum of these five allowances is the total
allowance against income, which is used to calculate available income (described in the next
section). Certain components of the allowances against income vary by dependency status. Some
allowances are “fixed” and are the same for all applicants with certain characteristics while other
allowances vary by an applicant’s financial characteristics and income level.
Allowance Against Income #1: Income Protection Allowance
The Income Protection Allowance (IPA) is designed to exclude income for very basic living
expenses from contributing to the applicant’s EFC. The IPA is determined by the applicant’s
dependency status and family size, and the number of students in the family enrolled in college.
IPA levels for applicants of each dependency status are established in statute and updated each
year. Typically, a schedule of annual IPA increases is established during a reauthorization and ED
is directed to calculate increases in award years beyond those established in statute. The most
recent statutorily specified IPA levels were in AY2012-2013. Since then, IPA levels have been
subject to annual inflationary increases. ED-calculated increases are based on projected levels of
inflation and are published annually in the Federal Register.
Table A-1. Income Protection Allowances for Parents of Dependent Students
For AY2021-2022
Number of Family Members in College
Family Size
(including
student)
1
2
3
4
5
2
$19,440
$16,110
—
—
—
3
$24,200
$20,900
$17,570
—
—
4
$29,890
$26,570
$23,260
$19,930
—
5
$35,270
$31,940
$28,640
$25,310
$22,000
6
$41,250
$37,930
$34,620
$31,300
$27,990
Source: EFC Formula Guide for Award Year 2021-2022, Table 4, https://fsapartners.ed.gov/sites/default/files/
attachments/2020-08/2122EFCFormulaGuide.pdf.
Notes: For family size above six, add $4,660 for each additional family member. For family members in college
above five, subtract $3,310 for each additional family member in college.
48 An additional allowance equal to education tax credits claimed under Section 25A of the Internal Revenue Code is
listed in statutory formula for each dependency status alongside the other allowances against income. For example, see
the formula for parents of dependent students in Section 477(b)(1)(F) of the HEA (20 U.S.C. §1087qq(b)(1)(F)).
However, as noted in the previous footnote, the FAFSA collects information related to education tax credits along with
other forms of excludable income and most student aid worksheets calculate tax credits as part of excludable income.
This report follows these documents and lists education tax credits in the excludable income section later in this report.
Whether tax credits are claimed as an allowance or added to excludable income does not affect the EFC.
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Table A-2. Income Protection Allowance for Dependent Students
For AY2021-2022
All Dependent Students
$6,970
Source: EFC Formula Guide for Award Year 2021-2022, Formula A, line 39, https://fsapartners.ed.gov/sites/
default/files/attachments/2020-08/2122EFCFormulaGuide.pdf.
Table A-3. Income Protection Allowance for Independent Students
without Dependents
For AY2021-2022
Status
Income Protection Allowance
Student is single, separated, divorced, or widowed
$10,840
Student is married and spouse is enrolled at least half
time
$10,840
Student is married and spouse is not enrolled at least
half time
$17,380
Source: EFC Formula Guide for Award Year 2021-2022, Formula B, line 12, https://fsapartners.ed.gov/sites/
default/files/attachments/2020-08/2122EFCFormulaGuide.pdf.
Table A-4. Income Protection Allowances for Independent Students
with Dependents
For AY2021-2022
Number of Family Members in College
Family Size
(including
student)
1
2
2
$27,450
$22,760
—
—
—
3
$34,180
$29,510
$24,810
—
—
4
$42,200
$37,520
$32,850
$28,150
—
5
$49,800
$45,100
$40,430
$35,750
$31,080
6
$58,240
$53,550
$48,900
$44,180
$39,520
3
4
5
Source: EFC Formula Guide for Award Year 2021-2022, Table 5, https://fsapartners.ed.gov/sites/default/files/
attachments/2020-08/2122EFCFormulaGuide.pdf.
Notes: For family size above six, add $6,580 for each additional family member. For family members in college
above five, subtract $4,670 for each additional family member in college.
Allowance Against Income #2: Allowance for Federal Income Taxes
This allowance reflects actual federal income taxes for the reference year. This information is
available from tax returns. If the applicant or relevant family member has not yet filed a tax return
at the time of filling out the FAFSA, the applicant may estimate income taxes and later correct the
FAFSA.
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Allowance Against Income #3: Allowance for Federal Payroll Taxes49
This allowance is designed to reflect actual federal payroll taxes (Social Security taxes plus
Medicare taxes), and is calculated on the basis of earnings from work. The allowance equals
7.65% of each earner’s earnings up to a maximum ($118,500 in the AY2018-2019 formula) and
1.45% of earnings above that maximum. The maximum applies on a per-earner basis, so if
multiple earners are considered on an application (for example, two parents and a student), each
earner’s payroll tax allowance is calculated separately.
Allowance Against Income #4: Allowance for State and Other Taxes
This allowance aims to reflect estimated nonfederal taxes, and is calculated on the basis of total
income and state of residence. There is variation among states. Allowances for each state are
established in statute but are updated each year after ED reviews the Department of the
Treasury’s Statistics of Income file and the determination of the percentage of income that each
state’s taxes represent.50 Updated allowance percentages are published each year in the Federal
Register.
The allowance percentage for residents of each state varies based on dependency status.
Table A-5. Allowances for State and Other Taxes by Dependency Status
AY2021-2022
Parents of a
Dependent
Studenta
Dependent
Student
Independent
Student without
Dependents
Independent
Student with
Dependentsb
Alabama
2%
2%
2%
2%
Alaska
1%
0%
0%
1%
Arizona
3%
2%
2%
3%
Arkansas
3%
3%
3%
3%
California
8%
6%
6%
8%
Colorado
3%
3%
3%
3%
Connecticut
8%
5%
5%
8%
Delaware
4%
3%
3%
4%
District of Columbia
6%
6%
6%
6%
Florida
2%
1%
1%
2%
Georgia
4%
4%
4%
4%
Hawaii
4%
4%
4%
4%
Idaho
4%
4%
4%
4%
Illinois
5%
3%
3%
5%
Indiana
3%
3%
3%
3%
Iowa
4%
3%
3%
4%
State
49 Statute refers to this allowance as offsetting “Allowance for Social Security taxes,” though the EFC Formula Guide
calculates an allowance that is designed to reflect payroll taxes for both Social Security taxes as well as Medicare taxes.
50 See Section 478(g) of the HEA (20 U.S.C. §1087rr(g)).
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Parents of a
Dependent
Studenta
Dependent
Student
Independent
Student without
Dependents
Independent
Student with
Dependentsb
Kansas
3%
3%
3%
3%
Kentucky
4%
4%
4%
4%
Louisiana
2%
2%
2%
2%
Maine
5%
3%
3%
5%
Maryland
7%
6%
6%
7%
Massachusetts
6%
4%
4%
6%
Michigan
4%
3%
3%
4%
Minnesota
6%
5%
5%
6%
Mississippi
2%
2%
2%
2%
Missouri
4%
3%
3%
4%
Montana
4%
3%
3%
4%
Nebraska
4%
3%
3%
4%
Nevada
2%
1%
1%
2%
New Hampshire
3%
1%
1%
3%
New Jersey
8%
5%
5%
8%
New Mexico
2%
2%
2%
2%
New York
9%
7%
7%
9%
North Carolina
4%
3%
3%
4%
North Dakota
1%
1%
1%
1%
Ohio
4%
3%
3%
4%
Oklahoma
2%
2%
2%
2%
Oregon
6%
5%
5%
6%
Pennsylvania
4%
3%
3%
4%
Rhode Island
5%
4%
4%
5%
South Carolina
3%
3%
3%
3%
South Dakota
1%
1%
1%
1%
Tennessee
1%
1%
1%
1%
Texas
2%
1%
1%
2%
Utah
4%
4%
4%
4%
Vermont
5%
3%
3%
5%
Virginia
5%
4%
4%
5%
Washington
2%
1%
1%
2%
West Virginia
2%
3%
3%
2%
Wisconsin
5%
4%
4%
5%
Wyoming
1%
1%
1%
1%
State
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Source: EFC Formula Guide for Award Year 2021-2022, Tables 1 and 2, https://fsapartners.ed.gov/sites/default/
files/attachments/2020-08/2122EFCFormulaGuide.pdf.
a. Percentage in table reflects the allowance for state and other taxes for parents of dependent students with
incomes of $15,000 or more. In the case of parents of dependent students with incomes below $15,000, the
allowance for state and other taxes is 1% higher than in the table.
b. Percentage in table reflects the allowance for independent students with dependents with incomes of
$15,000 or more. In the case of independent students with dependents with incomes below $15,000, the
allowance for state and other taxes is 1% higher than in the table.
Allowance Against Income #5: Employment Expense Allowance
The Employment Expense Allowance (EEA) provides an additional allowance to two-adult
households in which both adults have earnings from work and to one-adult households with
dependents and earnings from work. The EEA is available to parents of dependent students,
married independent students without dependents, and independent students with dependents. It is
not available to dependent students themselves or unmarried independent students without
dependents. The maximum EEA is 35% of the earnings of the lower-earning adult or $4,000,
whichever is less.
Available Income
Available income is the difference between total income and the sum of the five allowances
against income. In some cases where total allowances against income are greater than total
income, available income can be zero or negative.
Total Assets
The consideration of assets aims to reflect financial resources that are not reflected in income.
Assets are only considered when applicants do not qualify for the simplified needs test (SNT).
Applicants who do qualify for the SNT do not have to provide asset information for federal
student aid purposes.51
Statute and some federal documents use both “assets” and “net worth” interchangeably for
various stages of asset calculations. In the interest of uniformity, this report uses “assets.”
The HEA defines assets as
[C]ash on hand, including the amount in checking and savings accounts, time deposits,
money market funds, trusts, stocks, bonds, other securities, mutual funds, tax shelters,
qualified education benefits ... and the net value of real estate, income producing property,
and business and farm assets.52
Exemptions and Special Treatments of Assets
There are substantial exemptions that exclude some assets from being considered in the
calculation of total assets. These exemptions include the following:
Home equity. The family’s “principal place of residence” or “a family farm on
which the family resides” is excluded in the calculation of total assets.
51 In some cases, a state will consider an applicant’s assets even if the student qualifies for the federal SNT. In these
cases, the online FAFSA will still ask the applicant asset questions as they might relate to state student aid.
52 See Section 480(f)(1) of the HEA (20 U.S.C. §1087vv(f)(1)).
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Retirement accounts. These accounts are not mentioned in the definition in law.
Agency guidance explicitly excludes them.
Family-owned businesses. Statute excludes from a family’s assets “a small
business with not more than 100 full-time equivalent employees ... that is owned
and controlled by the family.”53
Possessions. The values of cars, jewelry, and other tangible items are not
considered assets by the EFC formulas.
The value of a non-exempt businesses or farm is adjusted so that it is considered an asset at less
than 100% of its value. The value is adjusted at a progressive rate. In AY2021-2022, the adjusted
value of a non-exempt business or farm worth up to $140,000 is 40% of its value. The percentage
increases at higher values and 100% of the value of a business in excess of $695,000 is
considered an asset of the family.54
Education Savings Accounts
Balances of education savings accounts (such as those commonly known as 529 accounts) are
counted as an asset in calculating the EFC. In the case of dependent students, education savings
accounts that are owned by the dependent student are considered assets of the student’s parents.
Because assets of parents are treated more favorably by the EFC formula than assets of dependent
students, this results in a lower EFC than if the account were considered as an asset of the student.
Disbursements from education savings accounts that are owned by a student or a parent of a
dependent student are not reported on the FAFSA. Disbursements from education savings
accounts that are not owned by a student or a parent of a dependent student and therefore not
reported on the FAFSA (such as an account owned by a grandparent) are considered untaxed
income.
Asset Protection Allowance
As is the case with income, an allowance against assets means that only non-exempt assets in
excess of the allowance contribute to the EFC. Unlike the multiple allowances against income,
the HEA has a single allowance against assets called the “Education Savings and Asset Protection
Allowance.” This allowance is also referred to as the “Asset Protection Allowance.” This report
will follow the terminology used in ED documents and refer to it as the Asset Protection
Allowance (APA).
The APA varies by the age and marital status of the student’s older parent (in the case of parents
of a dependent student) or by the age and marital status of the student (in the case of an
independent student). The APA increases with the age of the applicable parent or student.
Dependent students are not eligible for an APA. This means that dependent students’ assets
(except for an education savings account, which is considered an asset of the parent) are assessed
from the “first dollar.”
APA levels were established in statute (by the 1992 HEA amendments) and are updated by ED
each year. Updated levels are published in the Federal Register alongside updated income
53 See Section 480(f)(2)(C) of the HEA (20 U.S.C. §1087vv(f((2)).
54 Full information on the adjustments of the value of these assets is in the formulas for each dependency status in
Sections 475, 476, and 477 of the HEA (20 U.S.C. §1087oo-1087qq). Levels for AY2021-2022 were published in
Table 6 of the EFC Formula Guide for Award Year 2021-2022 at https://fsapartners.ed.gov/sites/default/files/
attachments/2020-08/2122EFCFormulaGuide.pdf.
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allowances. Updates to the APA are not based on inflation. Instead, the HEA specifies that the
APA level for a given year is
developed by determining the present value cost, rounded to the nearest $100, of an annuity
that would provide, for each age cohort of 40 and above, a supplemental income at age 65
(adjusted for inflation) equal to the difference between the moderate family income (as
most recently determined by the Bureau of Labor Statistics), and the current average social
security retirement benefits. For each age cohort below 40, the allowance shall be
computed by decreasing the allowance for age 40, as updated, by one-fifteenth for each
year of age below age 40 and rounding the result to the nearest $100. In making such
determinations(1) inflation shall be presumed to be 6 percent per year;
(2) the rate of return of an annuity shall be presumed to be 8 percent; and
(3) the sales commission on an annuity shall be presumed to be 6 percent.55
The single formula for the APA means that the APA is the same for persons of the same age
across dependency statuses, though there are slight variations in application. For example,
married parents of a dependent student, the older of which is 40 years old, would have the same
APA in a given year as a married 40-year-old student.
Unlike the IPA, which increases each year based on estimated inflation, the more sophisticated
calculation of the APA means that it can rise or fall from year to year. The APA is calculated
based on the difference between “moderate family income” and “current average Social Security
benefits,” and a change in the difference can increase or decrease the APA. Since the
establishment of the APA in statute effective AY1993-1994, average Social Security benefits have
increased faster than family incomes, reducing the difference between the two and resulting in a
corresponding reduction in the APA.
Table A-6. Asset Protection Allowance, Parents of Dependent Students
AY2021-2022
Applicable
Age as of
December 31,
2021
Allowance for
Two Parents
or Married
Student
Allowance for
One Parent
or Unmarried
Student
25 or less
$0
$0
26
400
27
Applicable
Age as of
December 31,
2021
Allowance for
Two Parents
or Married
Student
Allowance for
One Parent
or Unmarried
Student
46
$6,300
$2,400
100
47
6,500
2,500
700
300
48
6,600
2,500
28
1,100
400
49
6,800
2,600
29
1,500
600
50
7,000
2,700
30
1,800
700
51
7,100
2,700
31
2,200
800
52
7,300
2,800
32
2,600
1,000
53
7,500
2,900
33
2,900
1,100
54
7,700
2,900
34
3,300
1,300
55
7,900
3,000
35
3,700
1,400
56
8,100
3,100
36
4,000
1,500
57
8,400
3,100
55 See Section 478(d) of the HEA (20 U.S.C. §1087rr(d)).
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Applicable
Age as of
December 31,
2021
Allowance for
Two Parents
or Married
Student
Allowance for
One Parent
or Unmarried
Student
37
4,400
1,700
38
4,800
39
Applicable
Age as of
December 31,
2021
Allowance for
Two Parents
or Married
Student
Allowance for
One Parent
or Unmarried
Student
58
8,600
3,200
1,800
59
8,800
3,300
5,100
2,000
60
9,100
3,400
40
5,500
2,100
61
9,300
3,500
41
5,600
2,200
62
9,600
3,600
42
5,700
2,200
63
9,900
3,700
43
5,900
2,300
64
10,200
3,800
44
6,000
2,300
65 or older
10,500
3,900
45
6,200
2,400
Source: EFC Formula Guide for Award Year 2021-2022, Table A7, https://fsapartners.ed.gov/sites/default/files/
attachments/2020-08/2122EFCFormulaGuide.pdf.
Note: For dependent students, the applicable age applies to the student’s older parent who reports information
on the FAFSA, for independent students, the applicable age applies to the student.
Available Assets
Available assets are the difference between an applicant’s total assets and the asset protection
allowance. In cases where the allowance is greater than the applicant’s total assets, the applicant’s
available assets and contribution from assets are zero.
Asset Conversion Rate
The asset conversion rate is the portion of available assets that either
contribute to the final EFC, or
contribute to the calculation of adjusted available income that is subsequently
assessed to calculate the EFC.
Statute refers to the resulting product of multiplying available assets by the asset conversion rate
as “contribution from assets.” The asset conversion rate varies by dependency status. Asset
conversion is discussed in greater detail in the description of each formula.
Adjusted Available Income (AAI)
AAI is an intermediate calculation prior to final assessment that is only performed for parents of
dependent students and independent students with dependents. AAI is the sum of available
income and the product of available assets and the asset conversion rate. The application of the
AAI is discussed in the description of the formulas for parents of dependent students and
independent students with dependents.
Assessment Rate and Calculation of the EFC
The assessment rate is the portion of available income, available assets, or AAI that is determined
to be available for educational expenses and contributes to the EFC. Depending on dependency
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status, the assessment rate can be a flat percentage (such as the 50% assessment of a dependent
student’s available income) or a progressive percentage (such as the increasing assessment rates
for independent students with dependents in Table 3).
In practice, the assessment rate is the portion of an “additional dollar” that contributes to the EFC.
For example, the assessment rate for available income for independent students without
dependents is 50%. This means that a $10 increase in available income will increase the EFC of
such a student by $5.
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Appendix B. Legislative History
Financial need has been a key component of federal student aid since the enactment of the
original Higher Education Act (HEA) in 1965, though the specific processes for determining need
have evolved. Generally, reauthorizations of the HEA and other legislative action have gradually
increased statutory direction in determining the ability of students and their families to contribute
to educational costs while reducing the discretion of the administering agency (originally the
Office of Education, now the Department of Education [ED]).
The summary below does not describe the forthcoming changes to the need analysis formulas
established in the FAFSA Simplification Act (Title VII, Division FF, P.L. 116-260). For more
information on the changes made by that law, see CRS Report R46909, The FAFSA Simplification
Act.
Enactment of the HEA and Action through 1986
Need-based aid programs and corresponding provisions related to the determination of need were
established in Title IV of the HEA of 1965 (P.L. 89-329). Modified versions of these programs
remain in Title IV of the HEA, as amended. As such, student aid programs are often collectively
referred to as “Title IV programs.”
Title IV of the original HEA authorized, among other programs, Educational Opportunity Grants
to institutions of higher education to support students with “exceptional financial need.”
Establishing student need and disbursing awards was the responsibility of the grantee institution,
though the law directed the Commissioner of Education56 to prescribe “basic criteria or schedules
(or both) for the determination of the amount of any such educational opportunity grant, taking
into account the objective of limiting grant aid under this part to students of exceptional financial
need[.]”57
The 1972 amendments to the HEA (P.L. 92-318) established the term “expected family
contribution” and used the EFC in the determination of need-based grants. The 1972 amendments
did not establish an EFC formula, but instead offered a general framework and instructed the
Commissioner of Education to publish an annual family contribution schedule (FCS) in the
Federal Register. The statutory framework for the EFC and corresponding FCS in the 1972
amendments specified factors that the agency should consider when determining the EFC (such
as effective income, amount of assets, and the number of dependents in the family), but it did not
specify treatments of these factors (such as assessment rates).58
The 1972 amendments required the Office of Education to publish the proposed FCS by February
1 of each year. Subsequent to this publication, “interested parties” may “present their views and
make recommendations with respect to such schedule.” The law also gave both the House and the
Senate the authority to adopt a resolution of disapproval related to the schedule. The
commissioner was required to take any feedback into consideration prior to publishing a final
FCS by July 1.59
56 Prior to the establishment of the Department of Education, federal education activities were administered by the
Office of Education under the Department of Health, Education, and Welfare.
57 See Section 402 of P.L. 89-329.
58 See Section 411(a)(3)(B)(ii) as amended by P.L. 92-318 for the full list of factors considered.
59 See Section 411 of the HEA as amended by P.L. 92-318.
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The Education Amendments of 1980 (P.L. 96-374) established a revised need analysis system in
Section 482 of the HEA, as amended. This system applied across most Title IV programs,
including the newly renamed Pell Grants. The system established in the 1980 amendments
offered more congressional direction than prior legislation, but still left substantial
decisionmaking authority to the Department of Education.60
A relatively short time after the enactment of the 1980 amendments, various legislation modified
the need analysis provisions of the HEA, establishing separate systems for Pell Grants and other
campus-based programs with ED publishing contribution schedules in the Federal Register.
Several other laws made short-term modifications to eligibility for Pell Grants and other forms of
need-based aid between 1981 and the enactment of the Higher Education Amendments of 1986.61
Higher Education Amendments of 1986
The Higher Education Amendments of 1986 (P.L. 99-498) made substantial statutory changes to
the need analysis system.62 This law established one need analysis formula for Pell Grants (“Pell
Formula”) and a different formula for most other Title IV programs (“Part F Formula”).63 The
1986 amendments marked a change from Congress providing guidelines to ED and the agency
determining factor definitions and levels to Congress specifying in statute what factors would be
considered and what the treatment of those factors would be (e.g., prescribing allowance levels
and assessment rates in statute).
Both the Pell Formula and the Part F Formula established three dependency statuses with
corresponding treatments of income and assets for each status: dependent student, independent
student with dependents, and independent student without dependents. The law established that a
student would be considered independent if he or she met criteria related to age (24 or older on
December 31 of the award year) or other criteria. Under the 1986 amendments, a student could be
classified as independent if the student was not claimed as a dependent for tax purposes by his or
her parents in the prior year (in the case of a married student or graduate student) or the prior two
years (in the case of a single undergraduate student).64
While terminology and definitions varied between the formulas, both the Pell Formula and the
Part F Formula followed the same general process of determining the financial resources of the
student (and if applicable, the student’s parents and/or spouse) by calculating the applicant’s total
income (and assets), subtracting specified allowances, and then assessing financial resources in
60 For example, the law established a maximum assessment rate for families with incomes below $25,000 and
prescribed an asset protection allowance of $10,000. See Section 482(b) of the HEA, as amended by P.L. 96-374.
61 For example, P.L. 97-301, the Student Financial Assistance Technical Amendments of 1982, separated the Pell Grant
family contribution schedule from the need analysis system for campus-based programs and established direction for
the Pell Grant FCS for award years 1983-1984 and 1984-1985. P.L. 98-79, the Student Loan Consolidation and
Technical Amendments of 1983, subsequently modified some of the need analysis provisions of P.L. 97-301 and
established new direction related to award years 1984-1985 and 1985-1986.
62 Many of the statutory changes in P.L. 99-498 were based on policies that were already in place in regulations. When
this section refers to changes, it is referring to their codification in statute.
63 The formula for Pell Grants was in Sections 411A-411F of the HEA as amended by P.L. 99-498. The formula for
most other programs was in Sections 471-480 of the HEA as amended by P.L. 99-498. The formula in Sections 471480 applied to all Title IV aid except Pell Grants and Grants to States for State Student Incentives authorized by
Subpart 3 of Part A of Title IV.
64 For full criteria for independent students, see Sections 411F(12) and 480(d) of the HEA as amended by P.L. 99-498.
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excess of those allowances. Both formulas considered family size and the number of family
members in college.
The formulas differed in some of their treatments of certain financial resources and the
construction of some of their allowances. For example, when calculating assets the Pell Formula
only considered home equity in excess of $30,000 while the Part F Formula considered home
equity in its entirety.65 The two formulas also have different final assessment rates of each
applicant’s income and/or assets.
The 1986 amendments established a simplified needs test (SNT) for qualified applicants.
Applicants who were eligible for the SNT were required to provide less financial information in
the application process and no information related to assets. To qualify for the SNT under the
1986 amendments, the applicant’s family must have an adjusted gross income of $15,000 or less
and file tax form 1040A. The SNT criteria were applicable to all Title IV programs.66
1992 Amendments to the Higher Education Act
The 1992 amendments to the Higher Education Act (P.L. 102-325) established the foundation for
the current EFC system. They merged the need analysis systems, creating a single system that
calculated a single EFC that applied across need-based HEA Title IV programs.67 Prior to the
1992 amendments, separate formulas existed for Pell Grants and other types of aid and could
yield different family contributions for their respective programs. In merging the two formulas,
the 1992 amendments also made changes to the factors that the formula considered.
Creation of the FAFSA and the Combining of EFC Formulas
The 1992 amendments created the Free Application for Federal Student Aid (FAFSA).68 The
FAFSA was intended to be a standardized data collection tool for all students. Prior to the
FAFSA, several entities were under contract with the federal government to collect and process
data related to federal student aid. These contracted entities, known as Multiple Data Entry
processors or MDEs, each developed different forms. The MDEs shared information with states
and institutions, but could charge a fee to the applying student or to the state or institution that
received the data.
The 1992 amendments specified that ED would create a common application for federal student
aid that would be distributed and processed at no charge to the student. The law also specified
that the MDEs must provide student data to states and institutions at no cost. To incentivize states
and institutions to only use FAFSA-collected data in their student aid decisions, the law allows
the inclusion of questions on the FAFSA that do not affect federal aid but may affect nonfederal
aid.69 Provisions pertaining to FAFSA distribution, processing, and the inclusion of additional
65 The Part F formula had an exemption where home equity was not considered if the student (or, in the case of a
dependent student, the student’s parent) was a dislocated worker or dislocated homemaker. For example, see Section
475(d) of the HEA as amended by P.L. 99-498 for this provision as it applies to parents of dependent students.
66 See Section 479 of the HEA as amended by P.L. 99-498.
67 P.L. 102-325 amended the HEA so that eligibility for Pell Grants and all other aid was determined on the basis of the
EFC calculated in Part F of Title IV of the HEA, as amended.
68 The FAFSA was established in Section 483 of P.L. 102-325. It currently remains codified in Section 483 of the HEA
(20 U.S.C. 1090).
69 For example, the FAFSA asks for the highest level of education completed by the student’s parents. The answer to
this question does not impact federal aid but may establish eligibility for state or institutional programs that target aid
for first-generation college students. This allowance for state-driven items was established by Section 483(a)(1) of P.L.
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questions on the FAFSA were established by Section 483 of P.L. 102-325 and remain in Section
483 of the HEA.
Formula Changes in the 1992 Amendments
In combining formulas from prior legislation, it was necessary to make a number of changes to
each formula. For example, the Pell Formula and Part F Formula from the 1986 amendments had
different assessment rates, so changes were necessary to develop a standardized formula. In
addition to these “compromises” necessary to combine the formulas, the 1992 amendments also
made some changes to the EFC formula that did not have precedent in either prior formula. For
example,
the 1992 amendments completely eliminated home equity from consideration
when determining a family’s assets, and
the 1992 amendments eliminated the provision by which a student could
establish independence on the basis of “total self-sufficiency” for two years.
Reauthorizations and Amendments Since 1992
Since the 1992 amendments, the HEA was reauthorized by the Higher Education Amendments of
1998 (P.L. 105-244) and the Higher Education Opportunity Act of 2008 (P.L. 110-315), and each
law made changes to the EFC formula. The EFC formula was also amended by the College Costs
Reduction Act of 2008 (P.L. 110-84) as well as by other appropriations and reconciliation laws.
These changes were largely incremental and did not have systemic effects on the scale of some of
the prior reauthorizations.
The most far-reaching provisions of the post-1992 changes to the need analysis formulas have
primarily been numeric adjustments to the income protection allowances (i.e., the amount of
income that is exempt from assessment in calculating the EFC) and/or changes to qualifications
for alternative formula such as the “automatic zero” EFC. These changes usually (but not always)
have resulted in lower EFCs for at least some students.70
Non-numeric changes since 1992 have included establishing protocol for enrollment periods of
less than nine months and expanding the range of circumstances in which financial aid
administrators could use professional judgment to adjust formula factors to reflect students with
special circumstances.71
102-325, which stated that ED “may include on the form developed pursuant to this paragraph not more than eight
nonfinancial data items selected in consultation with the States to assist the States in awarding State student financial
assistance.” In current law, Section 483(a)(5) permits the inclusion of “specific data items as the Secretary determines
are necessary to meet State requirements for need-based State aid.”
70 For example, P.L. 109-171 (the Deficit Reduction Act of 2005) and P.L. 110-84 (the College Cost Reduction and
Access Act of 2007) each increased income protection allowances for some student populations. A notable exception to
the trend of amendments expanding aid was the Consolidated Appropriations Act of 2012 (P.L. 112-74), which reduced
the income threshold for an “automatic zero” EFC from $32,000 to $23,000.
71 See Sections 473, 474, 475, and 479A of the HEA, as amended by P.L. 105-244.
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Author Information
Benjamin Collins
Analyst in Labor Policy
Acknowledgments
CRS Graphics Specialist Amber Wilhelm created the graphics in this report.
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