EFC stands for "Expected Financial Contribution." The is a part of the Free Aid For Federal Student Aid that a college student fills out to determine eligibility for federal aid. The EFC does not necessarily act as a required amount that one must pay for college tuition; the EFC estimates how much a family can reasonably put towards education. However, in some instances the EFC is the sole factor in awards such as the Pell Grant.
The formula used to determine a person's EFC depends on income level and their status as a dependent or independent, someone older than 25. Independents usually qualify for higher awards of certain federal grants and loans. According to the Federal Expected Family Contribution Handbook, anyone from a family that earns less than $20,000 per year automatically qualifies for an EFC of 0. All other types of students have an EFC that rises with gross income.
What type of state and institutional grants and loans varies from school to school. For federal aid, the EFC determines a few, but highly desirable programs like the Pell Grant, Stafford Loan and "campus programs." The Pell Grant maximum as of July 1, 2009 was $5,350 and does not need to be paid back, according to the official FAFSA website. Stafford Loans carry a much lower interest rate than a private loan, with the government sometimes subsidizing interest while the student attends school. Also, each school is allotted a certain amount in "campus programs" like Federal Work-Study and low-interest Perkins Loans to use as they see fit.
FinAid reports that the EFC weighs current income far more than assets and other income. This leads some educators to question the fairness of an EFC formula that does not factor in extenuating circumstances, like credit card debt and other loans. Student income from a job also weighs heavily in an EFC calculation. This leads many to point out that it is often not worth working or saving money if it raises EFC by a similar amount.
FinAid offers some helpful information to minimize a student's EFC. Because student income often is offset with a parallel raise in EFC, one should put all student savings in a parent's name. Also, purchase any expensive items you plan to buy before filing FAFSA to reduce the size of a bank account. Finally, parents should take classes at the same time as the student, or encourage any college eligible siblings to attend; the EFC gets cut in half for two students attending college.