The EFC formulas in the HEA are also known as the "federal methodology." Collection and Processing of Student Information

The FAFSA is the data collection instrument for information used to calculate the EFC. Applicants with certain characteristics and incomes below a specified level are eligible for a simplified needs test (SNT) or an automatic zero EFC. An independent student 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 below $25,000. 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. Formula B: Calculation of EFC for Independent Students without Dependents32

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. Thus, the "contribution from assets" is 20% of assets in excess of the APA. 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. Available income is one component of adjusted available income, which is described in a subsequent step. 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. 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. 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. 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:
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; 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. There are five allowances against income. Applicants who do qualify for the SNT do not have to provide asset information for federal student aid purposes. Retirement accounts . Family-owned businesses . 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. 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. The asset conversion rate varies by dependency status. 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. For example, the assessment rate for available income for independent students without dependents is 50%. Modified versions of these programs remain in Title IV of the HEA, as amended. 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 excess of those allowances.
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 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 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, 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. Thus, the EFC of applicants who are eligible for the SNT is based entirely on the family's income. 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.