What is Need-Based Financial Aid?

In this video, James Maroney, the founder of First Choice College and CollegeTreasure.com, explains that need-based aid is determined by the Expected Family Contribution (EFC). The EFC is the amount of money that the government and schools expect a student’s family to be able to pay for education each year. The EFC is calculated when the student submits the FAFSA (Free Application for Federal Student Aid) or the CSS Profile (used by some private colleges).

The EFC is determined based on four components: parent income, parent assets, student income, and student assets. Assets include cash, stocks, bonds (excluding retirement accounts), vacation homes, rental properties, and business ownership (with some exclusions for small businesses). The primary residence is usually not considered an asset in the federal methodology, but some private schools may look at home equity when determining financial need.

After calculating the EFC, the total cost of education (or cost of attendance) is subtracted from it to determine the student’s financial need. The need is the difference between the cost of education and the expected family contribution.