The EFC is determined by a formula established by the U.S. Congress, and it takes into account various factors, including:

Income: The formula considers the student's and parents' income from the previous tax year. Specific allowances and deductions are applied to arrive at the adjusted income figure.

Assets: The value of certain assets, such as cash, savings, and investments, is factored into the calculation. Retirement accounts and primary residences are typically excluded from consideration.

Family Size: The number of people in the student's household, including the number of dependents in college, affects the EFC.

Generally, the more family members there are, the lower the EFC.

Number in College: If there are multiple family members attending college simultaneously, it may lower the EFC for each student, as the cost of education is divided among them.

Taxes Paid: Federal and state income tax liabilities are also taken into account.

Once the FAFSA is processed, the calculated EFC is sent to the schools the student listed on their application. The financial aid offices at these schools use the EFC as a starting point to determine the student's financial need and eligibility for various forms of federal, state, and institutional financial aid.

It is essential to understand that the EFC is not the amount of money the student will receive in financial aid. Instead, it is used to determine the student's eligibility for need-based aid, such as Pell Grants, subsidized loans, and work-study programs. The difference between the cost of attendance at the college (tuition, fees, room, board, and other educational expenses) and the EFC represents the student's demonstrated financial need. The school's financial aid office then creates a financial aid package to meet this need through a combination of grants, scholarships, loans, and work-study opportunities.