The result? A multi-billion dollar federal student-loan program with approximately 10% of those who entered repayment in fiscal year 2008 in default - a number twice the 2005 cohort default rate of 4.6%, according to a U.S. In other words, the more financially sound one’s bank account, the less likely one is to qualify for federal grants or student loans - a program counterintuitive to the advice of behavioral psychologists worldwide but that government officials have been subsidizing for decades. The smaller the EFC the better the financial-aid package, and vice versa. The EFC is then subtracted from the cost of attendance at the school to which a student has applied, and the balance of the two numbers is considered the measure of a student’s financial need. It takes into consideration the number of siblings enrolled in college, family size, taxed and untaxed family assets and benefits, without considering possible outliers.

Unlike these reward-based scenarios, federal student loans - the interest rates of which are sometimes greater than private student loans - are doled out based on a federally mandated formula meant to measure need rather than merit.Īccording to the Free Application for Federal Student Aid (FAFSA) website, the Estimated Family Contribution (EFC) is “a measure of your family’s financial strength” and is used to calculate a student’s so-called financial need.

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