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Short Title

The Distributional and Cost Implications of Negative EFCs

Abstract

Eligibility for many federal, state, and institutional financial aid programs is determined by the expected family contribution (EFC) from the Free Application for Federal Student Aid (FAFSA), which functions as a tool to ration scarce aid dollars. The lowest possible EFC under current rules is zero, but this obscures a wider distribution of family resources that would be partially uncovered if the EFC formula were not truncated at zero and negative values were allowed. In this paper, I estimate negative EFCs using student-level data from nine colleges and universities between the 2007-08 and 2011-12 academic year. I find a large amount of dispersion in the distribution of negative EFCs for dependent students and that between 20% and 90% of students (varying by whether the student files the full FAFSA or qualifies for a Simplified FAFSA or an automatic zero EFC) would qualify for a larger Pell Grant award if negative EFCs were allowed additional costs of funding a negative EFC could range from $1.6 billion to $7.2 billion per year, depending on assumptions regarding generosity.

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