Income can come from:

• Employment
• Sale of stocks or mutual funds
• Interest from bank accounts
• Rental property
• Other sources of cash

The financial aid formula uses the adjusted gross income (AGI) reported on your tax return.

Automatic zero EFC

If you and your spouse's combined AGI is $15,000 or less and you, your spouse, and your dependent child are all eligible to file an IRS 1040A or 1040EZ, your EFC is automatically zero. There is no need to do further calculations.

An EFC of zero means that your child may receive a financial aid package that covers up to 100% of college costs.

Understanding your AGI

In addition to your salary, here are some other items factored into your AGI:

• Money from Social Security not included in AGI
• Veteran non-education benefits
• Child support
• Earned income credit
• Child tax credit
• Payments to tax-deferred pension or savings plans
• Deductions and payments to SEP, SIMPLE, and Keogh retirement plans
• Untaxed IRA and pension distributions
• Foreign income exclusion
• Worker’s compensation
• Housing and food allowances paid to members of the military and clergy
• Credit for federal tax on special fuels
• Welfare

Once all these benefits and income are added up, the government does a little subtraction. It deducts from your AGI:

• The Hope and Lifetime Learning tax credits
• Federal Work-Study
• Fellowships
• Scholarships reported as income

The result of these calculations is your total income for purposes of the EFC.

Student and parent assets

Learn how what your family owns can affect your EFC.