1 the following is a presentation prepared for: name of conference city, st date
TRANSCRIPT
1
The following is a presentation prepared for: Name of Conference
City, STDate
2
Need Analysis
Name of Presenter –Title School
© 2014 NASFAA 3
Today’s Agenda and Goals
• Describe the different Federal Methodology (FM) Models and when each should be used
• Explain each of the three expected family contribution (EFC) formulas
• Complete an EFC hand calculation
• Review Revisions to Need Analysis based on the Defense of Marriage Act (DOMA)
© 2014 NASFAA 4
Basic Components of Need Analysis
Cost of attendance (COA)
– Expected family contribution (EFC)
= Financial need
© 2014 NASFAA 5
Knowledge of the Formula Can Help All
• Take a minute to think about a student/parents who come to you to discuss their contribution as calculated from data submitted on the FAFSA
• During this discussion, you discover that one parent has been unemployed for 20 weeks since filing the FAFSA
• Equipped with the knowledge of how the formula works and your ability to exercise professional judgment – the example is one where updating the data would assist and better reflect the family’s financial circumstances
© 2014 NASFAA 6
Dean John Monro’s Formula – Need Analysis
Family’s income
x 15%
= Initial contribution
– $100 x children in public school
– $200 x children in private school
= Family’s ability to pay for college
© 2014 NASFAA 7
Components of Need Analysis
• Parents’ income – Taxable income from work, income from investments, income from business and/or farm, nontaxable sources of income, e.g., pensions, Social Security, gifts
• Income offsets – State taxes paid, federal taxes paid, FICA tax, business/farm expenses, unusual medical expenses, other taxes if applicable
© 2014 NASFAA 8
Components of Need Analysis
• Assets – Cash, stocks, bonds, home value, other land/property, summer savings (for the student it was assumed they would work during the summer and save either $900 or $1,200)
• Offsets against assets – Home debt, other assets – less any debt, and if a Dependent student – parents received an Asset Protection Allowance (still used today)
© 2014 NASFAA 9
Components of Need Analysis
• Dependent model – Reduction in contribution based on children in private or public elementary, middle or secondary schools vs. number in household in college (current model)
• Student’s earnings and assets
© 2014 NASFAA 10
Principles of Need Analysis
Need analysis is the system used to allocate limited financial aid resources. Over the years, the statements listed below have become the underlying principles for need analysis.
1. Parents and students have the primary responsibility for meeting postsecondary education costs.
2. The distribution of financial aid resources should be based on the family’s ability to pay, not willingness to pay.
3. The assessment of a family’s ability to pay should be independent of the amount of financial aid available and the cost of attending postsecondary school.
© 2014 NASFAA 11
Principles of Need Analysis (cont’d)
4. There should be horizontal equity (also referred to as equity across the board) in the distribution of limited financial aid resources. That is, families in similar circumstances with similar resources should be expected to make similar contributions.
5. Families in different circumstances should be expected to make contributions appropriate to their financial resources. This is known as vertical equity, and sometimes is referred to as leveling the playing field.
6. The need analysis formula should provide a “snapshot” of the family’s financial circumstance at the time of application.
7. The need analysis results are a benchmark. As such, the final assessment of the family’s ability to contribute to the student’s postsecondary education costs is subject to the professional judgment of the financial aid administrator.
© 2014 NASFAA 12
II. Formulas for Dependent Students
© 2014 NASFAA 13
Dependent Student Model A – Regular
Parents’ income
Adjusted gross income (AGI) or income earned from work
+ Untaxed income
– Additional financial information
= Total income
© 2014 NASFAA 14
Dependent Student Model A – Regular
Parents’ allowances
• U.S. income tax paid
• State and other taxes
• Social Security tax
• Income protection allowance
• Employment expense allowance
© 2014 NASFAA 15
Dependent Student Model A – Regular
Parents’ available income
Total income
– Total allowances
= Parents’ available income
© 2014 NASFAA 16
Dependent Student Model A – Regular
Parents’ assets
• Current balance of cash, savings, and checking accounts
• Net worth of investments, including real estate
• Net worth of businesses and investment farms
© 2014 NASFAA 17
Dependent Student Model A – Regular
Parents’ contribution from assets
Parents’ net worth
– Educational savings and asset protection allowance
= Discretionary net worth
x Asset conversion rate
= Parents’ contribution from assets
© 2014 NASFAA 18
Dependent Student Model A – Regular
Parents’ adjusted available income
Available income
+ Contribution from assets
= Parents’ adjusted available income
© 2014 NASFAA 19
Dependent Student Model A – Regular
Parents’ contribution
Contribution from
adjusted available income
Number
in college
= Parents’ contribution
© 2014 NASFAA 20
Dependent Student Model A – Regular
• Student’s contribution from income
– Student’s income
– Student’s allowances
• Student’s contribution from assets
© 2014 NASFAA 21
Dependent Student Model A – Regular
Parents’ contribution (income and assets)
+ Student’s contribution from available income
+ Student’s contribution from assets
= Expected family contribution (9 month)
© 2014 NASFAA 22
Dependent Student Model A – Simplified Needs Test
Any member of the parents’ household received benefits from certain federal means-tested benefit programs in 2012 or 2013
© 2014 NASFAA 23
Dependent Student Model A – Simplified Needs Test
Parents
• Filed or were eligible to file 2013 Form 1040A or 1040EZ;
• Filed 2012 Form 1040 but were not required to do so;
• Were not required to file any tax return; or• Filed income tax return required by tax
code for Puerto Rico, Guam, American Samoa, the U. S. Virgin Islands, the Republic of the Marshall Islands, the Federated States of Micronesia, or Palau; and
• AGI or earned income is less than $50,000
© 2014 NASFAA 24
Dependent Student Model A – Simplified Needs Test
• Parents’ total income, total allowances, and available income is calculated the same way as under the regular formula
• Contribution from parents’ adjusted available income calculated using a table
• Divide contribution from parents’ adjusted available income by number in college to calculate parent contribution
© 2014 NASFAA 25
Dependent Student Model A – Simplified Needs Test
• Student’s contribution from income calculated the same way as under the regular formula
• EFC is the sum of parents’ contribution and the student’s contribution from available income
© 2014 NASFAA 26
Dependent Student Model A – Automatic Zero EFC
Eligibility criteria
• Tax filing status, receipt of benefits from certain means-tested federal benefit programs, or dislocated worker status
• Income
© 2013 NASFAA 27
III. Independent Students with Dependents Other Than a Spouse Formulas
© 2014 NASFAA 28
Independent Student with Dependent(s) Regular Formula
Student and spouse (if married) total income
Student (and spouse) AGI or
Student (and spouse) income earned from work if no tax return filed
+ Total untaxed income & benefits
– Other additional financial information
= Student total income (could be negative)
© 2014 NASFAA 29
Independent Student with Dependent(s) Regular Formula
Student allowances against income
• U.S. income tax paid
• State and other taxes (from table)
• Student Social Security taxes
• Spouse Social Security taxes
• Income protection allowance (from table)
• Employment expense allowance
© 2014 NASFAA 30
FM FORMULA
Income Protection Allowance
30.00%
22.00%9.00%
16.00%
11.00%
12.00%Food
Housing
Transportation
Clothing & Personal Care
Medical Care
Other family consumption
© 2014 NASFAA 31
Independent Student with Dependent(s) Regular Formula
Student available income
Total income
– Allowances against income
= Student available income (AI), may be negative
© 2014 NASFAA 32
Independent Student with Dependent(s) Regular Formula
Student/spouse assets
Current cash, savings & checking balance+ Net worth of investments & real estate
• Primary residence not included• If negative use 0
+ Adjusted net worth of business/investment farm (from table)
• Family owned farm & business with < 100 full-time or equivalent employees not included
• If negative use 0
= Student net worth
© 2014 NASFAA 33
Independent Student with Dependent(s) Regular Formula
Student assets
Student net worth
– Asset protection allowance (from table)
= Discretionary net worth
x 7% asset conversion rate
= Contribution from assets (if negative, use 0)
© 2014 NASFAA 34
Independent Student with Dependent(s) Regular Formula
Expected family contribution
Available income (AI)
+ Contribution from assets
= Adjusted available income (AAI) may be negative
Total contribution from AAI (from table) if negative, use 0
Number in college
= Expected family contribution
© 2014 NASFAA 35
Independent Student with Dependent(s) Simplified Formula
Qualifications• Anyone in family received in prior two years:
SSI, SNAP, Free/reduced lunch, TANF and/or WIC
or
• Student & Spouse (if married) both filed or are eligible to file IRS 1040A/EZ or were not required to file a tax return
or
• Student or spouse is dislocated worker
and
• Total of student and spouse AGI < $50,000 or if nontax filers, total of work income < $50,000
© 2014 NASFAA 36
Independent Student with Dependent(s) Simple Formula
Same as regular formula except assets are excluded from calculation
© 2014 NASFAA 37
Independent Student with Dependent(s) Automatic Zero Formula
Qualifications same as for SNT except income< $24,001
38
IV. Independent Students Without Dependents Other than a Spouse
© 2014 NASFAA 39
Independent Students Without Dependents Other than a Spouse
Formula B or Model B
The EFC for an independent student without dependents other than a spouse is calculated using FAFSA data for both the student, and if married, the spouse.
Total income
– Total allowances for nondiscretionary expenses
Discretionary income X 50%
© 2014 NASFAA 40
Independent Students Without Dependents Other than a Spouse
Model B• Regular Formula B
• Simplified Needs Test Formula B Student/spouse combined AGI or income earned from work is less
than $50,000 and either
Student/spouse were not required to file a tax return or were eligible to file a simplified form if required to file
or
Student or spouse is a dislocated worker
or
Student or spouse received a means-tested federal benefit at any time during the prior two years
© 2014 NASFAA 41
Independent Students Without Dependents Other than a Spouse
Total Income
The total income is the sum of the student/spouse taxable and untaxed income, minus other financial information reported on the FAFSA but excluded from the formula.
• Other Financial Information – listed on questions 44a - 44f on FAFSA Education credits, child support paid, need-based employment,
combat pay, etc.
• Untaxed income – listed on questions 45a - 45j on FAFSA Payments to tax-deferred pensions, IRA deductions, child support
received, veteran’s noneducation benefits, etc.
© 2014 NASFAA 42
Independent Students Without Dependents Other than a Spouse
Allowances Against Income
Total allowances are calculated by adding the following:• U.S. income tax paid• State and other tax allowance – Table B1
% of student/spouse income which varies by state• Social Security tax allowance – Table B2
SSI taxes are calculated separately for student/spouse• Income protection allowance
Based on marital and enrollment status of student/spouse• Employment expense allowance
Only accounted for if both student and spouse are working
© 2014 NASFAA 43
Independent Students Without Dependents Other than a Spouse
Contribution from Assets
Assets are considered in order to fully measure the student/spouse ability to contribute toward educational costs if not eligible for the Simplified Needs Test Formula B.Three items to be considered:1) Net worth – Table B3
• Needs to be adjusted to protect a portion of the net worth2) Discretionary net worth – Table B4
• Done to protect a portion of assets needed for purposes other than education, such as emergencies or retirement
• Increases with age of student3) Portion of the value of assets to be considered available for student’s education
• Discretionary net worth is multiplied by 20% to obtain contribution from assets• This is the portion that is considered available to assist in paying for student’s
education
© 2014 NASFAA 44
Independent Students Without Dependents Other than a Spouse
Model B – Case Study #1Antoine Nomuch
Antoine will be a fourth-year undergraduate student for the fall 2014 term. He is married, and his wife, Ida, will also enroll half time as a fourth-year undergraduate student. They have no children. Antoine’s date of birth is June 1, 1988. Antoine and Ida live in Boise, Idaho.
Antoine and Ida filed an IRS Form 1040A for the 2013 tax year. They reported an adjusted gross income (AGI) of $46,000, 2 exemptions, no interest or dividend income, a $1,200 American Opportunity tax credit, and a tax liability of $2,400.
© 2014 NASFAA 45
Independent Students Without Dependents Other than a Spouse
Model B – Case Study #1 (cont’d)
Antoine earned $27,000 in 2013, $3,000 of which was through the Federal Work-Study (FWS) program. Ida earned $19,000 in 2013, $2,500 of which was earned through FWS. Ida received SNAP benefits in 2012, prior to marrying Antoine. Antoine has not received any means-tested federal benefits in 2012 or 2013.
The couple’s only assets are $1,500 in a joint checking account and $3,000 in a joint savings account.
© 2014 NASFAA 46
V. DOMA, Parental Information, and Reauthorization
© 2014 NASFAA 47
DOMA
• On June 26, 2013, the Supreme Court struck down the section of the Defense of Marriage Act (DOMA) that provided that for purposes of federal programs, a marriage can only be between one man and one woman
• Impacts the Free Application for Federal Student Aid (FAFSA), /EFC, and income driven repayment plans
© 2014 NASFAA 48
Reporting Information about Parents
Beginning with the 2014–15 FAFSA:
• Dependent students must include income and other information about both of their legal parents (biological or adoptive) if –
– The parents are living together
– Regardless of the parents’ marital status or gender
© 2014 NASFAA 49
Reporting Information about Parents
Collecting parental information from both legal parents will result in fair treatment of all families by eliminating longstanding inequities that were based on the legal relationship of the parents (married or not married) rather than on the parents’ relationship with their child
© 2014 NASFAA 50
Reporting Information about Parents
• New response of “Unmarried and both parents living together” to the parents’ marital status question
• Instructions and help text on FAFSA on the Web (FOTW) explain that parents are the student’s legal (biological or adoptive) parents if those parents live together
© 2014 NASFAA 51
Prior Year Data (Current Model)
• Prior Year (PY) System: Students need to submit information from their 2014 income tax returns which are not due until April 15, 2015
• To qualify for first-come, first-served state and institutional aid, students should submit FAFSA as soon as possible
• Students received aid notifications around April 2015, about 4 months before school starts
© 2014 NASFAA 52
Prior-Prior Year Data (Proposed Model)
• Prior-Prior Year (PPY) System: Students submit information from their 2013 income tax returns, which were filed April 15, 2014
• 2013 income tax returns should be easily accessed through IRS Data Retrieval Tool
• Students could submit a completed FAFSA as early as September or October 2014, qualifying earlier for state and institutional aid as well as receiving earlier aid notification from colleges, possibly 8 months in advance of May
© 2014 NASFAA 53
VI. Institutional Methodology
© 2014 NASFAA 54
Institutional Methodology
• Used by many schools to calculate eligibility for institutional need-based (and merit within need) funds
• Developed by the College Board
• Seeks to measure a family’s overall financial strength
© 2014 NASFAA 55
Institutional Methodology
• Same general principals that apply to FM
• Same basic formula
• Difference is in calculation of the EFC
• Considered a more thorough and accurate assessment of ability to contribute
© 2014 NASFAA 56
Institutional Methodology – Major Differences from FM
• No simplified needs test or automatic zero EFC
• Negative income that affects AGI is treated as zero
• Untaxed income includes
– Paper losses taken as deductions by businesses
– Some tax credits
– Foreign Income Exclusion
– Social Security
© 2014 NASFAA 57
Institutional Methodology – Major Differences from FM
Allowances• Income Protection Allowance based on Consumer Expenditure
Survey three-year average
• State and local tax rates vary by income and zip code
• Annual Education Savings Allowance protects parent income needed to save for education expense of younger children
• Emergency Reserve Allowance protects assets needed for emergencies
• Cumulative Education Savings Allowance protects amount of parental assets based on annual savings goal for each child
• Low Income Asset Allowance protects assets for low income families
© 2014 NASFAA 58
Institutional Methodology – Major Differences from FM
• Countable assets include small business, family farm, home equity and assets in names of student’s sibling(s)
• Lower contribution from assets• Unequal division of parent contribution based on
number in college• Minimum contribution for both student and parents• Student contribution from income assesses half of
student available income but protected for students from low income families
© 2014 NASFAA 59
Institutional Methodology – Major Differences from FM
• Assessment of student assets at 25%
• Calculation of an expected contribution from the noncustodial parent
• Calculation of contribution from income for Independent students used monthly maintenance allowance
• Higher minimum contribution for Independent students
© 2014 NASFAA 60
Institutional Methodology – Major Differences from FM
• Option to customize College Board formula– Impute home value based on date and price of
purchase– Cap home equity by multiplier of income– Allow secondary school tuition– Impute assets based on interest and dividend
income– Provide medical/dental allowance higher than
standard allowance included in IPA• Option for school to create its own methodology
© 2014 NASFAA 61
Institutional Methodology – Case Study #1
• Student is a newly admitted, first-year student
• Student has submitted a FAFSA and PROFILE
• Family has modest income with high assets
• Family lives in a high cost area
• Family owns a home
• Student has significant earnings
© 2014 NASFAA 62
Institutional Methodology – Case Study #2
• Student is a newly admitted, first-year student
• Student has submitted FAFSA, PROFILE, Noncustodial PROFILE, and tax returns for both the custodial and noncustodial parents
• Student’s parents are divorced
© 2014 NASFAA 63
Institutional Methodology Summary
• Best available indicator of a family’s ability to contribute to college costs
• More comprehensive analysis
• Measures total financial strength of the family as compared to others in the applicant pool
• A tool that can be adjusted based on the resources and philosophy of the institution
© 2013 NASFAA 64
VII. Case Studies and Hand Calculations
© 2014 NASFAA 65
Case Studies
• Now that we have thoroughly reviewed and have actually done some manual EFC calculations, let’s:
– Test our knowledge, and
– Practice the application of what we learned
• See Participant Guide for Case Studies
© 2014 NASFAA 66
Model A – Dependent Student Melanie Knox
• Parent income
• Allowances against parent income
• Available income
© 2014 NASFAA 67
Model A – Dependent Student Melanie Knox
• Parent contribution from assets
• Parent contribution
© 2014 NASFAA 68
Model A – Dependent Student Melanie Knox
• Student income
• Allowances against student income
• Student contribution from income
• Student contribution from assets
• Expected family contribution
© 2014 NASFAA 69
Model B - Courtney Fletcher
• Student/spouse income
• Allowances against student/spouse income
• Contribution from available income
• Student/spouse contribution from assets
• Expected family contribution
© 2014 NASFAA 70
Model C – Automatic Zero EFC – Kurt Smith
• Student/spouse income
• Expected family contribution
© 2013 NASFAA 71
VIII. The Importance of This Knowledge
© 2014 NASFAA 72
Why Should I Understand Need Analysis?
• Need-based financial aid
– Federal
– Institutional
• Explaining differences between FM and IM
• Understanding the “theory” behind what we do
© 2014 NASFAA 73
Why Should I Understand Need Analysis?
• Counseling
– Student
– Parents
• But students and parents can edit FAFSA…
• But I have a computer…
• Math !?!
© 2014 NASFAA 74
Have You Heard?
• I can’t pay that, I have another child…
• I lost my job!
• I spent all my savings on…
• What if I get married?
• Do you want me to sell my house?
• But I got a Pell Grant last year…
© 2014 NASFAA 75
Counseling
• Reassuring students and parents that we are competent
• Professional judgment
– Can be used to change data elements
• Will the changes have an impact?
• Understanding dependency status
• Increase confidence!
© 2014 NASFAA 76
Federal Methodology Information Resources
• The Higher Education Act of 1965, as amended, Part F – Need Analysis
• 2014–15 FSA Handbook, Application and Verification Guide (AVG), Chapters 2 and 3
• EFC Formula Guide, 2014–15
• The ISIR Guide, 2014–15
• 2014–15 Free Application for Federal Student Aid
© 2014 NASFAA 77
Need Analysis – Pulling It Altogether
Financial aid came into existence to help deserving students gain access to a higher education who could not afford it on their own. Irrespective of what has evolved over the years, determining who the neediest students are and to provide them with precious aid dollars; especially grants and scholarships is one of the defining roles that aid professionals face in today’s higher education. As the costs of education rise, our role will become more scrutinized. Knowing need analysis is key to fiscal stability and institutional integrity.
© 2013 NASFAA 78
Questions?Use the AskRegs Knowledgebase at
www.nasfaa.org