Adventures in Needs Analysis: Adventures in Needs Analysis: The Basis of Professional The Basis of Professional JudgmentJudgment

Jim EddyOffice of Financial AidUniversity of Michigan – Ann Arborjimeddy@umich.edu

In this session we will:In this session we will:• Do FM needs analysis together, then talk about it• Review/revisit the EFC Formula Guide• Discuss PJ in the context of knowing the

calculation• If we have time: Look at regulatory changes to

FM EFC data elements over time, & discuss IM (Institutional Methodology)

Dependent Student Case Dependent Student Case Study: Let’s dive in!Study: Let’s dive in!

The Case: NarrativeThe Case: NarrativeScarlett White is a cheerleader enrolled as a senior at Huron High School in Ann Arbor. Her brother Jesse will be a college Junior at Wayne State University, where he studies chemistry. Brother Alphonso is entering 7th grade, and sister Holly will again be in elementary school. Scarlett is the aid applicant for this case study.

The Case: Narrative, con’t.The Case: Narrative, con’t.The parental AGI for 2014 was $83,821. Dad (Walter White, pharmaceutical executive and former high school chemistry teacher), age 52, earned $199,214 in wage income, and mom (Skyler, age 46, financial executive and car wash owner) earned $163,277. A massive net loss from Line 17 of their Form 1040 (Vamonos Pest LLC; Los Pollos Hermanos Partners; A1A Car Wash S-Corp) largely accounts for their reduced AGI. They filed a Form 1040 and itemized their deductions, with a federal tax paid of $6,021. Walt and Skyler claimed all 4 children as 2014 tax exemptions. They are careful money managers despite their IRS paper losses, and have budgeted exactly $2015 for Scarlett’s 2015-2016 educational expenses.

Walt and Skyler claimed a 2014 IRA deduction in the amount of $2000. They also claimed a Hope Educational credit for Arthur in the amount of $1500. Due to an earlier divorce agreement, Walt paid out $6000 in 2014 child support to one of his ex-wives.  As parents they have $1,941 in savings, $78,257 in combined 529 savings plans for all 4 kids, and $10,885 in a money market fund.  Scarlett did not file a 2014 tax return, and listed earned wage income of $1821. She had $5 in her savings account on the day she filed her FAFSA.

Arriving at Total Parent IncomeArriving at Total Parent Income

1. Parent’s 2014 AGI: 838212.a. Father’s work income 1992142.b. Plus Mother’s work income 163277

Equals total Parent work inc. 3624913. Parent’s taxable income 838214. Untaxed income: 20005. Taxable and Untaxed 858216. Less offsets to income <7500>7. Equals Total Parent Income 78321

Getting Parent Available Income (AI)Getting Parent Available Income (AI)8. 2013 U.S. tax paid 60219. State/other tax (TableA1) 313310. Father’s FICA (Table A2) 10143 11. Mother’s FICA (Table A2) 9622

12. Income Protection Allow (T. A3) 3431013. Employment Expense Allowance 4000

14. Total Allowances: 67229

Total Income (from line 7) 78321Minus Total Allowances <67229>

15. Equals Available Income (AI) 11092

Parent Asset Contribution Parent Asset Contribution (exploding the mythology)(exploding the mythology)

16. Cash & Savings 194117. Net Worth of Investments 8914218. Net Worth Business/Inv. Farm 019. Adjust. Net. W. Business/Farm (A4) 020. Net Worth (sum 16, 17, 19) 9108321. Edu. Savings/asset protect. (A5) 3350022. Discretionary Net Worth (20-21) 5758323. Asset Conversion rate (multiply by .12) 24. Contribution from assets 6910

Finally…Parent Finally…Parent ContributionContributionParent’s Available Income (line 15) 11092

Plus Asset Contribution (line 24) 6910

25. Equals Adjusted Available Income 18002

26. Total contrib. from AAI (Table A6) 4030

27. # in college (exclude parents) 2

28. Equals Parent Contribution 2015

Student Contribution: Total Student Contribution: Total incomeincome

29. Student AGI 030. Student’s work income 182131. Taxable income 182132. Untaxed income: 033. Total, taxed/untaxed 182134. Less offsets to income 0

35. Equals Total Income 1821

Student Contribution: Student Contribution: AllowancesAllowances

36. Student tax paid 0 37. State/other tax (Table A7) 5538. Student FICA (Table A2) 13939. Income Protection Allow. 631040. Allow. for Parent Neg. AAI 041. Total allowances 6504

Total Income (line 35) 1821Less Total Allow. (line 41) 6504

42. Equals Available Inc. (AI) <4683>43. Assessed at .50 0

44. Equals Student Cont. from AI 0

Student Contribution: Student Contribution: Assets and Overall EFCAssets and Overall EFC

45. Student cash, etc. 546. Student investments 047. Student bus./farm 048. New Worth (sum 45-47) 549. Assessed at 20 percent 150. Contribution from assets: 1

Parent Contribution (line 28) 2015Plus Student AI Contrib. (line 44) 0Plus Student Cont. from assets 1

51. Equals Overall EFC 2016

How many different EFC How many different EFC formulas/worksheets are there, formulas/worksheets are there,

anyway?anyway?

SevenSeven1. Dependent Student, Regular2. Dependent Student, Simplified3. Independent, without Dependents other than a Spouse, Regular4. Independent, without Dependents other than a Spouse, Simplified5. Independent, with Dependents other than a Spouse, Regular6. Independent, with Dependents other than a Spouse, Simplified7. Auto Zero

Professional Judgment (PJ):Professional Judgment (PJ):Dealing with the “What If’s”Dealing with the “What If’s”

If you know how the FM EFC formula works, you can efficiently respond to

“what if” questions and utilize appropriate Professional Judgment

Some PJ ExamplesSome PJ Examples• Medical/Dental costs: 11% is already in the IPA• “I saved a lot, so I won’t get financial aid”• “I lost my job, so I will get more aid…right?”• “We now have 2 in college, so our aid will double,

right?”• “We took money out of our IRA…please help us,

this is not our real income from work!”• “We are saving for our grandchild…should we put

the money into an UGMA?”• My parent just died…will I get more aid?”

Regulatory changes to FM Regulatory changes to FM EFCEFC

College Cost Reduction and Access Act of 2007:

“CCRAA”

“HERA”

Higher Education Reconciliation

Act of 2005

Protecting Student IncomeProtecting Student Income

HERA increased the income protection allowance for dependent students from $2,200 to $3,000

CCRAA increased this further:

AY2009-2010 - $3,750AY2010-2011 - $4,500AY2011-2012 - $5,250AY2012-2013 - $6,000AY2013-2014 - $6,260Now: $6310

Change in definition of “Total Income”Effective July 1, 2009, CCRAA changed the definition of

“total income” by excluding:

•Welfare benefits•Earned Income Credit•Special fuels credit•Excluded foreign income•Untaxed Social Security benefits•Additional Child Tax credit

““Independent Student” DefinitionIndependent Student” DefinitionFormer language:

“…an orphan or ward of the court or was a ward of the court until the individual reached the age of 18…”

Current language:

“…is an orphan, in foster care, or a ward of the court, at any time when the individual is 13 years of age or older…”

““Independent Student” con’t.Independent Student” con’t.

CCRAA added additional categories:

“…is an emancipated minor or is in legal guardianship as determined by a court of competent jurisdiction…”

“…has been verified during the school year in which the application is submitted as either an unaccompanied youth who is a homeless child…or as unaccompanied, at risk of homelessness, and self-supporting…

Asset DefinitionAsset Definition

HERA added “qualified education benefit” to the definition of assets.

CCRAA addressed the ownership of these accounts:

• Student asset if an Independent student• If a dependent student, the asset is considered the

parent’s whether the owner is the student or parent

Simplified Needs TestSimplified Needs Test

CCRAA made two changes to the eligibility standards for the simplified needs test.

The first change added a new category of eligibility – dislocated workers (& displaced homemakers).

The dislocated worker was defined in the Workforce Investment Act of 1998.

Sometimes a big impact – assets ignored

Auto Zero EFCAuto Zero EFCCCRAA changed the qualifying standard:

•Income limit moved from $20,000 to $30,000

•Directed ED to adjust this limit annually based on increases in the CPI

•But, this has subsequently been tinkered with, and for 2015-16, the limit is now down to $24,000

Where you can find all the FM info Where you can find all the FM info you might ever wantyou might ever want

http://ifap.ed.gov/efcformulaguide/attachments/090214EFCFormulaGuide1516.pdf

•This is annually updated, the worksheets and tables you used today are right out of the guide•Lots of definitions (i.e. Dependency, Simple Needs, Auto Zero, needs-tested benefits) are in there•All the different hand calculation worksheets are there for different FM formulas

Institutional Methodology “IM”: Who uses it?

• Many privates, some publics, often using the CSS Profile

• There is a cost involved for filers, with some waiver exceptions

• Non Custodial Parent (NCP) data can also be requested

• Home equity is considered; significant number of formulaic differences relative to FM

IM: Why use it? IM: Why use it? • When “compelling budgetary concerns” make overall

higher EFC’s desirable• When your institution believes all students are best

served by a more realistic assessment of family financial strength

• When another filter is helpful to sort out families who by any reasonable definition are likely not grant eligible

• As an avenue to simply get Non Custodial Parent (NCP) data

• Your answer here:

Other “IM” options includeOther “IM” options include• Institutional aid applications (sometimes for

both needs analysis and scholarships)• Cherry picking some CSS Profile outputs• Running parallel processing, sing CSS Profile

calculation within PC spreadsheet or other software

• Calculating need for international students• Other?

Q&AQ&A

GO FORTH AND PROSPER!GO FORTH AND PROSPER!