adventures in needs analysis: the basis of professional judgment

MINNEAPOLIS, MN OCTOBER 18-21

MASFAA: TIME TO REFOCUS

Adventures in Adventures in Needs Analysis: Needs Analysis: The Basis of Professional JudgmentThe Basis of Professional Judgment

Jim Eddy, University of Michigan [email protected]

http://ifap.ed.gov/efcformulaguide/attachments/111408EFCFormulaGuide0910.pdf



In this session we will:In this session we will:Do needs analysis, then talk about it

Review or revisit the EFC formula in the process

Look at some recent regulatory EFC changes

Discuss IM practices and anything else we feel like talking about



Dependent Dependent Student Case Student Case Study: Dive in!Study: Dive in!



Arriving at Total Parent IncomeArriving at Total Parent Income

1.1. Parent’s 2008 AGI:Parent’s 2008 AGI: 61341613412.a. 2.a. Father’s work income^Father’s work income^ 21117211172.b. 2.b. Plus Mother’s work income^Plus Mother’s work income^ 38192 38192 Equals total Parent work inc.^Equals total Parent work inc.^ 59309593093. 3. Parent’s taxable incomeParent’s taxable income 61341613414. 4. Untaxed income:Untaxed income:

* Total * Total 2400 2400 = Total Untaxed = Total Untaxed 2400 2400

5. 5. Taxable and UntaxedTaxable and Untaxed 63741 637416. 6. Less offsets to incomeLess offsets to income <3550> <3550>7. 7. Equals Total Parent IncomeEquals Total Parent Income 60191 60191



Getting Parent Available Income (AI) Getting Parent Available Income (AI) 8.8. 2008 U.S. tax paid^2008 U.S. tax paid^

5819 58199. 9. State/other tax (TableA1)State/other tax (TableA1) 2408 2408

10. 10. Father’s FICA (Table A2)^Father’s FICA (Table A2)^ 1615 1615 11. 11. Mother’s FICA (Table A2)^Mother’s FICA (Table A2)^ 2922 292212. 12. Income Protection Allow (T. A3)^Income Protection Allow (T. A3)^ 260402604013.13. Employment Expense AllowanceEmployment Expense Allowance 3500 3500

14. 14. Total Allowances: Total Allowances: 4230442304

Total Income (from line 7)Total Income (from line 7) 6019160191

Minus Total AllowancesMinus Total Allowances <42304> <42304>

15. 15. Equals Available IncomeEquals Available Income 1788717887



Parent Asset ContributionParent Asset Contribution

16.16. Cash & Savings^Cash & Savings^ 21672 2167217. 17. Net Worth of Investments^Net Worth of Investments^ 14000 1400018. 18. Net Worth Business/Inv. Farm^Net Worth Business/Inv. Farm^ 0 019.19. Adjust. Net. W. Business/Farm (A4) 0Adjust. Net. W. Business/Farm (A4) 020. 20. Net Worth (sum 16, 17, 19)Net Worth (sum 16, 17, 19) 35672 3567221.21. Edu. Savings/asset protect. (A5) 53700Edu. Savings/asset protect. (A5) 5370022.22. Discretionary Net Worth (20-21) <18028>Discretionary Net Worth (20-21) <18028>23. 23. Asset Conversion rate x .12Asset Conversion rate x .12 0 024. 24. Contribution from assetsContribution from assets 0 0



Finally…Parent ContributionFinally…Parent Contribution

Parent’s Available Income (line 15)Parent’s Available Income (line 15) 17887 17887Plus Asset Contribution (line 24)Plus Asset Contribution (line 24) 0 0

25. Equals Adjusted Available Income25. Equals Adjusted Available Income 1788717887

26. Total contrib. from AAI (Table A6)26. Total contrib. from AAI (Table A6) 4049 4049

27. # in college, 09-10 (exclude parents)^27. # in college, 09-10 (exclude parents)^ 2 2

28. Equals Parent Contribution28. Equals Parent Contribution 2025 2025



Student Contribution: Student Contribution: Total incomeTotal income

29.29. Student AGIStudent AGI 3216321630.30. Student’s work incomeStudent’s work income 3199319931.31. Taxable incomeTaxable income 3216321632.32. Untaxed income: 0Untaxed income: 0 Total untaxed income Total untaxed income 0 033.33. Total, taxed/untaxedTotal, taxed/untaxed 3216321634.34. Less offsets to income 0Less offsets to income 0

35.35. Equals Total IncomeEquals Total Income 3216 3216



Student Contribution: Student Contribution: AllowancesAllowances

36.36. Student tax paid^Student tax paid^ 36 3637.37. State/other tax (Table A7)State/other tax (Table A7) 96 9638.38. Student FICA (Table A2)Student FICA (Table A2) 245 24539.39. Income Protection Allow.Income Protection Allow. 3750 375040.40. Allow. for Parent Neg. AAIAllow. for Parent Neg. AAI 0 041.41. Total allowancesTotal allowances 4127 4127

Total Income (line 35)Total Income (line 35) 3216 3216Less Total Allow. (line 41)Less Total Allow. (line 41) 4127 4127

42. 42. Equals Available Inc. (AI)Equals Available Inc. (AI) 0 043. 43. Assessed at .50Assessed at .50 0 0

44. Equals Student Cont. from AI 044. Equals Student Cont. from AI 0



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

45.45. Student cash, etc.Student cash, etc. 350 35046.46. Student investments^Student investments^ 0 047.47. Student bus./farm^Student bus./farm^ 0 048.48. New Worth (sum 45-47)New Worth (sum 45-47) 350 35049.49. Assessed at .20^Assessed at .20^ 70 7050.50. Contribution from assets:Contribution from assets: 70 70

Parent Contribution (line 28)Parent Contribution (line 28) 2025 2025Plus Student AI Contrib. (line 44)Plus Student AI Contrib. (line 44) 0 0Plus Student Cont. from assetsPlus Student Cont. from assets 70 70

51. 51. Equals Overall EFCEquals Overall EFC 2095 2095



Independent StudentIndependent Student Without Dependents Without Dependents (other than a spouse) (other than a spouse) Case Study Case Study



Arriving at Total Student IncomeArriving at Total Student Income

1.1. Student’s AGI:Student’s AGI: 49905499052.a. 2.a. Student’s work incomeStudent’s work income 6991 69912.b. 2.b. Plus Spouse’s work incomePlus Spouse’s work income 7374 7374 Equals total work incomeEquals total work income 14365143653. 3. Student/Spouse tax. incomeStudent/Spouse tax. income 49905499054. 4. Untaxed income:Untaxed income: 0 0

= Total Untaxed = Total Untaxed 0 05. 5. Taxable and UntaxedTaxable and Untaxed 49905499056. 6. Less offsets to incomeLess offsets to income <0> <0>7. 7. Equals Total IncomeEquals Total Income 4990549905



Getting Student Available Income (AI) Getting Student Available Income (AI) 8.8. 2008 U.S. tax paid^2008 U.S. tax paid^

6706 67069. 9. State/other tax (Table B1)State/other tax (Table B1) 2495 2495

10. 10. Student’s FICA (Table B2)Student’s FICA (Table B2) 535 535 11. 11. Spouse’s FICA (Table B2)Spouse’s FICA (Table B2) 564 56412. 12. Income Protection Allow Income Protection Allow 7000 700013.13. Employment Expense AllowanceEmployment Expense Allowance 2447 2447

14. 14. Total Allowances: Total Allowances: 1974719747

Total Income (from line 7)Total Income (from line 7) 4990549905

Minus Total AllowancesMinus Total Allowances <19747> <19747>

15. 15. Equals Available IncomeEquals Available Income 3015830158



Student Asset ContributionStudent Asset Contribution::



Finally…Student ContributionFinally…Student Contribution

Student’s Available Income (line 15)Student’s Available Income (line 15) 3015830158

Plus NO Asset Contrib. (Simple) Plus NO Asset Contrib. (Simple) 0 0

Equals Available IncomeEquals Available Income 3015830158

Times 50% assessment rate equalsTimes 50% assessment rate equals 1507915079

Divided by number in collegeDivided by number in college 2 2

Equals Total ContributionEquals Total Contribution 7540 7540



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



1. 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



What has changed What has changed (somewhat recently) in (somewhat recently) in Federal Methodology Federal Methodology Needs Analysis?Needs Analysis?



College Cost Reduction College Cost Reduction and Access Act of 2007: and Access Act of 2007:

“CCRAA”“CCRAA”



““HERA”HERA” Higher Education

Reconciliation Act of 2005



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

• CCRAA increased this further:• AY2009-2010 - $3,750• AY2010-2011 - $4,500• AY2011-2012 - $5,250• AY2012-2013 - $6,000



• HERA increased the income protection allowance for single students or married students where both are enrolled from $5,000 to $6,050.• CCRAA increased this further:• AY2009-2010 - $7,000• AY2010-2011 - $7,780• AY2011-2012 - $8,550• AY2012-2013 - $9,330• CCRAA also added separated students to this category.



• HERA increased the income protection allowance for married students where one is enrolled from $8,000 to $9,700.

• CCRAA increased this further:• AY2009-2010 - $11,220• AY2010-2011 - $12,460• AY2011-2012 - $13,710• AY2012-2013 - $14,960• CCRAA also made similar increases forindependent students with dependents other than a spouse.



“Total Income” DefinitionEffective 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” Definition

Former language:• “an orphan or ward of the court or was a ward of the court until the individual reached the age of 18”

New language (effective July 1, 2009):• “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” Definition

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 ofhomelessness, and self-supporting…



Excludable Income Definition

• CCRAA added “special combat pay” to thedefinition of “excludable income.”• Special combat pay is defined as “pay received by a member of the Armed Forces because of exposure to a hazardous situation.”• Special combat pay cannot be treated asestimated financial assistance.

• Effective July 1, 2009



Asset Definition

• HERA added “qualified education benefit” to the definition of asset.• 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 (Effective July 1, 2009)



Exclusion from Expected Assets:

• CCRAA added some additional exclusions to the definition of EFA.• Excluded are distributions not included in gross income from:

• 529 plans• State pre-paid tuition plans• Coverdell education savings accounts.

• Effective July 1, 2009



Simplified 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.• This term was defined in the Workforce Investment Act of 1998.



Auto Zero EFC (Effective July 1, 2009)

• CCRAA changed qualifying standard:

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

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



Institutional Institutional Methodology: Methodology:

“IM” “IM”



Who uses it?Who uses it?Many privates, some publics, often using

the CSS ProfileCost involved for filers, with some waiver

exceptionsNon Custodial Parent (NCP) data can also

be requestedHome equity considered; significant number

of formulaic differences relative to FM



Why use it?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 are likely not grant eligible

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

Your answer here:



Other “IM” options include:Other “IM” options include:Institutional aid applications (sometimes

for both needs analysis and scholarships)Cherry picking some CSS Profile outputsRunning parallel processing, using CSS

Profile calculation within PC spreadsheet or other software

Going after parent retirement assetsOther?



Q&AQ&A



GO FORTH AND PROSPER!GO FORTH AND PROSPER!



Dependent Student EFC, 2009-10: The Case (HANDOUT)

Gerald is a prospective college freshman. His older sister Claire will be a junior at the University of Wisconsin, and little brother Dustin

will be navigating the mysteries of junior high. Dad (Fred, age 49) and Mom (Jessica, age 47) spent some years self-actualizing before having children; both are currently employed. Everyone is

a Michigan resident.

Their 2008 Federal AGI was $61,341. Fred, a former auto worker,earned $21,117, and Jessica, a financial aid administrator, earned $38,192. Their federal tax paid was $5,819 (they need a better tax

preparer, since they itemized but probably missed some significant deductions). They hold $21,672 in their combined savings and

checking; they also have a small amount of 529 savings for the 3 kids, totaling $14,000. Their home is worth $243,000 in this market, but like so many of their neighbors they are leveraged to the hilt and owe

$199,479 on the mortgage.



More details: They were able to claim a 2008 Hope educational credit on their taxes for Claire in the amount of $1650. Jessica contributed $2,400 (pre-tax) to her 401K plan in 2008. Fred also has another child from a previous relationship; this has contributed to the occasional spousal argument, but in fact Fred’s child support paid out in 2008 amounted to just $1,900. Jessica will be a half-time student herself in 2009-10 at their local area community college.

Gerald filed a 2008 1040EZ, with an AGI of $3,216 and tax paid of $36. His income from his part time job was $3,199, and at the time of his FAFSA filing his savings stood at $350. Gerald hopes to teach some day, but he is very intelligent, so he will not be asking for a TEACH grant for 2009-10.



Independent Student EFC Calculation, 2009-10: The CaseIndependent Student EFC Calculation, 2009-10: The Case

Cindy (age 23) and Doug (age 25) live a free flowing life. Each has been accepted Cindy (age 23) and Doug (age 25) live a free flowing life. Each has been accepted into graduate school for 2009-010 (Cindy for Nursing, Doug for Ethnomusicology). into graduate school for 2009-010 (Cindy for Nursing, Doug for Ethnomusicology). Today, we are calculating Doug’s EFC. They were married in 2000, and have no Today, we are calculating Doug’s EFC. They were married in 2000, and have no children. They have lived and worked (O.K., they really haven’t worked all that children. They have lived and worked (O.K., they really haven’t worked all that much) in Oregon all of their lives.much) in Oregon all of their lives.

Doug inherited a large sum several years ago, and currently has $573,000 in various Doug inherited a large sum several years ago, and currently has $573,000 in various investments. He gets only a modest return, but he’s O.K. with that, it’s enough to get investments. He gets only a modest return, but he’s O.K. with that, it’s enough to get by; in 2008 he earned $27,300 in taxable dividends which is included in their AGI. by; in 2008 he earned $27,300 in taxable dividends which is included in their AGI. Cindy is not quite as asset heavy; her inheritance was only $80,640, on which she Cindy is not quite as asset heavy; her inheritance was only $80,640, on which she realized $3,840 in 2008 interest, also included in their AGI.realized $3,840 in 2008 interest, also included in their AGI.

Cindy earned $7,374 via wage employment in 2008; Doug earned $6,991, and Cindy earned $7,374 via wage employment in 2008; Doug earned $6,991, and through some clumsy maneuvering by his former employer, he additionally collected through some clumsy maneuvering by his former employer, he additionally collected $4,400 in 2007 unemployment insurance. Their 2008 AGI was $49,905, and their $4,400 in 2007 unemployment insurance. Their 2008 AGI was $49,905, and their federal tax paid was $6,706. They filed a 1040, but were eligible to file a short form federal tax paid was $6,706. They filed a 1040, but were eligible to file a short form with the IRS. They live in a yurt on Cindy’s parent’s farm outside of Eugene.with the IRS. They live in a yurt on Cindy’s parent’s farm outside of Eugene.

adventures in needs analysis: the basis of professional judgment

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