fm: broken and/or too political? h eather mcdonnell - sarah lawrence college

FM: Broken and/or Too Political?FM: Broken and/or Too Political?

HHeather McDonnell - eather McDonnell - Sarah Lawrence CollegeSarah Lawrence College

Federal Methodology is subject to

- attempts to control Federal Pell Grant Expenditures – entitlement program

- political expediency – pork barrel legislation

Federal Methodology lacks collaboration of practitioners and economists

Based on its historical foundation

Based on its philosophical roots

In its practical application

Creation of Needs Analysis

A fictional dramatizationA fictional dramatization

Early 1950’s work by John Munro of Harvard

Mid-1950’s: College Scholarship Service (CSS) founded by small group of private colleges. Established criteria to measure college students and their families' ability to contribute to their education based on family income and assets.

Mid-1970’s: National Task Force on Student Aid Problems – Keppel Task Force – developed Uniform Methodology

Partnership – Collaboration

1986 – Congressional Methodology – with Professional Judgment

1992 - Higher Education Amendments- Mandated sole use of a single, free application for Title IV funds (Free Application for Federal Student Aid, or FAFSA); - Mandated a single need analysis methodology, called the Federal Need Analysis (FM);

An objective and uniformly applied formula designed to establish the relative financial strength of families to meet education expenses over time.

Equity Principle – Allowing full access to educational opportunity and leveling the playing field for access to financial resources for higher education vertical equity – varying contributions according

to available resources – income and assets – people with more pay more

horizontal equity – families with relatively equal resources will be assessed at the same level

eq·ui·ta·ble

adj. 1. Marked by or having equity; just and impartial.. Just to all parties: equal, even, evenhanded,

2. Free from bias in judgment: fair, fair-minded, impartial, just, nonpartisan, objective, unbiased, unprejudiced. Idiom: fair and square. See fair

noun The quality or

state of being just and unbiased:

u·ni·form

adj. 1. Always the same, as in character or degree; unvarying.2. Conforming to one principle, standard, or rule; consistent.3. Being the same as or consonant with another or others.4. Unvaried in texture, color, or design.

ob·jec·tive

adj. 1. Of or having to do with a material object.2. Having actual existence or reality.3. Uninfluenced by emotions or personal prejudices: an objective critic. See Synonyms at fair1.

Source: Webster-Merriam Dictionary

http://www.yourdictionary.com/ahd/e/e0187000.html



http://www.yourdictionary.com/ahd/f/f0013200.html

http://www.yourdictionary.com/ahd/f/f0015500.html

http://www.yourdictionary.com/ahd/i/i0053500.html

http://www.yourdictionary.com/ahd/j/j0087400.html

http://www.yourdictionary.com/ahd/n/n0143400.html

smccrackin

Suggest you add source for definitions here. I put something in the footnote as a suggestion, but I'm not sure that it is the correct format. Feel free to delete if you disagree.

rea·son·able adjective 1 a: being in accordance with

reason <a reasonable theory>

b: not extreme or excessive <reasonable requests>

c: moderate, fair <a reasonable chance> <a reasonable price>

d: inexpensive 2 a: having the faculty of reason

b: possessing sound judgment <a reasonable man>

- re·al·ism noun 1: concern for fact or

reality and rejection of the impractical and visionary

2 a: a doctrine that universals exist outside the mind; specifically : the conception that an abstract term names an independent and unitary reality

b: a theory that objects of sense perception or cognition exist independently of the mind

Source: Webster-Merriam Dictionary

smccrackin

Add footnote on this slide, also

The foundation of needs analysis is the ability to pay

Do we know enough about the family’s economic situation to make a reasonable and realistic determination?

AGI is not always a true reflection of a family’s income and resources

smccrackin

I don't know if this is the place, but I think it is always good to remind folks that the FAFSA and the FM exist mainly to identify people eligible for federal grants, so they are designed to "reward" the lower income applicant. They need to be simple and direct, but they does not always serve the more complicated family where the apparent poor may not be just as the apparent well-off may not be. To get a good picture of these families, the methodology needs to be more nimble.

The only verifiable document available that provides a picture of family income.

Limitations: Designed to determine what portion of

income is taxable. Some changes in the tax law designed to

spur the economy – protecting income from being taxed.

Changes in the tax laws do not necessarily lead to change in the treatment of income and expenses within Needs Analysis.

Family One

Both parents earn $20,000

AGI = $40,000

Family Two

Self-employed Schedule C shows

$125,000 gross receipts with $85,000 of business expenses (possible inclusion of expenses for office in the home, business travel expenses, etc.)

AGI - $40,000

Un-reimbursed Business Expenses - $5,000

Expenses used in calculating AGI – $45,000

Dad $40,000

Mom $10,000

$100,000 assets

Parent Contribution $1,816

Expenses not used in calculating AGI – 50,000

Dad $40,000

Mom $10,000

$100,000 assets


Does anyone allow Business Expenses under Professional Judgment?

$150,000 in Liquid Assets

AGI – $80,000

Dad – 48 - $50,000

Mom $30,000

$150,000 assets


AGI – $80,000

Dad - 48 - $50,000

Mom $30,000

$150,000 business assets treated as business assets


AGI – $80,000

Dad - 48 - $50,000

Mom $30,000

$150,000 business assets not counted


smccrackin

Wow. This slide is powerful. I'll bet people don't realize what all those methodology variations actually do and what impact they can have to families who look so much alike. This really spells it out.

728 Cases of Grant Eligible, First-Year Admitted Applicants

28 had FM PC = IM PC – 3.9% 247 had FM Parent Contribution less

than IM Parent Contribution – 33.9% 453 had FM Parent Contribution

greater than IM Parent Contribution – 62.2%

FM tables are based upon taxes paid by 1040 Schedule A filers How many 1040 A or EZ filers do you have?

Excludes sales tax Doesn’t everyone pay sales tax on

something? Rates don’t vary by income

FM has adjusted the 1967 Bureau of Labor Statistics (BLS) Standard of Living by inflation Spending habits have changed since

1967 Cell phones Computers Internet service Cable

We want families to save for college yet do we give any realistic saving allowance to families with younger children?

FM spends down the family “wealth” on the oldest college bound child

Breakdown of Parental Net Worth

Investments -- 12.7%

Home -- 70.1%

Business -- 3.7%

Farm -- .8%

Other Real Estate -- 6.4%

Assets in Siblings' Names -- .6%

Cash, Savings -- 5.8%

Home Equity $20 billion

Business Equity $1.1 billion

Farm Equity $227 million

Parental Assets in Siblings Names $171 million

smccrackin

I suggest being even more specific with the last bullet by changing it to Parental Assets in Siblings' Names. Most people think about this money as the other children's money, but it is really the parents' money that they have put in their younger childrens' names to get a tax break on it. But it belongs to the parent and should be assessed as such.

Measure of a family’s economic strength over time

Tax advantages (Schedule A) Refinancing as an option Mortgage payments are stable

Renters are subject to random increases Renters pay more of their income for

housing

smccrackin

Probably a good idea to mention that even though homes have not been as stable over the last 2-3 years, longitudinally, they have been a solid investment and families are more likely to see a strong benefit in being a home owner than not.

smccrackin

Also, more minority families are renters while more non-minority families are home-owners. Always an interesting point when you are thinking about equity and access.

A great accountant can make the difference!

A good financial aid practitioner is an artist who uses needs analysis as a science

A great practitioner is a scientist who uses needs analysis as an art form

smccrackin

Love this slide!

If it’s reasonable, most families can manage without major lifestyle or college choice changes Sacrifice is assumed. The degree will

depend on prior planning and the value the family places on a college education

Is it possible to recreate a partnership in how parent contributions – financial need – is determined?

Is it possible to create a needs analysis system that is based on objective, equitable and uniformly applied economic criteria?

I. Pell Formula – to control expenditures for entitlement programs Pell, ACG, SMART Grants

II. A nationally formulated assessment tool that provides an equitable and uniformly applied approach to collecting and analyzing financial data for campus based funds – federal and institutional.

fm: broken and/or too political? h eather mcdonnell - sarah lawrence college

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