Professional Judgment

Presented by Renee PelletierFinancial Aid Advisor

Office of Financial Aid and Scholarship Services

Session Overview

• What and Why of Professional Judgment• Foundations of Need Analysis• Overview of Federal Methodology• When and How of Professional Judgment

What is Professional Judgment

Discretion used by Financial Aid Administrators in specific areas of student aid administration to decide whether the standard procedures apply to a given case.

Why Professional Judgment is Used• Gives Financial Aid Administrators the

authority to consider special circumstances on a case-by-case basis

• Enables responsiveness to student circumstances that can’t be fully anticipated in legislation or regulation

• Promotes access by targeting delivery of aid to qualified students in need

Foundation of Need Analysis

Philosophy of Need-Based Aid

• Paying for college is a partnership–Dependency status defines partnership–First responsibility of student and

family–Aid is a supplement to family resources

Family Responsibility

Need analysis measures ability to pay not willingness to pay

Goal of Need Analysis

• A reasonable family contribution–A snapshot of family financial

resources

Principles of Need Analysis

• Equity: Fairness in need analysis–Horizontal Equity• Consistent treatment of people in similar

circumstances

–Vertical Equity• Appropriately differing treatment of people in

different circumstances

Principles of Need Analysis• Basic family needs come first–Need analysis provides allowances for non-

discretionary expenses

• After measuring discretionary resources, need analysis assesses the portion available for educational costs

Overview of Federal Methodology

• Income–Major determinant of family

contribution–Taxable + Untaxed Income–Additional Financial Information items

are then subtracted to get Total Income

Overview of Federal Methodology

• Allowances–Federal Income Tax–Social Security Tax–State and other taxes–Employment Expense Allowance–Income Protection Allowance (IPA)

Overview of Federal Methodology

Total Income – Allowances = Available Income

Overview of Federal Methodology• Assets– Cash, savings, checking– Money market funds– Equity in real estate other than primary residence– Trust funds– CDs, stocks, bonds, mutual funds– Coverdell & 529 college savings plans– Business or non-family farm equity• Does not include value of small business that family

owns and controls more than 50% and the business has 100 or fewer FT or FT equivalent employees

Overview of Federal Methodology

• Assets do not include– Equity of primary residences– Value of life insurance– Retirement plans• 401k plans• Pension funds• Annuities• Non-education IRAs• Keogh plans

Overview of Federal Methodology

• Asset Protection Allowance (APA)–Protects a portion of parental assets for

retirement, postsecondary education for the student’s siblings, emergencies, and other purposes– Set using the age of the older parent and

parents’ marital status

Overview of Federal Methodology

• Discretionary Net worth = Net worth – APA• Asset Assessment Rate–Used to convert discretionary net worth into

and “income equivalent” (contribution from assets)

Overview of Federal Methodology

• Available Income + Contribution from Assets = Adjusted Available Income

• Adjusted Available Contribution (AAI) Rate– Determines the portion of AAI that parents are

expected to contribute toward the education of their dependent children

• Total parents’ contribution from AAI ÷ number in college = Expected Family Contribution (EFC)

Differences between IM and FM

• Treatment of Assets– Equity of primary residence considered– Family farm equity considered–Option to asses retirement assets–Cumulative Education Savings Allowance• Assumes family has saved a percentage of

income for college based on income and the number of children in the household

Use of Professional Judgment

When Professional Judgment is Used

• Can change data values (not data elements or allowance values)– Income data– Asset data

• Can adjust Cost of Attendance (COA)• Can change student status data – dependency

override

When Professional Judgment is Used

• Cannot adjust Federal Methodology• Cannot change the Expected Family

Contribution (EFC)• Cannot change an ineligible student to an

eligible student• Cannot make an otherwise federally

independent student dependent

Use of Professional Judgment

• With this flexibility comes responsibility and accountability on the part of the Financial Aid Administrator

• Evaluation– Appropriateness of adjustments

• Implementation– Where adjustments are made• COA vs. need analysis data values

Use of Professional Judgment• Decisions supported by data– Authority to use data that best represents current

family circumstances– Cannot be based solely on a feeling but on a

reasonable amount of data and information

• Evaluation of data– Source– Accuracy– Appropriateness

• DOCUMENTATION

Special Circumstances• Tuition expenses at an elementary or secondary school• Medical, dental, or nursing home expenses not covered

by insurance• Unusually high child care or dependent care costs• Recent unemployment of a family member or an

independent student• A student or family member who is a dislocated worker– Underemployment or displaced homemaker

• Other changes in family’s income or assets

Dependency Overrides

• Unusual circumstances– Abusive family environment– Abandonment– Unusual circumstances do not preclude a student

from answering “yes” to a homeless question, if applicable

– Unusual circumstances may lead to situations that do not warrant a dependency override by themselves

Dependency Overrides

• Circumstances that DO NOT warrant a Dependency Override– Parents refuse to contribute to educational costs– Parents unwilling to provide information on FAFSA

or for verification purposes– Parents do not claim the student as a dependent

for income tax purposes– Student demonstrates total self-sufficiency

Alternatives to Dependency Overrides• School may use professional judgment to award an

Unsubsidized Stafford Loan to a dependent student– Whose parent(s) refuses to provide parental information for

the FAFSA– Who does not receive financial support from parent(s)– Must be documented– Student must file the FAFSA and be otherwise eligible for

federal aid

• Institutional funds– Availability– Ease of processing (no FAFSA required)

Conclusions• Needs analysis is the starting point for Financial

Aid Administrators• Special Circumstances must be evaluated on a

case-by-case basis• Professional Judgment is not black and white– Decisions will vary from institution to institution and

from administrator to administrator– No right or wrong, but must be able to justify

decisions

• Documentation, documentation, documentation

Questions