### Need Analysis - Slideshow

```The following is a presentation prepared for:
Name of Conference
City, ST
Date
1
Name of Presenter –Title
School
2
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)
3
Basic Components of Need Analysis
Cost of attendance (COA)
– Expected family contribution (EFC)
= Financial need
4
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
5
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
6
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.,
• Income offsets – State taxes paid, federal taxes
paid, FICA tax, business/farm expenses, unusual
medical expenses, other taxes if applicable
7
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)
8
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
9
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.
10
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.
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Dependent Student Model A – Regular
Parents’ income
income earned from work
+ Untaxed income
= Total income
13
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
14
Dependent Student Model A – Regular
Parents’ available income
Total income
– Total allowances
= Parents’ available income
15
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
16
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
17
Dependent Student Model A – Regular
Available income
+ Contribution from assets
18
Dependent Student Model A – Regular
Parents’ contribution
Contribution
from
available
income

Number
in
college
=
Parents’
contribution
19
Dependent Student Model A – Regular
• Student’s contribution from income
– Student’s income
– Student’s allowances
• Student’s contribution from assets
20
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)
21
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
22
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
23
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
24
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
25
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
26
27
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
= Student total income (could be negative)
28
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
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Income Protection Allowance
12.00%
Food
30.00%
11.00%
Housing
Transportation
FM
FORMULA
Clothing & Personal Care
16.00%
Medical Care
22.00%
Other family consumption
9.00%
30
Independent Student with Dependent(s)
Regular Formula
Student available income
Total income
– Allowances against income
= Student available income (AI), may be
negative
31
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
(from table)
• Family owned farm & business with < 100 full-time
or equivalent employees not included
• If negative use 0
= Student net worth
32
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)
33
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
34
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
35
Independent Student with Dependent(s)
Simple Formula
Same as regular formula except assets are
excluded from calculation
36
Independent Student with Dependent(s)
Automatic Zero Formula
Qualifications same as for SNT except income
< \$24,001
37
38
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%
39
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
40
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
41
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
42
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 worth
2) 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 student
3) 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
43
Independent Students Without Dependents
Other than a Spouse
Model B – Case Study #1
Antoine 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.
44
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.
45
46
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
47
Beginning with the 2014–15 FAFSA:
•
Dependent students must include income and
other information about both of their legal parents
– The parents are living together
– Regardless of the parents’ marital status or
gender
48
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
49
• 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
50
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
2015, about 4 months before school starts
51
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
52
53
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
54
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
55
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
– Some tax credits
– Foreign Income Exclusion
– Social Security
56
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
57
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
58
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
59
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
60
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
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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
62
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
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64
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
65
Model A – Dependent Student
Melanie Knox
• Parent income
• Allowances against parent income
• Available income
66
Model A – Dependent Student
Melanie Knox
• Parent contribution from assets
• Parent contribution
67
Model A – Dependent Student
Melanie Knox
• Student income
• Allowances against student income
• Student contribution from income
• Student contribution from assets
• Expected family contribution
68
Model B - Courtney Fletcher
• Student/spouse income
• Allowances against student/spouse income
• Contribution from available income
• Student/spouse contribution from assets
• Expected family contribution
69
Model C – Automatic Zero EFC – Kurt Smith
• Student/spouse income
• Expected family contribution
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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
72
Why Should I Understand Need Analysis?
• Counseling
– Student
– Parents
• But students and parents can edit FAFSA…
• But I have a computer…
• Math !?!
73
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…
74
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!
75
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
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Need Analysis – Pulling It Altogether
Financial aid came into existence to help deserving
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.