NEED ANALYSIS
AND
PROFESSIONAL
JUDGMENTS
JUSTIN CHASE BROWN
CORTNEYJO SANDIDGE
UNIVERSITY OF MISSOURI
TRAINING OBJECTIVES
i.
Principles of Need Analysis
ii.
Need Analysis Variations
iii.
Professional Judgment
iv.
Dependent Case Study
v.
Case Study On Your Own
http://ifap.ed.gov/efcformulaguide/attachments/091913EFCFormulaGuide1415.pdf
PRINCIPLES OF NEED ANALYSIS
 the assessment of the difference between a family’s
ability to pay for college (EFC) and the college’s
cost of attendance (COA)
 Guiding premise:

Students and their families are primarily responsible for the funding of a student’s
educational expenses, to the extent possible.
PRINCIPLES OF NEED ANALYSIS
First step  Calculating the Expected Family Contribution (EFC)
 Operational principles

Federal methodology is intended to measure the ability of the student and his/her
family to contribute to the total cost of a college education.

Only after the family’s ability to contribute has been measured will need-based financial
aid be used to pay for postsecondary education.
PRINCIPLES OF NEED ANALYSIS
 Student/family files FAFSA
 Federal processor performs calculations

Student information = Student Contribution


Parental information = Parent Contribution


Including spouse, if independent and married
For dependent students
Household size and number in college
NEED ANALYSIS COMPONENTS
 Basic components:

Income

Allowances

Assets

Number in household

Number in college
NEED ANALYSIS FORMULA IN A NUTSHELL
Income
Assets
Cost of
living
Allowances
Available
income
Contribution
EFC
# in
college
ALLOWANCES

U.S. income tax paid allowance

State and other tax allowance

Social Security tax allowance

Income Protection Allowance

Parent’s negative Adjusted Available Income
(dependent students only)
INCOME PROTECTION ALLOWANCE
 Allowance for basic living expenses of a family, which varies
according to the number in the household and college
 In general, it can be assumed that:
 30% of IPA is for food
 22% of IPA is for housing
 9% of IPA is for transportation expenses
 16% of IPA is for clothing/personal care
 11% of IPA is for medical care
 12% of IPA is for other family consumption
SAVING FOR COLLEGE
 Many families feel they are penalized if they save money for college.

Two largest assets for most families are not included in need analysis (home equity and
retirement savings)

There is also an asset protection allowance that varies according to eldest parent’s age

Assessment rate on assets is relatively low
NEED ANALYSIS VARIATIONS
FORMULA A
Dependent students
FORMULA B
Independent student without
dependents other than spouse
FORMULA C
Independent students with
dependents other than spouse
NEED ANALYSIS VARIATIONS
Regular (full) Formula
Simple Needs Formula
Lower-income families (assets not considered)
Automatic Zero Formula
Very low-income families (Zero EFC)
[DEPENDENT – FORMULA A]
SIMPLE NEEDS TEST
 Eligibility

Parent AGI ≤ $49,999 and one of the following are true:

Parent filed or eligible to file 1040A/EZ

Parent was not required to file a tax return

Parent is a dislocated worker

Anyone in the household received means-tested Federal benefits in 2012 or 2013
SIMPLE NEEDS TEST
[INDEPENDENT – FORMULA C]
 Eligibility

Student/spouse AGI ≤ $49,999 and one of the following are true:

Student/spouse filed or eligible to file 1040A/EZ

Student/spouse was not required to file a tax return

Student/spouse is a dislocated worker

Anyone in the student/spouse household received means-tested Federal benefits in 2012 or 2013
[DEPENDENT – FORMULA A]
AUTOMATIC ZERO FORMULA
 Eligibility

Income threshold $24,000 ($23,000 in 13AY)

Parent income ≤ $24,000 and one of the following are true:

Parent filed or eligible to file 1040A/EZ

Parent was not required to file a tax return

Parent is a dislocated worker

Anyone in the household received means-tested Federal benefits in 2012 or 2013
[INDEPENDENT – FORMULA C]
AUTOMATIC ZERO FORMULA
 Eligibility

Income threshold $24,000 ($23,000 in 13AY)

Student/spouse income ≤ $24,000 and one of the following are true:

Student/spouse filed or eligible to file 1040A/EZ

Student/spouse was not required to file a tax return

Student/spouse is a dislocated worker

Anyone in the student/spouse household received means-tested Federal benefits in 2012 or 2013
NEED ANALYSIS TERMS
 Base year

Refers to the tax year the FAFSA calculates
 Available Income

Refers to the assessed portion of discretionary income
 Adjusted Available Income

Refers to the available income plus contribution from assets/discretionary net worth
NEED ANALYSIS TERMS
 Terms you should know…

Income Protection Allowance

Base Year

Available Income

Adjusted Available Income

Simplified/Simple Needs Formula

Automatic Zero Formula

Dependent versus Independent
PROFESSIONAL JUDGMENT
 Can you apply professional judgment to the need analysis formula? NO!


The need analysis formula cannot be altered

Elements of the formula may be changed with professional judgment (e.g., income earned from
work, adjusted gross income, child support received, etc.)

When adjusted, these elements will change the result of the EFC when the formula is applied

Permissible under Section 479A of the HEA. Must have adequate documentation and
adjustments must be made on a case-by-case basis (cannot apply to a category of students)
Professional judgment can also apply to areas such as dependency status, cost of
attendance, satisfactory academic progress, etc.
EXAMPLES OF SPECIAL CIRCUMSTANCES IN HEA
 Elementary or secondary school tuition expenses
 Medical, dental, or nursing home expenses not covered by insurance

Remember that approximately 11% of the Income Protection Allowance is set aside
from the need analysis formula for the family’s medical costs
 Unusually high or dependent care costs
 Recent unemployment of family member or independent student

Notice what effect Dislocated Worker status has on the need analysis formula
“UNREASONABLE” ADJUSTMENT EXAMPLES
 Vacation expenses
 Tithing expenses
 Standard living expenses such as utilities, bills, credit card payments, cell phone,
children’s allowances, etc.
 Standard maintenance items such as lawn care, home repair, fuel, etc.

Remember the Income Protection Allowance in which these types of costs are already
protected from the need analysis formula
VERIFICATION
 If the student is selected for verification,
you must verify the file before making
any professional judgment adjustment.

You may have an institutional policy to
verify any file prior to making a
professional judgment decision.
PJ CASE STUDIES:
 Xena is married and has two children

Had $2,300 in unreimbursed medical expenses
 Xena is the only family member in college
 Daisy is a dependent student living with her mother and sister; she is the only
family member in college
 Daisy’s mother has incurred credit card debt of $8,000
PJ CASE STUDIES:
 Topanga’s parent’s own a rental home with a net worth of $145,000

The rental home is destroyed due to Hurricane Sandy
 Family loses potential rental income and insurance settlement is expected
 Screech is a 20-year-old student and had lived with his mother and two younger
siblings when in high school. His mother remarried last year and has a prenuptial
agreement with the stepfather that he will not cover expenses for Screech.
 Screech asks that his stepfather’s income be excluded because his mother and
stepfather married after he started college.
WORKSHEETS AND TABLES
DEPENDENT CASE STUDY
Clint Westwood lives with two sisters, Gretchen and Winifred, and parents
in Cooter, MO. He is enrolling in college as a freshman this year. He has a
summer job where he earned $1,300 last year and has $200 in a savings
account.
His mother, Dolly, is a secretary and earned $31,987 in 2013, and stepfather, Cecil, works for the city and has one other child, Bartholomew (age
22), who attends college half-time. Last year, Cecil earned $62,246 and they
have $0 in investments, $0 in a checking account, $0 in education tax
credits, and $5,331 in federal income tax paid. They will file an IRS 1040.
Cecil is 50 years old and Dolly is 47 years old and AGI is $106,400.
CLINT WESTWOOD
$62,246
4%
$31,987
$0
$106,400
$5,331
$0 $51,564
$4,256
$0
$4,762
$8,977
$51,564
$94,233
$106,400
$0
$2,447
$0
$17,953
$54,836
$106,400
$0
$34,040
$0 $40
$51,564
2
$0
$34,600
$106,400
$$8,977
9,017
- $34,600
($51,564 - $31,500) x 47% + $8,523 =
$0
$4,000
$0
$54,836
$106,400
CASE STUDY ON YOUR OWN
 Quinn Fabray [Dependent]
 Napoleon Dynamite [Dependent]
 Emma Pillsbury [Independent]
 Rudy Ruettiger [Dependent]
 Anheuser Busch [Dependent]
 Ronald Burgundy [Independent]
 Larry Crowne [Independent]
NEED ANALYSIS
AND
PROFESSIONAL
JUDGMENTS
QUESTIONS?
JUSTIN CHASE BROWN
CORTNEYJO SANDIDGE
UNIVERSITY OF MISSOURI