Need Analysis & Professional Judgment Understanding

Understanding the EFC
New Aid Officer Workshop 2013
Angelika Williams
Assistant Director of Financial Aid and
Texas State University
• Definition of Need Analysis
• Factors that make up the EFC calculation
and why they are important
• The various federal formulas
• Types of professional judgment decisions
and how they are related to the EFC and
Need Analysis
• What is Professional Judgment
• Types of PJ
• Definition: The process of determining the
student's Expected Family Contribution
(EFC) based on the formula established by
Congress. Also known as Federal Need
Analysis Methodology and Federal
Methodology, or FM.
• Primary responsibility to pay for
education rests with the student and
• Family is expected to contribute to the
extent it is able
• Families must be evaluated in an
equitable manner
• Definition: Measure of how much the
student and his or her family can be
expected to contribute to the cost of the
student’s education for the year.
• The EFC is calculated according to a
formula specified in the law.
Basic EFC Formulas
Independent w/no dependent(s)
Independent with dependent(s)
Factors of EFC Calculations
Eligible to file a 1040A or EZ
Federal Means Test
Dislocated Worker
Total Income
Wages Earned
Untaxed Income
Additional Financial Information
Income Protection:
Taxes Paid
Household Size
Number in college
State and other Tax allowance
Protection of Assets
Age of Student (if independent)
Age of Older Parent
Cost of Attendance
• The EFC determines:
– Pell eligibility
– Room for need versus non-need-based aid
• Formula A
– For dependent students
• Formula B
– For independent students without dependents
(other than a spouse)
• Formula C
– For independent students with dependents
other than a spouse
For 13-14 EFC worksheets, go to IFAP:
• There are 3 special EFC Calculations
– Regular Formula: Takes BOTH income &
assets into account
– Simplified Needs Test (SNT):Takes only
income into account
– Auto-Zero EFC: Student’s EFC is
automatically zero
• How does a student qualify for SNT?
– Must have income (AGI/wages) of $49,999 or less
– Be eligible to file a 1040A or 1040EZ
– Qualify for a federal means test benefit program
– Be a dislocated worker
• How does a student qualify for Auto-Zero?
– Must have income (AGI/wages) of $24,000 or
– Be eligible to file a 1040A or 1040EZ
– Qualify for a federal means test benefit
– Be a dislocated worker
Only dependent students or independent students with dependents other than a
spouse qualify for an auto-zero EFC.
• So exactly what is a federal means test
benefit program?
Supplemental Security Income (SSI)
Temporary Assistance for Needy Families
Special Supplemental Nutritional Program for
Women, Infants & Children (WIC)
Food Stamps/SNAP
Free Reduced-Priced School Lunches
Was terminated or laid off from employment or received a notice of
termination or layoff;
Is unlikely to return to a previous occupation; and
Is eligible for or has exhausted unemployment compensation, or is not
eligible for compensation because, even though employed long enough to
demonstrate attachment to the workforce, he or she had insufficient
earnings or performed services for an employer that weren’t covered under
a state’s unemployment compensation law; or
Was terminated or laid off from employment or received a notice of
termination or layoff as a result of any permanent closure of, or any
substantial layoff at, a plant, facility, or enterprise;
Is employed at a facility at which the employer made a general
announcement that it will close;
Was self-employed but is now unemployed due to economic conditions or
natural disaster; or
Is a displaced homemaker
• Required to file a long form (1040) if
Wages are $100k or more(line 7)
Alimony received (line 11)
Business or Farm (line 12 & 18)
Capital gain or loss (line 13 if schedule D is
• Rental property (line 17)
• Itemized deductions (line 40)
• Health Savings account deduction (line 25)
• Eligible to file a 1040A or EZ
– If there are capital gains/losses but a Schedule D
isn’t required, then a 1040A is fine
Which EFC Calculation?
• FM automatically protects a set amount of
income varied by household size and number
in college (called IPA)
– Food 30%
– Housing 22%
– Transportation 9%
– Clothing/Personal Care 16%
– Medical 11%
– Other consumption 12%
• US Taxes Paid
– Also considers state & other taxes
This example is from Worksheet A (dependent students)
• Asset Protection: Dept of Ed automatically
protects a set amount of assets based on
the age of independent students or
parents of dependent students
– The older the student or parent, the greater
the amount of assets protected – due to
anticipated retirement
This example is from Worksheet A (dependent students)
Matching Exercise of EFC Terms
• A myriad of elements go into the EFC!
– You can’t “guesstimate” what someone’s EFC
would be just by asking income information
• Having a strong foundation of how the
EFC works will help you know if a
professional judgment (coming next) will
help a student
It’s Your Decision!
Section 479A in the HEA authorizes us to use PJ
• Adjusting Cost of Attendance components
• Adjusting data elements used to calculate
– Direct changes to EFC is not permitted
• Performing a Dependency Override
• Establishing eligibility for a dependent
student to receive Unsubsidized Stafford if
parent refuses to complete FAFSA and
support student
Wages Earned
Taxes Paid
Number in Household
Number in College
Additional Financial Information
Untaxed Income
Asset information
Dislocated Worker Status
Federal Benefit Programs (i.e.- SNAP, WIC, TANF, etc.)
Dependency Status
– Only for dependent to independent
– Keep in mind that all special circumstances must
be verified first to ensure you start with accurate
• Types of documents you may wish to collect
– Tax returns
– W2s
– Last pay stubs
– 3rd party documents
– Legal documents
– Letter from employers
– Losses of Income
– Unemployment or
income reduction
– Death of parent/spouse
– Divorce of
– Loss of child support
– One-time lump sum
• See GEN-09-04
• Additional Expenses
– Extended family support
• Such as nursing home
– Unusual medical/dental
expenses that exceed
11% of the IPA
– Unusual nondiscretionary debt that
exceeds 12% of the IPA
– Private school costs for
children in elementary or
high school
How could some of these factors affect a student’s EFC?
• Hands on example:
• Let’s say you have a dependent student whose
parents experienced an annual medical expense
totaling $5,000. The student has 4 in the
household and 1 in college. How would you
calculate how much of the $5,000 exceeds the 11%
of the IPA?
Authority given for dependency overrides HEA Section 480(d)
• Any student who answers “No” to all the
dependency questions is dependent even if
student is self-supporting
– Students who have extenuating circumstances
can request an FAA to consider a dependency
– Requires documentation to the validity of the
extenuating circumstances
• Personal statement
• Letters from professionals
Per CCRAA, Schools have the authority to accept the dependency override that was
performed and approved by another school without additional documentation.
• Factors to consider
– Abandonment by parents
– Unable to locate a parent after reasonable
– Situations of abuse
None of the following examples merit a
dependency override:
1. Parents refuse to contribute to the student's
2. Parents are unwilling to provide information
on the FAFSA or for verification
3. Parents do not claim student as a dependent
for income tax purposes
4. Student demonstrates total self-sufficiency
• Laura is a first-time freshman living with her
grandparents. She is not under legal guardianship,
but she has been living with her grandparents
since she was 5 when her father left the country.
Her mother died when she was 2. She has had no
contact with her father since she was 5 and neither
has her grandparents, although he sent a check
out of the blue when she turned 18 for $5,000.
• Would you consider Laura independent?
– Why or why not?
• FAAs may use professional judgment to
determine if a dependent student may be
offered unsubsidized Stafford loans without
parental data on the FAFSA
• To do this, FAAs must verify:
– Parent no longer provides financial support
– Parent refuses to file the FAFSA
– FAA must collect a signed statement from the
parent affirming the above while also certifying
that they will not provide support in the future
(Include the date support ended.)
Budgets, budgets, budgets!
Tuition & Fees
Books & Supplies
Room & Board
Personal Expenses
Additional mortgage/rent charges
Unusual car repair or transportation costs
Dependent care costs
Computer/Laptop expenses
Unusual medical/dental expenses not
covered by insurance
• A PJ is award year specific and cannot carry forward
from year to year unless subsequent request &
documentation are received
• You cannot directly change an EFC
• You cannot make changes to the EFC formula
• You may not establish automatic categories of
special circumstances. All PJ must be conducted on
a case by case basis.
• PJ cannot be used to circumvent the law
• PJ cannot be used to waive student eligibility
• PJ cannot make an Independent student dependent
Match that PJ!
Case Study
• Understanding the complexity of the EFC
makes you an effective FAA!
• You have the authority to use professional
judgment so use it (with proper
• 2013-2014 EFC Formula Guide
• 2013-2014 FSA Handbook, Application Verification Guide, Chapter 5,
Special Cases
• DCL: GEN-09-04, GEN-09-05, GEN-11-04, GEN-11-15
• NASFAA 2010: Electronic Handout: Special Populations: Tips for
Completing the FAFSA
• NASFAA 2009: Q&A from Dependency Status: It’s not the Riddle of
the Sphinx Webinar