Need Analysis & Professional
Judgment
Understanding the EFC
Jesse Martinez
Counselor of Financial Aid and Scholarships
Texas State University – San Marcos
What you will learn
• 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
What is Need Analysis?
• 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.
Guiding Principles
• Primary responsibility to pay for
education rests with the student and
parents/family
• Family is expected to contribute to the
extent it is able
• Families must be evaluated in an
equitable manner
Expected Family Contribution
• 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.
What Comprises the EFC?
Basic EFC Formulas
•
Dependent
•
Independent w/no dependent(s)
•
Independent with dependent(s)
Factors of EFC Calculations
•
AGI
•
Eligible to file a 1040A or EZ
•
Federal Means Test
•
Dislocated Worker
Total Income
•
AGI
•
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
WHAT’S SO IMPORTANT
ABOUT THE EFC?
EFC is Needed to Calculate Need
Cost of Attendance
(minus)EFC
Need
• The EFC determines:
• Pell eligibility
• Room for need versus non-need-based aid
Basic EFC Formulas
• 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:
http://ifap.ed.gov/fsahandbook/attachments/1314AVGCh3.pdf
EFC Calculations
• 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
Simplified Needs Test
• How does a student qualify for SNT?
• Must have income (AGI/wages) of $49,999 or
less
AND
• Be eligible to file a 1040A or 1040EZ
OR
• Qualify for a federal means test benefit
program
OR
• Be a dislocated worker
Auto-Zero EFC
• How does a student qualify for Auto-Zero?
• Must have income (AGI/wages) of $24,000 or less
AND
• Be eligible to file a 1040A or 1040EZ
OR
• Qualify for a federal means test benefit
OR
• Be a dislocated worker
Only dependent students or independent students with dependents other than a
spouse qualify for an auto-zero EFC.
Federal Means Test Benefits
• So exactly what is a federal means test
benefit program?
•
•
•
•
•
Supplemental Security Income (SSI)
Temporary Assistance for Needy Families
(TANF)
Special Supplemental Nutritional Program for
Women, Infants & Children (WIC)
Food Stamps/SNAP
Free Reduced-Priced School Lunches
What is a Dislocated Worker?
• 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
1040, 1040A or 1040EZ?
• 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 required)
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
Apply your knowledge!
Which EFC Calculation?
Test Your Federal Formula
Knowledge
• Student is married with a child who they support more than
50%. Student and spouse AGI= $47,000, they reported $0.00
in assets, and marked yes to filling a 1040 however answered
yes to being able to file a 1040 A or EZ, they answered no to
all federal means test benefits, and no to being a dislocated
worker – What is the correct formula?
• F. Simplified Needs Test (SNT)/Model B
Which EFC Calculation?
• A dependent student qualifies for this _______ calculation
if:
• The parents’ combined AGI was less than $50,000 AND
• The parents answered yes to being able to file a 1040A or EZ.
• The CPS will assign a _____ EFC to an independent student
if:
• The student’s and spouse’s combined AGI is $24,000 AND
• Anyone counted in the household sized received a meanstested federal benefit during 2010 or 2011.
Income Protection Allowance
• 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
IPA Worksheets
This example is from Worksheet A (dependent students)
Asset Protection Allowance
• 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
Asset Protection Table
This example is from Worksheet A (dependent students)
Apply your knowledge!
Matching Exercise of EFC Terms
Match the EFC Terms
EFC Terms
Auto-Zero EFC
Definition
Takes only income into account
Federal Means Test Benefits
Takes BOTH income & assets into
account
Simplified Needs Test (SNT)
Food Stamps/SNAP
Dislocated Worker
Regular Formula
Income Protection Allowance
Student’s EFC is automatically zero
Protects a set amount of income
varied by household size and number
in college
Was terminated or laid off from
employment
Final Thoughts on Need Analysis
• 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!
PROFESSIONAL JUDGMENT
What is Professional Judgment?
Section 479A in the HEA authorizes us to use PJ
Examples of PJ Situations
• Adjusting Cost of Attendance components
• Adjusting data elements used to calculate
EFC
• 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
Elements that CAN be Adjusted
•
•
•
•
•
•
•
•
•
•
•
AGI
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
First Rule of PJ is…
• DOCUMENT!
• Keep in mind that all special circumstances must be
verified first to ensure you start with accurate data
• Types of documents you may wish to collect
•
•
•
•
•
•
Tax returns
W2s
Last pay stubs
3rd party documents
Legal documents
Letter from employers
Loss of Income and/or
Additional Expenses
Types of Income Losses
• Losses of Income
• Unemployment or
income reduction
• Death of parent/spouse
• Divorce of
parent/student
• Loss of child support
• One-time lump sum
payout
• See GEN-09-04
• Additional Expenses
• Extended family support
• Such as nursing home
expenses
• 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?
Medical Expenses Example
• 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?
Dependency Overrides & Unsubsidized
Stafford Eligibility
Authority given for dependency overrides HEA Section 480(d)
Dependency Overrides
• 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 override
• Requires documentation to the validity of the
extenuating circumstances
• Personal statement
• Letters from professionals
• Remember: DOCUMENT, DOCUMENT, DOCUMENT!
Per CCRAA, Schools have the authority to accept the dependency override that was
performed and approved by another school without additional documentation.
Dependency Overrides
• Factors to consider
• Abandonment by parents
• Unable to locate a parent after reasonable
attempts
• Situations of abuse
Dependency Overrides
None of the following examples merit a
dependency override:
1. Parents refuse to contribute to the student's
education
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
You be the Judge…
• 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?
Unsubsidized Stafford Eligibility
• 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.)
Cost of Attendance Adjustments
Budgets, budgets, budgets!
Standard COA Components
1.
2.
3.
4.
5.
Tuition & Fees
Books & Supplies
Room & Board
Transportation
Personal Expenses
Types of Adjustments to Consider
• Additional mortgage/rent charges
• Unusual car repair or transportation costs
• Dependent care costs
• Computer/Laptop expenses
• Unusual medical/dental expenses not
covered by insurance
What you CANNOT do in a PJ
• 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 requirements
• PJ cannot make an Independent student dependent
Test your knowledge!
Match that PJ!
Match that PJ!
Example of PJ Situations
Cost of Attendance
Abandonment by parents
Data Elements
Unusual car repair or transportation
costs
Dependency Override
Parent refuses to file the FAFSA
Eligibility for a dependent student to
receive Unsubsidized Stafford
Unemployment or income reduction
Wrapping Up
• Understanding the complexity of the EFC makes you an
effective FAA!
• You have the authority to use professional judgment so use it
(with proper documentation)
Resources
• 2013-2014 EFC Formula Guide
http://ifap.ed.gov/ifap/byAwardYear.jsp?type=efcformulaguide
• 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
Comments/Questions?