Need Analysis &
Professional Judgment
Understanding the EFC
What you will learn
Definition of need analysis
 Factors that make up the EFC calculation and
why they are important
 Understand the 3 Federal Formulas
 Learn what is Professional Judgment
 Understand various types of professional
judgment decisions and how they are related to
the EFC and Needs Analysis

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.
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 students
education for the year. The EFC is calculated
according to a formula specified in the law.
What Comprises the EFC?
EFC Federal Formula

AGI

Eligible to file a 1040A or EZ

Federal Means Test

Dislocated Worker
Income Protection:

Taxes Paid

House Hold Size

Number in college

State and other Tax allowance
Worksheets A, B, and C

Dependent

Independent w/no dependent(s)

Independent with dependent(s)
Protection of Assets

Age of Student (if independent)

Age of Older Parent
Total Income

AGI

Wages Earned

Untaxed Income

Additional Financial Information
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
Three EFC Worksheets

Worksheet A

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Worksheet B

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For dependent students
For independent students without dependents
(other than a spouse)
Worksheet C

For independent students with dependents other
than a spouse
For 11-12 EFC worksheets, go to IFAP:
http://ifap.ed.gov/fsahandbook/attachments/1112AVGCh3.pdf (pages 51-77)
The EFC Formulas

There are 3 different EFC formulas



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
Answer Yes to one of the following:
1. Be eligible to file a 1040A or 1040EZ
2. Qualify for a federal means test benefit
3. Be a dislocated worker

Auto-Zero EFC

How does a student qualify for Auto-Zero?
Must have income (AGI/wages) of $23,000 or less
AND
Answer Yes to one of the following:
1. Be eligible to file a 1040A or 1040EZ
2. Qualify for a federal means test benefit
3. Be a dislocated worker

Only dependent students or independent students with child or dependents other than a
spouse qualify for an auto-zero EFC. (EFC Formula Worksheets A &C only)
Federal Means Test Benefits

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


Supplemental Security Income (SSI)
Temporary Assistance for Needy Families (TANF)
Special Supplemental Nutritional Program for
Women, Infants & Children (WIC)
Food Stamps
Free Reduced-Priced School Lunches
What is a Dislocated Worker?

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



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
Is the Applicant Eligible to File a
1040A or 1040EZ?

Required to file a long form (1040) if


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



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$100K or more of wages (line 7)
Alimony received (line 11)
Business (line 12)
Capital gain or loss (line 13 only if schedule D is
required)
Rental property (line 17)
Farm (line 18)
Itemized deductions (line 40)
Homebuyers credit (line 67)
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 Formula?
Income Protection Allowance

Ed automatically protects a set amount of income
varied by household size and number in college
(called IPA)

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



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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
Independent Student or Parents’ Age of a
Dependent Student

The older the student or parent, the greater the
amount of assets protected – due to anticipated
retirement
Asset Protection Table
Note: Dependent students have no protection of assets.
Apply your knowledge!
Matching Exercise of EFC Terms
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 the EFC will
assist with your understanding of the following:


Professional Judgment
Verification Elements
Apply your knowledge!
2012-2013 Manual EFC Calculation
Professional Judgment
It’s Your Decision!
What is Professional Judgment?
Section 479A in the HEA authorizes us to use PJ
Examples of PJ Situations

Adjusting EFC data elements


Losses of Income
Additional Expenses

Performing a Dependency Override

Parent Refusal to complete a FAFSA and refuses
to provide financial support

Adjusting Cost of Attendance components
EFC Elements that CAN be Adjusted

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AGI
Wages Earned
Taxes Paid
Number in household
Number in College
Additional Financial Information
Untaxed Income
Asset information
Dislocated Worker Status
Dependency Status

Only for dependent to independent
First Rule of PJ is…

DOCUMENT!

A school must exercise PJ on correct applicant
data before processing PJ to ensure accuracy

A school must wait until a corrected ISIR returns
before processing PJ only for students who were
selected for verification and processor
determined a correction is needed
Types of Documentation

Types of documents you may wish to collect

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Tax returns
W2s
Last pay stubs
3rd party documents
Legal documents
Letter from employers
Losses of Income &
Additional Expenses
Examples
Types of Losses of Income

Losses of Income

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
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Unemployment or income
reduction
Death of parent/spouse
Divorce of parent/student
Loss of child support
One-time lump sum payout

Additional Expenses

Extended family support



See GEN-09-04

Such as nursing home
expenses
Unusual medical/dental
expenses that exceed 11%
of the IPA
Unusual non-discretionary
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

Let’s say you have a dependent student whose parents experienced an
annual medical expense totaling $5,000. After reviewing the ISIR you notice
the following:
 HHS: 4
 Number in College: 1
 EFC = $2972
 AGI : $59,123
 IPA: $25,210
How much of the $5,000 exceeds 11% of the IPA?
Dependency Overrides &
Unsubsidized Stafford Eligibility
Examples
Authority given for dependency overrides HEA Section 480(d)
Dependency Overrides

Any student who answers no to all the
dependency questions are dependent even if
student is self-supporting

Students who have extenuating circumstances can
request an FAA to consider a dependency override

Per CCRAA, Schools have the authority to accept the
dependency override that was performed and approved
by another school without additional documentation.
Dependency Overrides

Requires documentation to the validity of the
extenuating circumstances



Personal statement
Letters from professionals
Factors to consider


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Documented, prolonged estrangement
Unable to locate a parent after reasonable
attempts
Situations of abuse
Remember: DOCUMENT, DOCUMENT, DOCUMENT!
Dependency Overrides
None of the following examples merit a
dependency override:
1.
2.
3.
4.
Parents refuse to contribute to the student's
education
Parents are unwilling to provide information on
the FAFSA or for verification
Parents do not claim student as a dependent for
income tax purposes
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
that the above while also certifying that they will not provide
support in the future
You be the Judge…

Hector is about to be a freshman at Best Ever
Community College in the city of Fairview. Hector lives at
home with parents in Fairview. Hector’s parents charge
him room and board for living in their home. Hector’s
parents do not carry him on their health and auto
insurance policies. Hector asks his parents to complete
the parental part of the FAFSA and they refuse.
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
 Unusual Debt
 Stafford loan fees (if applicable)
 Nursing Home Expenses
 Elementary/Secondary Private Tuition

What you Cannot Do in a PJ

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A PJ is award year specific and cannot carry forward from
year to year unless subsequent request & documentation is
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 & Case Studies!
Wrapping Up


Understanding the complexity of the EFC makes you that
much more effective of an FAA!
You have the authority to use professional judgment so
use it (with proper documentation)
Resources

2012-2013 EFC Formula Guide
http://ifap.ed.gov/ifap/byAwardYear.jsp?type=efcformulaguide

2012-2013 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?
Erika Cox & April Gonzales, University of Texas at San Antonio