Adventures in Needs Analysis:
The Basis of Professional Judgment
Jim Eddy
Office of Financial Aid
University of Michigan – Ann Arbor
jimeddy@umich.edu
In this session we will:
• Do FM needs analysis together, then talk about it
• Review/revisit the EFC Formula Guide
• Discuss PJ in the context of knowing the
calculation
• If we have time: Look at regulatory changes to
FM EFC data elements over time, & discuss IM
(Institutional Methodology)
Dependent Student Case
Study: Let’s dive in!
The Case: Narrative
Scarlett White is a cheerleader enrolled as a
senior at Huron High School in Ann Arbor. Her
brother Jesse will be a college Junior at Wayne
State University, where he studies chemistry.
Brother Alphonso is entering 7th grade, and sister
Holly will again be in elementary school. Scarlett
is the aid applicant for this case study.
The Case: Narrative, con’t.
The parental AGI for 2014 was $83,821. Dad (Walter White,
pharmaceutical executive and former high school chemistry
teacher), age 52, earned $199,214 in wage income, and mom
(Skyler, age 46, financial executive and car wash owner)
earned $163,277. A massive net loss from Line 17 of their
Form 1040 (Vamonos Pest LLC; Los Pollos Hermanos
Partners; A1A Car Wash S-Corp) largely accounts for their
reduced AGI. They filed a Form 1040 and itemized their
deductions, with a federal tax paid of $6,021. Walt and Skyler
claimed all 4 children as 2014 tax exemptions. They are
careful money managers despite their IRS paper losses, and
have budgeted exactly $2015 for Scarlett’s 2015-2016
educational expenses.
The Case: Narrative, con’t.
Walt and Skyler claimed a 2014 IRA deduction in the amount
of $2000. They also claimed a Hope Educational credit for
Jesse in the amount of $1500. Due to an earlier divorce
agreement, Walt paid out $6000 in 2014 child support to one
of his ex-wives.
As parents they have $1,941 in savings, $78,257 in combined
529 savings plans for all 4 kids, and $10,885 in a money
market fund.
Scarlett did not file a 2014 tax return, and listed earned wage
income of $1821. She had $5 in her savings account on the
day she filed her FAFSA.
Arriving at Total Parent Income
1.
2.a.
2.b.
3.
4.
5.
6.
7.
Parent’s 2014 AGI:
Father’s work income
Plus Mother’s work income
Equals total Parent work inc.
Parent’s taxable income
Untaxed income:
Taxable and Untaxed
Less offsets to income
Equals Total Parent Income
83821
199214
163277
362491
83821
2000
85821
<7500>
78321
Getting Parent Available Income (AI)
8. 2013 U.S. tax paid
9. State/other tax (TableA1)
10. Father’s FICA (Table A2)
11. Mother’s FICA (Table A2)
12. Income Protection Allow (T. A3)
13. Employment Expense Allowance
6021
3133
10143
9622
34310
4000
14. Total Allowances:
67229
Total Income (from line 7)
Minus Total Allowances
15. Equals Available Income (AI)
78321
<67229>
11092
Parent Asset Contribution
(exploding the mythology)
16.
17.
18.
19.
20.
21.
22.
23.
24.
Cash & Savings
Net Worth of Investments
Net Worth Business/Inv. Farm
Adjust. Net. W. Business/Farm (A4)
Net Worth (sum 16, 17, 19)
Edu. Savings/asset protect. (A5)
Discretionary Net Worth (20-21)
Asset Conversion rate (multiply by .12)
Contribution from assets
1941
89142
0
0
91083
33500
57583
6910
Finally…Parent Contribution
Parent’s Available Income (line 15)
Plus Asset Contribution (line 24)
11092
6910
25. Equals Adjusted Available Income
18002
26. Total contrib. from AAI (Table A6)
4030
27. # in college (exclude parents)
28. Equals Parent Contribution
2
2015
Student Contribution: Total income
29.
30.
31.
32.
33.
34.
Student AGI
Student’s work income
Taxable income
Untaxed income:
Total, taxed/untaxed
Less offsets to income
0
1821
1821
0
1821
0
35.
Equals Total Income
1821
Student Contribution: Allowances
36.
37.
38.
39.
40.
41.
Student tax paid
State/other tax (Table A7)
Student FICA (Table A2)
Income Protection Allow.
Allow. for Parent Neg. AAI
Total allowances
0
55
139
6310
0
6504
42.
43.
Total Income (line 35)
Less Total Allow. (line 41)
Equals Available Inc. (AI)
Assessed at .50
1821
6504
<4683>
0
44. Equals Student Cont. from AI
0
Student Contribution:
Assets and Overall EFC
45.
46.
47.
48.
49.
50.
Student cash, etc.
Student investments
Student bus./farm
New Worth (sum 45-47)
Assessed at 20 percent
Contribution from assets:
5
0
0
5
1
1
Parent Contribution (line 28)
Plus Student AI Contrib. (line 44)
Plus Student Cont. from assets
2015
0
1
51.
2016
Equals Overall EFC
How many different EFC
formulas/worksheets are there, anyway?
Seven
1. Dependent Student, Regular
2. Dependent Student, Simplified
3. Independent, without Dependents
other than a Spouse, Regular
4. Independent, without Dependents
other than a Spouse, Simplified
5. Independent, with Dependents other
than a Spouse, Regular
6. Independent, with Dependents other
than a Spouse, Simplified
7. Auto Zero
Professional Judgment (PJ):
Dealing with the “What If’s”
If you know how the FM EFC formula
works, you can efficiently respond to
“what if” questions and utilize
appropriate Professional Judgment
Some PJ Examples
•
•
•
•
Medical/Dental costs: 11% is already in the IPA
“I saved a lot, so I won’t get financial aid”
“I lost my job, so I will get more aid…right?”
“We now have 2 in college, so our aid will double,
right?”
• “We took money out of our IRA…please help us,
this is not our real income from work!”
• “We are saving for our grandchild…should we put
the money into an UGMA?”
• My parent just died…will I get more aid?”
Regulatory changes to FM EFC
College Cost
“HERA”
Reduction and
Access Act of 2007: Higher Education
“CCRAA”
Reconciliation
Act of 2005
Protecting Student Income
HERA increased the
CCRAA increased this
income protection
further:
allowance for dependent
AY2009-2010 - $3,750
students from $2,200 to
AY2010-2011 - $4,500
$3,000
AY2011-2012 - $5,250
AY2012-2013 - $6,000
AY2013-2014 - $6,260
Now: $6310
Change in definition of “Total Income”
Effective July 1, 2009, CCRAA changed the definition of
“total income” by excluding:
•
•
•
•
•
•
Welfare benefits
Earned Income Credit
Special fuels credit
Excluded foreign income
Untaxed Social Security benefits
Additional Child Tax credit
“Independent Student” Definition
Former language:
“…an orphan or ward of the court or was a ward of the
court until the individual reached the age of 18…”
Current language:
“…is an orphan, in foster care, or a ward of the court, at
any time when the individual is 13 years of age or
older…”
“Independent Student” con’t.
CCRAA added additional categories:
“…is an emancipated minor or is in legal guardianship
as determined by a court of competent jurisdiction…”
“…has been verified during the school year in which
the application is submitted as either an unaccompanied
youth who is a homeless child…or as unaccompanied,
at risk of homelessness, and self-supporting…
Asset Definition
HERA added “qualified education benefit” to the
definition of assets.
CCRAA addressed the ownership of these
accounts:
•
•
Student asset if an Independent student
If a dependent student, the asset is considered the
parent’s whether the owner is the student or parent
Simplified Needs Test
CCRAA made two changes to the eligibility
standards for the simplified needs test.
The first change added a new category of eligibility –
dislocated workers (& displaced homemakers).
The dislocated worker was defined in the
Workforce Investment Act of 1998.
Sometimes a big impact – assets ignored
Auto Zero EFC
CCRAA changed the qualifying standard:
• Income limit moved from $20,000 to $30,000
• Directed ED to adjust this limit annually based on
increases in the CPI
• But, this has subsequently been tinkered with, and
for 2015-16, the limit is now down to $24,000
Where you can find all the FM info you
might ever want
http://ifap.ed.gov/efcformulaguide/attachments/090214EFC
FormulaGuide1516.pdf
• This is annually updated, the worksheets and tables you
used today are right out of the guide
• Lots of definitions (i.e. Dependency, Simple Needs,
Auto Zero, needs-tested benefits) are in there
• All the different hand calculation worksheets are there
for different FM formulas
Institutional Methodology “IM”:
Who uses it?
• Many privates, some publics, often using the
CSS Profile
• There is a cost involved for filers, with some
waiver exceptions
• Non Custodial Parent (NCP) data can also be
requested
• Home equity is considered; significant number of
formulaic differences relative to FM
IM: Why use it?
• When “compelling budgetary concerns” make overall
higher EFC’s desirable
• When your institution believes all students are best
served by a more realistic assessment of family
financial strength
• When another filter is helpful to sort out families who
by any reasonable definition are likely not grant eligible
• As an avenue to simply get Non Custodial Parent
(NCP) data
• Your answer here:
Other “IM” options include
• Institutional aid applications (sometimes for
both needs analysis and scholarships)
• Cherry picking some CSS Profile outputs
• Running parallel processing, sing CSS Profile
calculation within PC spreadsheet or other
software
• Calculating need for international students
• Other?
Q&A
GO FORTH AND PROSPER!