Understanding the EFC
New Aid Officer Workshop 2015
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 15-16 EFC worksheets, go to IFAP:
http://ifap.ed.gov/fsahandbook/attachments/1516AVGCh3.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?
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
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!
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 Federal Direct
Unsubsidized loans if parent refuses to
complete FAFSA and support student
Elements that CAN be Adjusted

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
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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
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 selfsufficiency
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?
Federal Direct Unsubsidized Loan
Eligibility

 FAAs may use professional judgment to determine if
a dependent student may be offered Federal Direct
Unsubsidized 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

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
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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!
Case Study
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

 2015-2016 EFC Formula Guide
http://ifap.ed.gov/efcformulaguide/attachments/0
90214EFCFormulaGuide1516.pdf
 2015-2016 FSA Handbook, Application Verification
Guide, Chapter 5, Special Cases
 DCL: GEN-09-04, GEN-09-05, GEN-11-04, GEN-11-15
Questions?

Melissa Bohnsack
Training Specialist
Texas A&M University
mbohnsack@tamu.edu