2014 WASFAA Conference Reno, Nevada Mike Johnson, Director of Financial Aid, Pacific University

2014 WASFAA ConferenceReno, Nevada

Mike Johnson, Director of Financial Aid, Pacific University

Connecting Students and Parents to the

Realities of “Need”, Awarding, and

Affordability

High and increasing cost of collegeHigh and increasing student and parent

indebtednessLack of transparency in cost and financial aid

informationConfusing or incomplete information about true

cost and financial aid program details

Current Concerns

The Higher Education Act of 1965, as amended – Section 472 defines Cost of Attendance

Cost of Attendance

Only the COA components mentioned in statute may be used:Tuition and fees, including rental or purchase of equipment

and suppliesBooks and supplies, transportation, and miscellaneous

personal expenses, including the rental or purchase of a computer

Room and board costs, described differently based on students’ dependency status and whether they live with parents

Cost of Attendance

The statute also describes:How to treat less than half-time and incarcerated studentsHow correspondence study, instruction through

telecommunications, and study abroad are treatedHow to include dependent care costs, disability-related

costs, cooperative education costs, and loan fees

Cost of Attendance

The modern list of components is:Tuition and feesRoom and boardBooks and suppliesTransportationPersonal and miscellaneous costs

Cost of Attendance

When do you use actual amounts in the COA? Average amounts? How do you calculate averages?

How and when do you present COA information on award notifications and in other communications?

How does the COA at your school affect students’: “Unmet need”? Net price?

Cost of Attendance – Points to Consider

How do you describe the COA to students and parents? Do you distinguish between direct and indirect costs? How do you determine indirect cost amounts?

What do you say about the price (sticker price and net price) that your school charges? Do you find yourself defending it or apologizing for it?

Cost of Attendance – Points to Consider

Need analysis has two parts:Estimating a student’s costs (COA)Calculating the Expected Family Contribution (EFC)

Need analysis

Widely used methodologies for determining students’ need have included: John Monro’s “15% Rule” (1954) Institutional Methodology (1974)Congressional Methodology (1986) Federal Methodology (1992)

Need analysis

Federal Methodology is detailed in Part F of Title IV of the Higher Education Act of 1965, as amendedUpdated tables appear each year in the Federal Register

Federal Methodology must be used to determine a student’s eligibility for federal financial aid

Other methodologies can be used to determine a student’s eligibility for institutional aid

Need analysis

Families – as defined by the FAFSA – have the primary responsibility for meeting postsecondary costs

The distribution of financial aid should be based on the family’s ability – not willingness – to pay

Need analysis should provide a “snapshot” of the family’s financial circumstances at the time of application

Federal Methodology - Assumptions

Regular formulaParent required to file a 2013 IRS Form 1040, or had 2013

income of $50,000 or more Includes consideration of assets

Federal Methodology – Dependent Student

Simplified formulaParent’s household member received a federal means-

tested benefit in 2012 or 2013Parent filed, or was eligible to file, a 1040 A or EZ; or was

not required to file a federal income tax return; or is a dislocated worker - and

Parent’s 2013 income was $49,999 or lessExcludes consideration of assets


Automatic zero formulaParent’s household member received a federal means-

tested benefit in 2012 or 2013Parent filed, or was eligible to file, a 1040 A or EZ; or was

not required to file a federal income tax return; or is a dislocated worker - and

Parent’s 2013 income was $24,000 or lessExcludes consideration of income and assets


Income:Parent and student information are consideredTotal income is the sum of taxable income or income

earned from work, and untaxed income (including payments to retirement accounts)

Additional Financial Information, which reduces reported income, include education tax credits, child support paid, and taxable income from need-based employment

Federal Methodology – Dependent Student, Regular Formula

IncomeAllowances against reported income include:U.S. income tax paid State and other taxes Social Security taxes Income protection allowanceEmployment expense allowance


State and other taxes:Amounts come from tables that consider differences in tax

rates in different states for families at different income levels

Amounts range from 1% to 9%


State and other taxes: % of total parent income$0 - $14,999 >$14,999 Student

Alaska 2% 1% 0%Arizona 4% 3% 2%California 8% 7% 5%Hawaii 4% 3% 3% Idaho 5% 4% 3%Nevada 3% 2% 1%Oregon 7% 6% 5%Washington 4% 3% 1%


Income protection allowance:Amounts come from a table that uses Bureau of Labor

Statistics (BLS) data for lower budget expenditures, adjusted annually based on the Consumer Price Index (CPI)

Amounts increase for each additional family member, decrease for each additional college student


Income protection allowance*:Household size Number in college

1 2 3 42 $17,440 $14,4603 $21,720 $18,750 $15,7704 $26,830 $23,840 $20,870 $17,8905 $31,650 $28,670 $25,700 $22,7106 $37,020 $34,040 $31,070 $28,090

* set at $6,260 for dependent students


Employment expense allowance:Amounts represent additional costs that families incur

when two parents, or a single parent, work(s)Uses 35% of the lower income, or $4,000, whichever is less


AssetsReported on the FAFSA include:Current balances of cash, savings, and checkingNet worth of investments, including real estate (excluding

retirement accounts and the family’s principle residence)Net worth of businesses and investment farms (excluding

small family owned businesses and family farms)


AssetsParent contribution from assets:Education Savings and Asset Protection Allowance

subtracted from net worth to determine discretionary net worth

Contribution is 12% of discretionary net worth Student contribution from assets:Contribution is 20% of net worth


Education savings and asset protection allowance:Amounts come from a table that uses the age of the older

parent, adjusted for one and two parent householdsAssets are increasingly protected as parent age increases


Education savings and asset protection allowance:Allowances

Age of older parent Two-parents One-parent45* $30,700 $7,10046 $31,500 $7,20047 $32,200 $7,40048 $33,000 $7,60049 $33,800 $7,800

* 45 is the default if no date of birth indicated


The formula’s use of actual, calculated, and assigned numbers make the EFC a financial aid eligibility index rather than an indication of a family’s true ability to pay.

In light of that, how do the following affect a school’s ability to assess a student’s need?

Federal Methodology – Points to Consider

A student who earned $6,200 is treated the same as one who did not work

Basic annual living costs for families of four with one in college are set at just under $27,000 regardless of where they live

Parents are expected to spend no more than $4,000 per year in work-related expenses such as clothing and transportation regardless of where they work


Money saved for retirement is not reported on the FAFSA, yet the effect of reported assets on the parent contribution is reduced as the age of the older parent increases

At the same age of the older parent, two parents have more than four times the asset amount protected that single parents do

How would you explain these aspects of need analysis to families? Would you explain them?


Schools’ awarding policies vary according to a variety of factors, including: School size School ownership (public/private) Fund availabilityProgram participationRecruitment goals Retention strategies

Awarding

Policy considerations include:Merit-based vs. need-based aid (level of need

met/”gapping”)Price sensitivity of admit pool/school tolerance for

”discounting”Enrollment management goals/leveragingPackaging loansContinuing students’ aid packages

Awarding

What level of detail does your school provide concerning its awarding policies? How is that decision made, and who makes it?

What format(s) do you use for award notifications? How do you assess the effectiveness of the format(s)? Do you assess it?

Communicating Award Information – Points to Consider

Net price calculatorsRequired of all colleges that participate in Title IV programs

Award Information

Financial Aid Shopping SheetA “model financial aid letter” that schools are encouraged

to use

Award Information

Explain and show direct and indirect costsDirect Costs Tuition and fees $38,510 On-campus housing and meals $11,116 Total direct costs $49,626

Indirect Costs Books and supplies $ 1,050 Transportation $ 720 Personal $ 900 Total indirect costs $ 2,670

Cost of Attendance $52,296

Best Practices – Simple Approaches

Separate aid categories in award notificationsGift aid Presidential Scholarship $15,000 Federal Pell Grant $ 4,180 Oregon Opportunity Grant $ 2,000 Pacific Grant $11,700 Total gift aid $32,880

Self-Help aid Federal Work-Study $ 2,000 Federal Direct subsidized loan $ 3,500 Federal Direct unsubsidized loan $ 2,000 Total self-help aid $ 7,500


Provide information about the full cost of borrowing

Average loan debt $29,000Adjusted loan debt (1.072% fee) $29,314

Monthly repayment (10 years) $ 295Total repayment (10 years) $35,381

Monthly repayment (20 years) $ 175Total repayment (20 years) $42,116


Provide estimates of (and justifications for) future cost increases

Tuition and fees Total First year $38,510

$52,296 Second year (4%) $40,050

$54,388Third year (4%) $41,652

$56,564 Fourth year (4%) $43,318

$58,827


Provide financial literacy information, especially to promote the importance of:Weekly budgetingReducing expensesDeveloping savings plansBorrowing wisely


What concepts do you use to tell students and parents how affordable your school is?Value of higher education/return on investmentComparisons with similar schoolsComparisons with regional or national averagesBased on certain metrics

Communicating Affordability

Public 4-year Private 4-yearCost of attendance $24,000 $52,000Gift aid $5,000 $20,000Net price - Year 1 $19,000 $32,000Annual increase 7% 4%Net price - Year 2 $20,860 $34,080

- Year 3 $22,478 $36,243 - Year 4 $24,401 $38,493 - Year 5 $26,459 --- - Year 6 $28,661 ---

Totals $141,679 $140,816

Communicating Affordability - Unsuccessfully

Cost of obtaining a Bachelor’s degree

More than $140,000

Communicating Affordability - Unsuccessfully

College ScorecardWeb tool created to allow easy comparisons between

schools based on certain metrics

Affordability Information

College NavigatorMore robust college comparison tool that uses information

from the Integrated Postsecondary Education Data System (IPEDS)

Affordability Information

How do you respond when students and parents ask about previous or future price increases? Cost to the institution of educating studentsComparisons with similar schools’ patternsComparisons with regional or national averages

Are you comfortable defending your schools’ decisions in this area?

Communicating Affordability

Thanks for participatingEnjoy the rest of the conference!

Connecting Students and Parents to the Realities of “Need”, Awarding, and Affordability

Documents

2014 WASFAA Conference Reno, Nevada Mike Johnson, Director of Financial Aid, Pacific University