Presented By

Cora ManuelSaint Mary’s College of CA

Need Analysis Basics

EFC

Expected Family Contribution

Measure of what the student and family can be expected to contribute to student’s cost of education

Expected Family Contribution Calculated from data collected on the FAFSA

Formula is in statuteDesigned to measure the family’s financial strength

ED publishes updated tables each year in the Federal Register

Principles of Need AnalysisFamily has primary responsibility to pay for educational costs

Student and parents are expected to contribute to the extent they are able

Families should be evaluated in an equitable and consistent manner

Need Analysis ConceptsNeed-based funds are available to assist with educational costs that exceed the family’s ability to pay

Assesses strength at the time of application

Family resources are devoted first to basic subsistence

Need Analysis ConceptsFM measures discretionary resourcesProtects resources needed for basic living

Establishes a portion available for education

Factors that affect EFCTaxable and untaxed incomeTaxes paidNumber in HouseholdNumber in CollegeAssetsAge of the older parent Number of wage earners

EFC CalculationsEFC result on ISIR reflects a 9 month EFCLaw specifies how an EFC must be calculated for periods of other than nine months

Results show on ISIR by number of months

9 month EFC must be used for Pell Grant eligibility

How is EFC Determined?Three distinct FM formulasRegularSimplifiedAutomatic zero

Regular FormulaThree versions of regular formulaDependent studentsIndependent students without dependents other than a spouse

Independent students with dependents other than a spouse

Alternate EFC FormulasSimplified formula

Assets are not considered in the calculation

Automatic Zero EFC formulaUntaxed income and assets are not considered in the calculation

Simplified Formula For dependent students

Parents’ AGI or earnings from work < $50,000 and

Parents are not required to file IRS form 1040ORMember of FAFSA household received federal means-test benefit

Simplified FormulaFor all independent students

Student (and spouse) AGI or earnings from work < $50,000 and

Student (and spouse) not required to file IRS form 1040ORMember of FAFSA household received federal means-test benefit

Automatic Zero EFCFor dependent students

Parents’ AGI or income earned from work is $20,000 or less andParents are not required to file IRS form 1040ORMember of FAFSA household received federal means-test benefit

Automatic Zero EFCFor independent students with dependents other than a spouse

Student’s (and spouse’s) AGI or income earned from work is $20,000 or less

andStudent (and spouse) not required to file IRS form 1040ORMember of FAFSA household received federal means-test benefit

SNT & Auto 0 EFCFederal Means-Tested Benefit Programs

Supplemental Security Income (SSI)Temporary Assistance for Needy Families (TANF)

Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)

Food StampsFree or Reduced Price Lunches

The Web Family

Two parents with one working

Two children in familyOne child in collegeLive in CaliforniaOlder parent is age 42

Treatment of Income

Total Income (TI)

Base year income from all taxable and untaxable sourcesExclusions on FAFSA Worksheet C=Total Income

Treatment of Income

Available Income (AI) is portion ofincome remaining for discretionary Spending

Total incomeTotal Allowances=Available Income

Total AllowancesAllowances for taxes

U. S. Income tax paid

Estimate of state and other taxesState of residenceAmount of total income

FICA

Total Allowances

Income Protection Allowance (IPA)Estimates amount needed for basic needs

Based on Bureau of Labor Statistics lower budget expenditures adjusted for CPI

Increases with each household member

Decreases with each member in college

Total Allowances Employment expense allowanceRepresents additional costs when both parents work

Applies to working single parent families

Treatment of Assets

Assets definedCash, savings, checkingInvestments and trustsReal estate equityBusiness/farm equity (not family owned)Protects first 60% of equity up to $105K

Decreases protection percentage after $105K

Treatment of Assets

Cash, savings, checking+Net worth of real estate and investments

+Adjusted net worth of business/farm

=Total Net Worth

Treatment of Parents’ Assets

Total Net WorthEducation Savings and Asset Protection Allowance

=Discretionary Net Worth

Treatment of Parents’ Assets Education Savings and Asset Protection AllowanceProtects assets for retirement and future education costs

Applies > age 25Increases with ageAdjusted for marital status

No protection for dependent students

Treatment of Parents’ Assets

Discretionary Net WorthX 12% asset conversion rate

=Contribution from Assets

Adjusted Available Income

Parents’ Available Income (+/-)+Parents’ contribution from assets (+/0)

=Total Adjusted Available Income (+/-)

Determining Parents’ Contribution

As income increases, amount needed for basic household expenses decreasesDiscretionary income increasesIncome available for education

Adjusted Available Income (AAI)X AAI contribution rate=Total Parents’ Contribution from AAI

Determining Parents’ Contribution

Total contribution from AAI is divided evenly among all household members in college

Total PC from AAI / Number in College

=9 month PC

Determining Student’s Contribution

Total of student taxable + untaxedincome State and federal taxes $3,080 IPA allowance for parents’ negative AAI= Available income (AI)X 50% assessment of AI= Student contribution from AI

Determining Student’s Contribution

Cash, savings, checking+Net worth of real estate and investments

+Adjusted net worth of business/farm

=Total Net WorthX 20% =Student contribution from assets

Determining EFC

Parents’ Contribution+Student’s contribution from AI

+Student’s contribution from assets

= 9 month EFC

Resources

2008-2009 FSA Handbook, Application & Verification Guide, Chapter 3

EFC Formula Guide on IFAP

Presented By

Cora ManuelSaint Mary’s College of CA

Thank You!