Adventures in Needs Analysis: The Basis of Professional Judgment

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Adventures in
Needs Analysis The Basis of
Professional Judgment

Jim Eddy, University of Michigan
jimeddy_at_umich.edu
http//ifap.ed.gov/efcformulaguide/attachments/111
408EFCFormulaGuide0910.pdf
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In this session we will

• Do needs analysis, then talk about it
• Review or revisit the EFC formula in the process
• Look at some recent regulatory EFC changes
• Discuss IM practices and anything else we feel
  like talking about

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Dependent Student Case Study Dive in!
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Arriving at Total Parent
Income 1. Parents 2008 AGI 61341 2.a.
Fathers work income 21117 2.b. Plus
Mothers work income 38192
Equals total Parent work inc. 59309 3.
Parents taxable income 61341 4. Untaxed
income Total 2400
Total Untaxed
2400 5. Taxable and Untaxed
63741 6. Less offsets to income
lt3550gt 7. Equals Total Parent Income
60191
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Getting Parent Available Income (AI)
8. 2008 U.S. tax paid
5819 9. State/other tax (TableA1) 2408
10. Fathers FICA (Table A2) 1615 11.
Mothers FICA (Table A2)
2922 12. Income Protection Allow (T.
A3) 26040 13. Employment Expense Allowance
3500 14. Total Allowances
42304 Total Income (from line
7) 60191 Minus Total Allowances
lt42304gt 15. Equals Available Income 17887

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Parent Asset Contribution 16. Cas
h Savings 21672 17. Net Worth of
Investments 14000 18. Net Worth
Business/Inv. Farm 0 19. Adjust. Net. W.
Business/Farm (A4) 0 20. Net Worth
(sum 16, 17, 19) 35672 21. Edu.
Savings/asset protect. (A5)
53700 22. Discretionary Net Worth (20-21)
lt18028gt 23. Asset Conversion rate x .12
0 24. Contribution from assets 0

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FinallyParent Contribution Parents
Available Income (line 15)
17887 Plus Asset Contribution (line 24)
0 25. Equals Adjusted Available
Income 17887 26. Total contrib. from AAI
(Table A6) 4049 27. in college, 09-10
(exclude parents) 2 28. Equals Parent
Contribution 2025
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Student Contribution Total
income 29. Student AGI 3216 30. Students
work income 3199 31. Taxable income 3216 32. Un
taxed income 0
Total untaxed income 0 33. Total,
taxed/untaxed 3216 34. Less offsets to income
0 35. Equals Total Income 3216
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Student Contribution Allowances
36. Student tax paid 36 37. State/other
tax (Table A7) 96 38. Student FICA (Table
A2) 245 39. Income Protection Allow.
3750 40. Allow. for Parent Neg. AAI
0 41. Total allowances 4127 Total
Income (line 35) 3216 Less Total
Allow. (line 41) 4127 42. Equals Available
Inc. (AI) 0 43. Assessed at .50
0 44. Equals Student Cont.
from AI 0
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Student Contribution
Assets and Overall EFC 45. Student
cash, etc. 350 46. Student investments
0 47. Student bus./farm
0 48. New Worth (sum 45-47) 350 49. Assessed
at .20 70 50. Contribution from assets
70 Parent Contribution (line 28)
2025 Plus Student AI Contrib. (line 44)
0 Plus Student Cont. from assets
70 51. Equals Overall EFC 2095
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Independent Student Without Dependents
(other than a spouse) Case Study

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Arriving at Total Student
Income 1. Students AGI 49905 2.a.
Students work income 6991 2.b. Plus
Spouses work income 7374 Equals total
work income 14365 3. Student/Spouse tax.
income 49905 4. Untaxed income
0 Total Untaxed
0 5. Taxable and Untaxed 49905 6.
Less offsets to income
lt0gt 7. Equals Total Income 49905
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Getting Student Available Income (AI)
8. 2008 U.S. tax paid
6706 9. State/other tax (Table B1) 2495
10. Students FICA (Table B2) 535 11.
Spouses FICA (Table B2) 564 12.
Income Protection Allow 7000 13. Employment
Expense Allowance 2447 14. Total
Allowances 19747 Total Income (from line
7) 49905 Minus Total Allowances
lt19747gt 15. Equals Available Income 30158

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Student Asset Contribution
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FinallyStudent Contribution Student
s Available Income (line 15) 30158 Plus NO
Asset Contrib. (Simple) 0 Equals
Available Income 30158 Times 50 assessment
rate equals 15079 Divided by number in
college 2 Equals Total
Contribution 7540
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How many different EFC formulas/worksheets are
there, anyway?
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• 1. Dependent Student, Regular2. Dependent
  Student, Simplified3. Independent, without
  Dependents other than a Spouse, Regular4.
  Independent, without Dependents other than a
  Spouse, Simplified5. Independent, with
  Dependents other than a Spouse, Regular6.
  Independent, with Dependents other than a
  Spouse, Simplified7. Auto Zero

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What has changed (somewhat recently) in Federal
Methodology Needs Analysis?
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College Cost Reduction and Access Act of 2007
CCRAA

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HERA

• Higher Education Reconciliation Act of 2005

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HERA increased the income protection allowance
for dependent students from 2,200 to 3,000
CCRAA increased this further AY2009-2010 -
3,750 AY2010-2011 - 4,500 AY2011-2012 -
5,250 AY2012-2013 - 6,000
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HERA increased the income protection allowance
for single students or married students where
both are enrolled from 5,000 to 6,050. CCRAA
increased this further AY2009-2010 - 7,000
AY2010-2011 - 7,780 AY2011-2012 - 8,550
AY2012-2013 - 9,330 CCRAA also added separated
students to this category.
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HERA increased the income protection allowance
for married students where one is enrolled from
8,000 to 9,700. CCRAA increased this
further AY2009-2010 - 11,220 AY2010-2011 -
12,460 AY2011-2012 - 13,710 AY2012-2013 -
14,960 CCRAA also made similar increases
for independent students with dependents other
than a spouse.
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Total Income Definition 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
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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 New language (effective
July 1, 2009) 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
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Independent Student Definition 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 childor as
unaccompanied, at risk of homelessness, and
self-supporting
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Excludable Income Definition CCRAA added
special combat pay to the definition of
excludable income. Special combat pay is
defined as pay received by a member of the
Armed Forces because of exposure to a hazardous
situation. Special combat pay cannot be
treated as estimated financial assistance.
Effective July 1, 2009
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Asset Definition HERA added
qualified education benefit to the
definition of asset. CCRAA addressed the
ownership of these accounts Student asset
if an independent student If a dependent
student, the asset is considered the
parents whether the owner is the student or
parent (Effective July 1, 2009)
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Exclusion from Expected Assets CCRAA added
some additional exclusions to the definition of
EFA. Excluded are distributions not included
in gross income from 529 plans State
pre-paid tuition plans Coverdell education
savings accounts. Effective July 1, 2009
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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. This term was defined in
the Workforce Investment Act of 1998.
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Auto Zero EFC (Effective July 1, 2009)
CCRAA changed qualifying standard Income
limit from 20,000 to 30,000 Directs ED to
adjust this limit annually based on increases
in the CPI
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Institutional Methodology IM
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Who uses it?

• Many privates, some publics, often using the CSS
  Profile
• Cost involved for filers, with some waiver
  exceptions
• Non Custodial Parent (NCP) data can also be
  requested
• Home equity considered significant number of
  formulaic differences relative to FM

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Why use it?

• When compelling budgetary concerns make overall
  higher EFCs 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 are likely not grant eligible
• As an avenue to simply get Non Custodial Parent
  (NCP) data
• Your answer here

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Other IM options include

• Institutional aid applications (sometimes for
  both needs analysis and scholarships)
• Cherry picking some CSS Profile outputs
• Running parallel processing, using CSS Profile
  calculation within PC spreadsheet or other
  software
• Going after parent retirement assets
• Other?

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QA
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GO FORTH AND PROSPER!
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Dependent Student EFC,
2009-10 The Case (HANDOUT) Gerald is a
prospective college freshman. His older sister
Claire will be a junior at the University of
Wisconsin, and little brother Dustin will be
navigating the mysteries of junior high. Dad
(Fred, age 49) and Mom (Jessica, age 47)
spent some years self-actualizing before
having children both are currently employed.
Everyone is a Michigan resident. Their
2008 Federal AGI was 61,341. Fred, a former
auto worker, earned 21,117, and Jessica, a
financial aid administrator, earned 38,192.
Their federal tax paid was 5,819 (they need a
better tax preparer, since they itemized but
probably missed some significant
deductions). They hold 21,672 in their
combined savings and checking they also have
a small amount of 529 savings for the 3 kids,
totaling 14,000. Their home is worth
243,000 in this market, but like so many of
their neighbors they are leveraged to the hilt
and owe 199,479 on the mortgage.
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More details They were able to claim a 2008
Hope educational credit on their taxes for Claire
in the amount of 1650. Jessica contributed
2,400 (pre-tax) to her 401K plan in 2008. Fred
also has another child from a previous
relationship this has contributed to the
occasional spousal argument, but in fact Freds
child support paid out in 2008 amounted to just
1,900. Jessica will be a half-time student
herself in 2009-10 at their local area community
college. Gerald filed a 2008 1040EZ, with an AGI
of 3,216 and tax paid of 36. His income from
his part time job was 3,199, and at the time of
his FAFSA filing his savings stood at 350.
Gerald hopes to teach some day, but he is very
intelligent, so he will not be asking for a TEACH
grant for 2009-10.
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Independent Student EFC Calculation, 2009-10
The CaseCindy (age 23) and Doug (age 25) live a
free flowing life. Each has been accepted into
graduate school for 2009-010 (Cindy for Nursing,
Doug for Ethnomusicology). Today, we are
calculating Dougs EFC. They were married in
2000, and have no children. They have lived and
worked (O.K., they really havent worked all that
much) in Oregon all of their lives.Doug
inherited a large sum several years ago, and
currently has 573,000 in various investments.
He gets only a modest return, but hes O.K. with
that, its enough to get by in 2008 he earned
27,300 in taxable dividends which is included in
their AGI. Cindy is not quite as asset heavy
her inheritance was only 80,640, on which she
realized 3,840 in 2008 interest, also included
in their AGI.Cindy earned 7,374 via wage
employment in 2008 Doug earned 6,991, and
through some clumsy maneuvering by his former
employer, he additionally collected 4,400 in
2007 unemployment insurance. Their 2008 AGI was
49,905, and their federal tax paid was 6,706.
They filed a 1040, but were eligible to file a
short form with the IRS. They live in a yurt on
Cindys parents farm outside of Eugene.