Student Financial Aid

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• "To give away money is an easy matter ... and in
  any man's power. But to decide to whom to give
  it, and how large and when, for what purpose and
  how, is neither in every man's power nor an easy
  matter. Hence it is that such excellence is rare,
  praiseworthy and noble."- Aristotle

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Pre-Conference Presentation
NCASFAA

• FEDERAL METHODOLOGY (FM)
• Expected Family Contribution
• An Overview of Philosophy and Methodology

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Determination of EFC

• Parents contribution
• Students contribution
• _________________________
• Expected Family Contribution

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Basic Equation Need-Based Financial Aid

• Cost of Attendance
• Expected Family Contribution
• __________________________
• Eligibility for Need-Based Funds

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Module 6
Federal Methodology(Italicized Statements not
from CORE NASFAA Materials)
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Federal Methodology

• Method for assessing ability to pay consists of
  two steps
• Measuring a familys financial strength
• Assessing a part of financial resources as being
  available to contribute toward educational costs
• Formulas look at income and assets to determine
  ability to pay
• FM makes some political assumptions about WHICH
  income and assets
• Remember that you have to use FM for federal aid
  but not for your own aid unless that is your
  campus decision

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Paying for Higher Education

• Available Income is income that is not required
  for mandatory expenses
• Asset strength is also a factor, although not to
  the same extent as income assets are considered
  as a supplement to income
• A portion of available income, supplemented by a
  portion of assets, is assumed to be available to
  pay the costs of higher education for a
  particular student
• Just WHOs available income and WHAT PORTION is
  expected depends on which formula one is using

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Federal Methodology

• Classifies students according to one of three
  models
• Dependent student
• Independent student without dependents other than
  a spouse
• Independent student with dependents other than a
  spouse
• Dependents may be children or elderly parents or
  some other person who is supported by the student

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Dependent Student EFC Components

• Parents contribution (PC) consisting of
• Contribution from parents available income
• Contribution from parents assets
• Student contribution (SC) consisting of
• Contribution from students available income
• Contribution from students assets

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Independent Student EFC Components

• Contribution from students
  (and spouses) available income
• Contribution from students
  (and spouses) assets

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Federal Methodology Characteristics

• Base-year income used WHY?
• (e.g., 2005 is base year for 2006-07)
• Allowances protect portions of income and assets
  WHY?
• Distributes available family resources among all
  family members (other than dependent students
  parents) attending postsecondary schools WHY?
• EFC calculated for nine-month enrollment period
• (well omit variant calculations today)

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Dependent Model Simplified EFC Formula, Income
Criterion

• Parents 2005 AGI is less than 50,000 if tax
  filers and either
• Parent(s) not required to file tax return or
  filed (or eligible to file) 1040a or EZ or
• Parent or dependent student received means-tested
  benefits in previous 12-month period

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Dependent Model Simplified EFC Formula, Tax
Filing Criterion

• Parents and student for the 2005 tax year
• File or eligible to file a 1040EZ or 1040A
• File tax return required by the tax code for
  Puerto Rico, Guam, American Samoa, U.S. Virgin
  Islands, Republic of the Marshall Islands,
  Federated States of Micronesia, or Palau or
• Are not required to file any tax return

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Dependent Model Simplified EFC Formula, Tax
Filing Criterion

• Tax filing criterion no longer applicable to
  student as of 7/1/06
• Tax filing criterion applies to parents only
• New alternative to tax filing criterion if
  parents or student received benefits under a
  means-tested federal benefit program

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Whats wrong with simple needs test? The Cliff
Effect is to be avoided in need analysis!
Two families, just alike, except one earns
50,000 and the other earns 49,999. One is in
the lounge chair while the other has fallen off
the cliff.
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Whats wrong with simple needs test? The Cliff
Effect is to be avoided in need analysis!
And think about the second year for the family
that is in the lounge chair in year one. What
will they think when the extra dollar of salary
in year two results in wild ride down the cliff?
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Dependent Model Automatic Zero EFC, Income
Criterion

• Parent(s) had adjusted gross income of 20,000 or
  less and either
• Parent(s) not required to file tax return or
  filed (or eligible to file) 1040a or EZ, or
• Parent or dependent student received means-tested
  benefits in previous 12-month period

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Dependent Model Automatic Zero EFC, Tax Filing
Criterion

• Parents and student for the 2005 tax year
• File or eligible to file a 1040EZ or 1040A
• File tax return required by the tax code for
  Puerto Rico, Guam, American Samoa, U.S. Virgin
  Islands, Republic of the Marshall Islands,
  Federated States of Micronesia, or Palau or
• Are not required to file any tax return

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Independent Student Models Automatic Zero EFC

• Not applicable for independent student without
  dependents other than a spouse

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Independent Student with Dependents Other than a
Spouse Model Automatic Zero EFC

• Students and spouses 2005 AGI and either
• total earned income is 20,000 or less or
• Student (or spouse) received means-tested
  benefits in previous 12-month period
• Student and spouse for the 2005 tax year
• File or eligible to file a 1040EZ or 1040A
• File tax return required by the tax code for
  Puerto Rico, Guam, American Samoa, U.S. Virgin
  Islands, Republic of the Marshall Islands,
  Federated States of Micronesia, or Palau or
• Are not required to file any tax return

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Potential Institutional Adjustments to EFC in
Awarding Institutional Funds

• Establishment of a minimum level of student
  contribution
• Use of home equity in determination of net assets
• Adjustments for medical/dental expenses
• Adjustments in the losses/depreciation claimed
  for business/farm operations
• Ignoring of simple needs test and automatic zero
  EFC
• NOTE THIS IS SLIDE FROM HIGH SCHOOL NIGHT, not
  NASFAA

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Questions?