Expected Family Contribution (EFC)

1
Session 33

• Expected Family Contribution (EFC)
• Deborah Tarpley
• Marianna Deeken

2
How is EFC Determined?

• Three Federal Methodology (FM) models
• Dependent student
• Independent student
• Independent student with dependents other than a
  spouse

3
How is EFC Determined?

• Three distinct FM formulas
• Regular
• Simplified
• Automatic zero

4
Alternate Formulas

• Simplified Formula
• Assets not considered
• Parents AGI or earnings from work lt 50,000 and
• Parents are not required to file IRS form 1040
• Automatic Zero
• EFC is automatically zero if
• Parents AGI or income earned from work is
  20,000 or less and
• Parents are not required to file IRS form 1040

5
Independent Students

• Independent Students without Dependents other
  than a spouse
• Applies to single and married independent
  students
• May NOT qualify for automatic zero EFC
• May qualify for simplified formula
• Student (and spouse) AGI or earnings from work lt
  50,000 and
• Student (and spouse) not required to file IRS
  form 1040

6
Independent Students

• Independent Students with Dependents other than a
  Spouse
• Analysis looks much like that of parents of
  dependent students
• EFC automatically zero if
• Students (and spouses) AGI or income earned
  from work is 20,000 or less and
• Student (and spouse) not required to file IRS
  form 1040

7
Independent Students

• May qualify for simplified formula
• Student (and spouse) AGI or earnings from work lt
  50,000 and
• Student (and spouse) not required to file IRS
  form 1040

8
Simplified Automatic Zero

• Means-Tested Federal Benefit Programs
• Students also qualify for simplified formula or
  automatic zero if, in addition to meeting
  relevant income thresholds, they or their parents
  received benefits from a means-tested federal
  benefit program
• SSI
• TANF
• WIC
• Food Stamps
• Free or Reduced Price Lunches

9
Factors that affect EFC

• Number in Household
• Number in College
• Taxed and Untaxed income
• Taxes paid
• Investments
• Age of the older parent
• Number of wage earners

10
Principles of Need Analysis

• Family has primary responsibility to pay for
  educational costs
• Student and parents are expected to contribute to
  the extent they are able
• Family should be accepted in its present
  financial condition
• Families should be evaluated in an equitable and
  consistent manner

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Need Analysis Concepts

• Need-based funds are available to assist with
  educational costs that exceed the familys
  ability to pay
• FM assesses strength at the time of application
• Family resources are devoted first to basic
  subsistence

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Need Analysis Concepts

• Beyond basic needs, families can exercise
  discretion
• FM allowances protect family resources
• Basic needs
• Non-education related discretionary costs

13
Need Analysis Concepts

• FM measures discretionary resources
• Establishes a portion available for education

14
The Baldwin Family

• The family in the example is
• A married couple with 4 children who live in
  Missouri
• Grandfather also lives with the family
• Older parent is age 49
• Both parents work

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Treatment of Income in FM

• Total Income
• Base year income from all taxable and untaxable
  sources
• -Exclusions (FAFSA Worksheet C)
• Total Income

16
Treatment of Income in FM

• Available Income
• Portion of income remaining for discretionary
  spending
• Total income
• -Total Allowances
• Available Income (AI)

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Total Allowances

• Allowances for taxes
• U. S. Income tax paid
• Estimate of state and other taxes
• State of residence
• Amount of total income
• FICA

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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

19
Total Allowances

• Employment expense allowance
• Represents additional costs when both parents
  work
• Applies to working single parent families

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Treatment of Assets in FM

• Assets defined
• Cash, savings, checking
• Investments and trusts
• Real estate equity
• Business/farm equity (non-family only)
• Protects first 60 of equity up to 105K
• Decreases protection percentage after 105K

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Treatment of Assets in FM

• Cash, savings, checking
• Net worth of real estate and investments
• Adjusted net worth of business/farm
• Total Net Worth

22
Treatment of Parents Assets in FM

• Total Net Worth
• -Education Savings and Asset Protection Allowance
• Discretionary Net Worth

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Treatment of Parents Assets in FM

• Education Savings and Asset Protection Allowance
• Protects assets for retirement and future
  education costs
• Applies gt age 25
• Increases with age
• Adjusted for marital status
• No protection for dependent students

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Treatment of Parents Assets in FM

• Discretionary Net Worth
• X 12 (asset conversion rate)
• Contribution from Assets

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Adjusted Available Income

• Parents Available Income ( / -)
• Parents Contribution from Assets (/ 0)
• Total Adjusted Available Income ( / -)

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Determining Parents Contribution

• As income increases, amount needed for basic
  household expenses decreases
• Discretionary income increases
• Income available for education
• Adjusted Available Income (AAI)
• X AAI contribution rate
• Total Parents Contribution from AAI

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Determining Parents Contribution

• Total contribution from AAI is divided evenly
  among all household members in college
• Total PC from AAI 9-month PC
• Number in College

28
Determining Students Contribution

• Total of student taxed untaxed income
• - state and federal taxes
• - 2550 IPA
• -allowance for parents negative AAI
• Available income (AI)
• X 50 assessment of AI
• Student contribution from AI

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Determining Students Contribution

• Cash, savings, checking
• Net worth of real estate and investments
• Adjusted net worth of business/farm
• Total Net Worth
• X 35
• Student contribution from assets

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Determining EFC

• Parents Contribution
• Students Contribution from AI
• Students Contribution from assets
• 9 month EFC

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What about Unusual Circumstances?

• If you have a student with unusual circumstances
  you can use professional judgment to adjust
• Cost of Attendance
• Adjust elements that are related to the students
  cost of attending the school
• Data elements that are part of the formula
• You may not adjust the bottom line

32
What if?

• Mr. Baldwin has an accident and injures his back
  while putting a new roof on the house
• The family has 10,000 in unreimbursed medical
  expenses
• They have cashed in some of their investments to
  pay these expenses
• They want to know if you can adjust their assets
  to take this unexpected event into account

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What if?

• Remember that the parents have no contribution
  from assets
• Adjusting the assets by 10,000 will have no
  effect on the current EFC

Pell Elig Flag Y
Intermediate Values Primary EFC
2572 Secondary EFC
TI 67644 PCA 0 Mon 1 324 Mon 7
2010 Mon 1 Mon 7 ATI
43012 AAI 24632 Mon 2 605 Mon 8 2291
Mon 2 Mon 8 STX
2010 TSC Mon 3 886 Mon 10 2609 Mon
3 Mon 10 EA 3100
TPC 6475 Mon 4 1167 Mon 11 2646 Mon 4
Mon 11 IPA 31630 PC
3237 Mon 5 1448 Mon 12 2683 Mon 5 Mon
12 AI 24632 STI
3731 Mon 6 1729 Mon 6
CAI SATI 2947

DNW -12700 SIC 392

NW 36200 SDNW 124
APA
48900 SCA 43

FTI 71375 Auto Zero EFC Flag Rejected
Status Change Flag Duplicate SSN Flag
EFC Change Flag INCREASE
Verification Selection Flag Address
Only Correction SNT Flag
NO SAR
C Change Flag   Match Flags SSN 4 SSA A
DHS SS Y NSLDS 1 VA DHS Sec. Conf.
Father SSN 4
34
What if?

• Mr. Baldwin is still recovering from his accident
  but finds that, due to his injuries, he can no
  longer work at his current job in construction
• Prior to the accident, business was slow, and Mr.
  Baldwin had only earned 3000 in 3 months
• He is now collecting unemployment benefits of
  270 per week
• He can collect benefits for 26 weeks totaling
  7020
• Mrs. Baldwin is still working, but they have no
  other income

35
What if?

• If you make an adjustment based upon projected
  income, the new projected total income is 40,290
• New total allowances are 36,435
• New AI is 3855
• New PC is 424
• New EFC is 859

36
What if?

• Mr. Baldwin is unable to find a job and has been
  counseled to seek job retraining
• He is planning to enroll in a vocational program
  at the local community college
• His tuition costs will be 2,028 for the year
• The Baldwins would like to know if this
  additional information can be considered

37
What if?

• If you consider the 2,028 as coming out of their
  income, new projected total income is 38,262
• New allowances are 36,374
• New AI is 1,888
• New PC is 208
• New EFC is 643

38
What if?

• If you want to consider 3 in the household in
  college, then the projected income remains
  unchanged at 40,290
• New total allowances are 33,975
• New AI is 6315
• New PC is 463
• New EFC is 898

39
Additional Beginners Track Sessions

• Session 34 - The Institutional Student
  Information Record (ISIR)
• Session 35 - Awarding Aid
• Session 36 - Disbursing Aid
• Session 37 - IFAP, NSLDS, COD, FAA Accessto CPS
  On -Line
• Session 38 - Financial Aid Professionals (FAP)
  Portal and Beyond - How We Communicate With You?
• Session 39 - Uncover the Mysteries of How a Law
  Becomes Operational

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We appreciate your feedback and comments.We can
be reached at

• Phone [phone] x118
• Fax [phone]
• Email deborah.tarpley_at_ed.gov
• Phone [phone]
• Fax [phone]
• Email marianna.deeken_at_ed.gov