One Family, Many Offers: Translating

and Evaluating Offers of Financial Aid

The need for financial aid is defined as the difference between the total cost of attendance and the expected family contribution; eligibility is dependent upon a family’s ability to contribute. So why does something so definitive become so vague when students receive widely varying offers of financial aid from seemingly comparable colleges? Why do financial aid offers differ and how do you help families to understand and evaluate these differences? Participants use case studies to review the major differences in need analysis (FM and IM) and gain an understanding of the impact of differing methodologies as well as the financial aid policies and funding levels at both public and private institutions. Attendees walk away with the tools and strategies to assist families in translating and evaluating offers of financial aid.

Today’s Presenters

• Paul Brulé, Director of Counseling at St. John's HS in Shrewsbury

• Lanita Foley, Associate Director of College Counseling

• Susan H. Gerber, Director of Financial Aid, Yale School of Medicine

• Caesar T. Storlazzi, University Director of Student Financial Services & Chief Financial Aid Officer

Quick Poll

Secondary School Professional?

College Admission Professional?

Agenda for Today

• Define terms so that we all have a common “language of reference” when talking about award comparisons.

• Overview of need analysis concepts to aid in understanding of award construction

• Focus on the “why’s” rather than the “what’s”

• Review case studies

Reaffirming Value of College Education

College is expensive, but is valuable in today’s market

■ On average, college graduates can expect to earn almost twice as much as high school graduates over their lifetime

■ Counselors can help families plan for costs

Costs vary by type of institution

■ Community College, Public University, Private College

Families must look at cost over entire postsecondary education*

Further reading: www.IBRinfo.org

Forms You Need To Know

FAFSA - Free Application for Federal Student Aid■ Required by all colleges

■ Free form

■ Apply for a pin: www.pin.ed.gov/PINWebApp/pinindex.jsp

■ www.fafsa.ed.gov

PROFILE■ Some colleges need this

■ There is a cost

■ Profileonline.collegeboard.com

Institutional Application■ One per school

■ May be part of admissions packet

Insider Tips

Find out the deadlines and comply!■Use a matrix■Encourage students to keep copies of what they

send

Have most recent tax return when completing forms

If students have questions, encourage them to ask!

Don’t rule out a school just because of its costReview all financing options

FAFSA

May be filed any time during an academic year, but no earlier than the January 1st prior to the academic year for which the student requests aid

For the 2012-13 academic year, the FAFSA may be filed beginning January 1, 2012

Colleges may set FAFSA filing deadlines

Note: Some students find it helpful to complete a FAFSA on the web worksheet prior to completing the online FAFSA: http://studentaid.ed.gov/PORTALSWebApp/students/english/fafsaworksheet.jsp (Spanish and English pdfs are available)

FAFSA

May be filed any time during an academic year, but no earlier than the January 1st prior to the academic year for which the student requests aid

For the 2012-13 academic year, the FAFSA may be filed beginning January 1, 2012

Colleges may set FAFSA filing deadlines

FAFSA

Good reasons to file electronically:Built in edits to prevent costly errorsSkip logic allows student and/or parent to skip

unnecessary questionsOption to use Internal Revenue Service (IRS)

data retrievalFor academic year, the FAFSA may be filed

beginning January 1, 2012Colleges may set FAFSA filing deadlines

FAFSA

Additional good reasons to file electronically:

More timely submission of original application and any necessary corrections

More detailed instructions and “help” for common questions

Ability to check application status on-lineSimplified application process in the future

FAFSA ON THE WEB (FOTW)

While completing FOTW, applicant may submit real-time request to IRS for tax data

IRS will authenticate taxpayer’s identity

If match found, IRS sends real-time results to applicant in new window

Applicant chooses whether or not to transfer data to FOTW

www.collegeboard.com

Financial Aid calculator

■ Helps family determine their estimated family contribution

■ Compare Your Financial Aid Awards service

■ Families offered credit check option

Ð Dependent students

Ð First-time applicants

Ð U.S. citizens or permanent residents

Important Application Issues

• Adhere to deadlines!

• Check websites to determine all required documents

• International students

• First: determine whether the school of interest offers aid to international students.

• Second: complete the proper forms as requested by the institution. (CSS “Global” Profile, a paper application from the school, and/or the Certification of Finances.

• Undocumented students

• As with international students, find out whether the school of interest offers aid to undocumented students. If they do, comply with all instructions and deadlines to ensure receipt of appropriate aid.

What is Cost of Attendance (COA)?

Direct costs- Tuition, Room, Board, Fees

Indirect costs- Travel allowance, personal expenses, books & supplies

Direct & Indirect costs combined into costs of attendance

Varies widely from college to college

COA - continued

might also include:

-study abroad expenses-employment expenses related to co-op study-dependent care expenses-disability expenses-loan fees

Possible Issues with COA

-may not include all costs-may not be based on actual costs or may not

be most recent data-categories are not standardized

*Further Reading: http://higheredwatch.newamerica.net/blogposts/2011/guest_post_student_aid_award_letters_continue_to_mislead_students_and_parents-57579

http://www.finaid.org/fafsa/awardletters.phtml

http://www2.ed.gov/policy/highered/guid/aid-offer/index.html

Expected Family Contribution (EFC)

Amount family can reasonably be expected to contribute for the academic year

Two components:■ Parent Contribution■ Student ContributionÐStudent IncomeÐStudent Assets

Calculated using data from a federal application form and a federal formula.

What is Financial Need?

Cost of Attendance

- Expected Family Contribution___________________________________

= Financial Need

Important Terms

Merit based aidNeed based aidFull needGappingNeed aware Admissions policyNeed blind Admissions policy

Types of Aid

Grants (or Scholarships)■Money that doesn’t need to be repaid

Loans*■Money which must be repaid; may be

borrowed by student, parent, or bothWork■Money which the student is given the

potential to earn

*Further Reading: http://projectonstudentdebt.org/private_loan_questions.vp.html

Federal and Institutional Methodologies

Federal Methodology (FAFSA)■ The standard need analysis formula used to determine the EFC. FM takes family size,

the number of family members in college, taxable and nontaxable income and assets into account.

Institutional Methodology (PROFILE)■ If a college or university uses its own formula to determine financial need for allocation

of the school's own financial aid funds, the formula is referred to as the Institutional Methodology. IM is a modified version of the federal formula used by some colleges and universities that looks at additional assets and/or resources in a student’s household.

The EFC calculated by FM and IM may be different depending on the family’s income and assets.

Standard Definitions Review

Total Cost of Attendance■ An estimated total of all college costs used in determining a student’s eligibility for

financial aid; total costs include such expenses as tuition, books and supplies, housing, meals, personal expenses, transportation/travel, and miscellaneous expenses.

EFC (Expected Family Contribution)■ The number that is used to determine your eligibility for federal student aid and the

amount of aid that you will receive. This number results from the financial information provided on the FAFSA.

Financial Aid Eligibility (Need)■ The difference between your expected family contribution and the college's cost of

attendance; also known as your financial need.

What is Need Analysis?

A system of analyzing family financial data to arrive at an estimate of the family’s ability to pay for educational costs:

Computation results in EFC (Expected Family Contribution)

EFC is for one year only – families resubmit data each year

Two major Need Analysis Systems: Federal Methodology (FM) – Controlled by Congress through the Department of Education

Institutional Methodology (IM) – Proprietary formula controlled by College Board members

Two major need analysis formulas FM is used to determine eligibility for federal financial

aid programs:

Pell Grant

SEOG

Perkins Loan

Direct Loan

Teach Grant/IASG

Requires submission of FAFSA – single point of entry

Institutional Methodology (IM)

IM is used to determine eligibility for private funds from schools and scholarship agencies

Institutions using IM feel it is more accurate formula

Requires submission of CSS/PROFILE

Collects more information about income, assets, family circumstances – helps schools target their funds

Updates formula each year based on current economic data

Controlled by College Board member institutions

Principles of Need Analysis

Both IM and FM share these principles:

• Parents and students share primary responsibility for paying educational costs to the extent they are able.

Thus the EFC for a Dependent Student will include both a Parent and Student Contribution.

• A family’s ability to pay, not willingness to pay, is measured by the need analysis system.

Merit aid or preferential packaging reflects a “willingness to pay”model – will discuss later in the program

Principles of Need AnalysisAid should offer access and choice

Funds should be available to pay for school of choice

An equitable need analysis system expects families in similar circumstances to make similar contributions.

Horizontal and vertical equity

Family contribution reflects the family’s ability to absorb educational expenses over time.

Thus past wealth (savings) and future wealth (debt) is

considered

Need Analysis: Basic Concepts

Considers financial strength by considering income, assets, family

size, number in college

Use variant formulas depending on type of student and financial circumstances

Dependent students

Independent students with dependents (other than a spouse)

Independent students without dependents (other than a spouse)

Variations for students with very low incomes and few assets

Most of you work with dependent, undergraduate students so

we will focus on them today

Principles of Need Analysis:The Basic Math

Cost of Attendance

Minus Expected Family Contribution

________________________________________

= Student’s Need for Financial Aid

Treatment of Income: Exclusions

Before calculating total income some sources are excluded from consideration.

Education tax credits

Child support paid

Combat Pay

Taxable financial aid

Americorps benefits

Why?

Do not represent recurring income nor financial strength.

Treatment of Income: Allowances

Income allowances are determined by analyzing:

Taxes paid

Federal, state, FICA

Work status (one or two working parents)

Family size

Marital status

Why?

Need to recognize non-discretionary expenses before determining total income available to help pay for college

Treatment of Income: Allowances

These allowances are based on formula based on family size and marital status:

Income Protection Allowance:

The point at which all income must be used for basic expenses

After the IPA, some income is assumed to be able to be used for higher education

Employment Expense AllowanceFor single parent and two earner households

Assumes some amount of income is used for household services/job expenses

Treatment of Income: The Available

Income

Taxed and untaxed Income

- Income exclusions

______________________

= Total Income

Total Income

- Taxes

- Other Allowances

_______________________

= Available Income

Available Income is used later in the computationafter assets are analyzed.

Treatment of AssetsConcept of financial strength

Deferred purchasing powerSupplement to incomePlanning for retirement

Liquid vs. non-liquid assetsAn asset is an assetValuation presents challenges

Data collection on assets is more complex for the financial aid system but results in greater equity.

Considering AssetsAssets collected and considered in the FM need analysis system:Cash, savings

Investments (non-retirement)

Real estate that is not the primary home

Net business value (when more than 100 FTE employees)

Net farm equity (if family does not live there)

Is anything missing from this picture?

What other assets might you want to know about?

Treatment of Assets

Allowances- The ESAP

The ESAP assumes that some level of assets are needed for emergencies, retirement, as an offset to low income.

Formula is based on marital status and age of older parent.

Treatment of Assets

Total Net Worth

- Asset Allowances

= Discretionary Net Worth

__________________________________________

X 12%Conversion Rate

= Income Supplement

Computing the Total Parental Contribution

Available Income + Income Supplement

= Adjusted Available IncomeX Conversion Rate (22%- 47%)

= Total Parental Contribution

An Income Driven Formula –

An Example

If Available Income = $10,000

$10,000

X 22- 47% assessment rate (AAI)

_________________________

= $4,700 maximum income contribution

If Net Worth = $10,000

$10,000

X 12% conversion rate = 1200

________________________

$1200 x 22- 47% assessment rate

= $ 564 maximum contribution from assets

What do These Formulas (really) Mean?

Income drivenBut allowances and exemptions modify the contribution

And, many families qualify for some form of aid

Assessment rates are modified as financial strength increases

Horizontal and Vertical Equity

Contribution from assets is relatively modestFormula recognizes the need for savings

And no, you don’t have to sell your house

These points can frame your communications with families about eligibility

The Student ContributionComputational approach is similar: • Determine total income (taxable and untaxed)

• Subtract exclusions

• Subtract income allowances

• Determine total available income

• Apply income assessment rate – always 50% for dependent students

• Determine total contribution from income

• Determine total assets (no asset allowances for dependent students)

• Apply asset assessment rate – always 20% for dependent students

• Determine asset contribution

Add contribution from income to contribution from assets

Calculating the Need for Aid • Calculate Parent Contribution

• Calculate Student Contribution

• Add Student Contribution to Parental Contribution

• Result is the EFC

• Subtract EFC from your institutional Cost of

Attendance

• Result is Need for Aid

A Mini ReviewThe basic mathematical formula for computing need for aid:

• COA minus EFC

EFC is computed by analyzing:

• Income, assets, family size, number in college, marital status

The EFC formula is { } driven

• Income

Why does the formula remove some categories of income

(exclusions) from consideration?

• Some forms of income do not represent financial strength.

Why does the formula provide allowances against both

income and assets?

• Some resources need to be preserved for other financial needs.

What is Packaging?

A predetermined set of policies and procedures which guides the total amount of financial aid a student will receive from federal, institutional and private sources.

Packaging Parameters

Total aid cannot exceed need

Federal and State Regulations

Institutional goals, budget, mission

Face validity – can you explain it to a family?

The Title IV Financial Aid Programs

Title IV is the starting point for most institutional packaging policies.

Aid administrators determine eligibility for federal aid first before considering other sources of funding.

Title IV Aid Programs

Gift Aid

Pell Grant – up to $5,550

SEOG – up to $ 4,000

Teach Grant – up to $ 4,000

IASG – up to $5,550

Self Help Aid

Perkins Loan – up to $5,500

Direct – varies by class year

Work Study – varies

Qualifying for a Pell Grant

Formula set by Congress each year

Based on EFC range of 0 - $5273 and COA of institution

Grant range of $550 - $5,550 for full time students

Thus a family with an EFC of 750 would qualify for up to $4800 at a high cost institution

If the EFC was 1901 what Pell Grant amount would they receive?

$3,600

Qualifying for the SEOG:Supplementary Educational Opportunity Grant

The SEOG is the next type of federal aid for which a student might qualify

Unlike the Pell Grant, the funds are disbursed to the school and the school awards the funds based on their lowest income population.

Thus each school has a separate and limited amount of SEOG and awards can vary from school to school

Pell Grant recipients almost always receive SEOG

Qualifying for the SEOG:Supplementary Educational Opportunity Grant

Families with income ranges above the Pell Grant level but who are still deemed “low income” by the school can receive SEOG funds based on the schools policies and fund amounts.

Other low income students may receive from $100 -$4000 depending on institutional policies and budgets

Qualifying for Federal Direct Student Loans

Annual loan levels vary according to COA and class level

Maximum loan levels for entering freshman are $5500$3500 subsidized

$2,000 unsubsidized

Subsidized = interest does not accrue until student graduates and/or separates from school

Unsubsidized= interest begins accruing as soon as loan is disbursed

Interest rates set annually by Congress

Qualifying for Perkins Loans

Awarded by the school and amounts based on institutional budgetSome schools do not participate in the Perkins Program

Entering freshman may borrow up to $5500

Interest is deferred until 9 months after graduation/separation

Interest rate is fixed at 5%

Qualifying for Federal Work Study

Federal Work Study funds given to institutionInstitution must also fund a portion of the work study poolStudents may work on or off campus (with some restrictions)Must earn at least minimum wage

State Aid Funds

Varies from state to state Generally use FM guidelines to determine eligibilitySome require in state attendance; others are portableAs you design an institutional packaging policy important to know if students will “bring” a state grant with them.

Institutional Aid

Guided by institutional mission, budget, philosophyMay be designed to attract certain types of students May include:

Need Based Grants

Need Based Loans

Merit Based Aid

Institutional Aid

Aid policies may also be based on an assessment of student’s ranking or talents rather than ability to pay

Many institutions research the price sensitivity in their markets to determine which net price will bring in the optimal number of entering students

Grant and scholarship levels are then set from this information to achieve enrollment goals

Determining Need for Funds

Cost of Attendance

Minus Expected Family Contribution ________________________________________

= Student’s Need for Financial Aid

Packaging Steps

Calculate NeedDetermine eligibility for Title IV fundsDetermine eligibility for State fundsDetermine eligibility for institutional fundsBalance gift and self-help levels as equitably as possible

If it’s so simple why is it so complicated?

Packaging DifferencesDifferent need analysis approaches – IM, FM, other

Example: Non-custodial parent contribution

568 Group approach

Different philosophies about which students should receive fundsDifferent budgets even among the same school cohorts

Bottom Line: Not enough money to go around

A few packaging models

Meet full needStudent’s full need for aid is met with a combination of aid sources

In some cases, may include large loan levels

Preferential Level of aid awarded is based on “desirability.”

Range in levels of gift/loan aid based on student’s academic, talent,

athletic ability.

May or may not meet full need.

A few packaging models

Gap Aid awarded does not meet full cost of attendance

Admit/Deny

Student is admitted with need but denied institutional funds

Sometimes used for late applicants or wait list applicants

Another way to Visualize Packaging

Gap

Federal, State Aid

Family Share

Institutional Aid

Case Study - Melanie

Melanie will be a freshman in college starting the Fall 2012.

Her date of birth is June 25, 1993.

She lives in Springfield, MA with her mother, father and younger brother, Michael, who is a 15 year old high school sophomore.

Melanie will graduate 47th out of 300 students in her high school class;

Scored a 26 on her ACT and has a cumulative grade point average of 3.355.

Melanie’s Parents

Melanie’s mother, Ann, and father, David, have been married for 20 years. David is 51 and Ann is 49.

In 2011, Ann earned $23,500 as an administrative bookkeeper and David works as an electrician and earned $53,000 in 2011.

They reported an adjusted gross income (AGI) of $71,244, $244 in interest income and a tax liability of $3,351.

David contributed $5,000 to a tax-deferred pension plan.

Her parents reported $12,848 in a joint savings account, $1,500 in Ann’s checking account, and $2,367 in David’s checking account.

Ann and David have a home valued at $125,000 and a mortgage of $98,000. The home was purchased in 1981 for $150,000.

Melanie’s Plans

Melanie earned $2,340 in 2011 working part time over the summer.

She will not file a tax return for 2011.

Melanie plans to use the money in her savings account, $2,000, to help pay her books and personal expenses for the 2012-2013 academic year.

She plans to live on-campus in dormitory

She is not eligible for in-state tuition

Quinnipiac University Private – 4 yr

Total Cost of Attendance $51,760

Tuition and Fees $36,130

Room and Board $13,430

Books and Supplies $800

Estimated other expenses (Personal expenses, transportation, etc.) $1,400

EFC

Federal Methodology (FM) $10,891

Institutional Methodology (IM) n/a

Financial Aid Eligibility (Need) $40,869

Financial Aid Offer: Quinnipiac University Private – 4 yr

Federal Pell Grant $0

Federal SEOG $0

State Grants $0

University Merit Awards $0

University Need Based Grants $20,440

Federal Perkins Loan $1,000

Federal Workstudy $2,000

Federal Direct Loan – subsidized $3,500

Federal Direct Loan - unsubsidized $2,000

Total Financial Aid $28,940

Student’s Out of Pocket Cost (total cost minus aid) $22,820

Financial Aid : UMass Amherst Public – 4 yr

(In -State)

Total Cost of Attendance $22,408

Tuition and Fees $11,732

Room and Board $8,276

Books and Supplies $1,000

Estimated other expenses (Personal expenses, transportation, etc.) $1,400

EFC

Federal Methodology (FM) $10,891

Institutional Methodology (IM) n/a

Financial Aid Eligibility (Need) $11,517

Financial Aid Offer: UMass AmherstPublic – 4 yr

(In-State)

Federal Pell Grant $0

Federal SEOG $0

State Grants $0

University Merit Awards $0

University Need Based Grants $2,814

Federal Perkins Loan $0

Federal Work-study $0

Federal Direct Loan – subsidized $3,500

Federal Direct Loan - unsubsidized $2,000

Total Financial Aid

Student’s Out of Pocket Cost (total cost minus aid) $14,094

Financial Aid : Yale UniversityPrivate – 4 yr

(IM only)

Total Cost of Attendance $56,050

Tuition and Fees $40,500

Room and Board $12,200

Books and Supplies $1,000

Estimated other expenses (Personal expenses, transportation, etc.) $2,350

EFC

Federal Methodology (FM) n/a

Institutional Methodology (IM) $2,639

Financial Aid Eligibility (Need)

Financial Aid Offer: Yale UniversityPrivate – 4 yr

(IM only)

Federal Pell Grant $0

Federal SEOG $0

State Grants $0

University Merit Awards $0

University Need Based Grants $50,411

Federal Perkins Loan $0

Federal Work-study $3,000

Federal Direct Loan – subsidized $0

Federal Direct Loan - unsubsidized $0

Total Financial Aid $53,411

Student’s Out of Pocket Cost (total cost minus aid) $2,639

Why Award Letters Differ

• Aid letters are not consistent necessary by what is included.

• Some schools omit the EFC on their award letters

• Other schools omit the costs, or only list tuition and required fees on the award letter.

• Some schools award parent loans up front; other schools don’t list such loans until after the family requests one.

Net Price Calculator Requirement

In accordance with the Higher Education Opportunity Act of 2008 (HEOA), by October 29, 2011, each postsecondary institution that participates in Title IV federal student aid programs must post a net price calculator on its website that uses institutional data to provide estimated net price information to current and prospective students and their families based on a student’s individual circumstances. This calculator should allow students to calculate an estimated net price of attendance at an institution (defined as cost (price) of attendance minus grant and scholarship aid) based on what similar students paid in a previous year. The net price calculator is required for all Title IV institutions that enroll full-time, first-time degree- or certificate-seeking undergraduate students.

The Problem

“Sticker Price” often is higher than most students will end up paying for college.

Students and families have been unable to quickly and accurately determine the true cost of attendance, prior to applying to a college.

The Solution

Require all colleges and universities to provide a NPC which the public can use to determine their individual net cost of college.

Institutions can use the U. S. Department of Education’s NPC, purchase a NPC from a third party vendor or develop their own in-house calculator.

Net Price vs. Net Cost

Net Price (federally mandated): Cost of Attendance minus the average institutional or government grant aid for first-year, full-time students.

Net Cost (not federally mandated): Net Price minus loans and work-study.

Examples

Net Price:

COA $45,000- Avg. Grant $20,000

Net Price $25,000

Net Cost:

COA $45,000- Avg. Grant $20,000- Loans $ 3,500- Work-Study $ 2,000

Net Cost $19,500-

Areas of Concern

• NPC’s will not provide an apples-apples comparison.

• Estimates can be outdated based on when the student is using the calculator.

• Not very useful for transfer and part-time students.

• GIGO – The output is only as good as the data the student inputs.

Various Sources for Information

The New England Board of Higher Educations website www.nebhe.org) lists Financial Aid Resources by state, i.e. MEFA in Mass, FAME in Maine, etc.

· Educational Opportunity Centers – provide free counseling, information, and assistance applying for college admission and financial aid. (can search for center locations by state at www.ed.gov)

· List of colleges and universities that provide financial aid for international students: www.internationalstudent.com/schools_awarding_aid/ or www.edupass.org/finaid/undergraduate.phtml or www.nafsa.org/students.sec/financial_aid_for_undergraduate/

· College Board tool for comparing financial aid awards: www.collegeboard.com/student/pay/index.html

Final Questions and Discussion