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Need Analysis & Professional Judgment
Understanding the EFCNew Aid Officer Workshop 2015
Definition of Need Analysis Factors that make up the EFC calculation
and why they are important The various federal formulas Types of professional judgment decisions
and how they are related to the EFC and Need Analysis
What is Professional Judgment Types of PJ
What you will learn
Definition:
The process of determining the student's Expected Family Contribution (EFC) based on the formula established by Congress. Also known as Federal Need Analysis Methodology and Federal Methodology, or FM.
What is Need Analysis?
• Primary responsibility to pay for
education rests with the student and parents/family
• Family is expected to contribute to the extent it is able
• Families must be evaluated in an equitable manner
Guiding Principles
Definition:
Measure of how much the student and his or her family can be expected to contribute to the cost of the student’s education for the year.
The EFC is calculated according to a formula specified in the law.
Expected Family Contribution
What Comprises the EFC?
Basic EFC Formulas Dependent Independent w/no
dependent(s) Independent with dependent(s)
Factors of EFC Calculations AGI Eligible to file a 1040A or EZ Federal Means Test Dislocated Worker
Total Income AGI Wages Earned Untaxed Income Additional Financial Information
Income Protection: Taxes Paid Household Size Number in college State and other Tax
allowance
Protection of Assets Age of Student (if
independent) Age of Older Parent
What’s so important about the EFC?
Cost of Attendance
(minus)EFCNeed
The EFC determines: Pell eligibility Room for need versus non-need-based aid
EFC is Needed to Calculate Need
Formula A For dependent students
Formula B For independent students without
dependents (other than a spouse) Formula C
For independent students with dependents other than a spouse
Basic EFC Formulas
For 15-16 EFC worksheets, go to IFAP: http://ifap.ed.gov/fsahandbook/attachments/1516AVGCh3.pdf
There are 3 special EFC Calculations
Regular Formula: Takes BOTH income & assets into account
Simplified Needs Test (SNT):Takes only income into account
Auto-Zero EFC: Student’s EFC is automatically zero
EFC Calculations
How does a student qualify for SNT?
Must have income (AGI/wages) of $49,999 or less
AND Be eligible to file a 1040A or 1040EZOR Qualify for a federal means test benefit
programOR Be a dislocated worker
Simplified Needs Test
How does a student qualify for Auto-Zero?
Must have income (AGI/wages) of $24,000 or less
AND Be eligible to file a 1040A or 1040EZOR Qualify for a federal means test benefitOR Be a dislocated worker
Auto-Zero EFC
Only dependent students or independent students with dependents other than a spouse qualify for an auto-zero EFC.
So exactly what is a federal means test
benefit program? Supplemental Security Income (SSI) Temporary Assistance for Needy Families
(TANF) Special Supplemental Nutritional Program
for Women, Infants & Children (WIC) Food Stamps/SNAP Free Reduced-Priced School Lunches
Federal Means Test Benefits
Was terminated or laid off from employment or received a notice of
termination or layoff; Is unlikely to return to a previous occupation; and Is eligible for or has exhausted unemployment compensation, or is
not eligible for compensation because, even though employed long enough to demonstrate attachment to the workforce, he or she had insufficient earnings or performed services for an employer that weren’t covered under a state’s unemployment compensation law; or
Was terminated or laid off from employment or received a notice of termination or layoff as a result of any permanent closure of, or any substantial layoff at, a plant, facility, or enterprise;
Is employed at a facility at which the employer made a general announcement that it will close;
Was self-employed but is now unemployed due to economic conditions or natural disaster; or
Is a displaced homemaker
What is a Dislocated Worker?
Required to file a long form (1040) if
Wages are $100k or more(line 7) Alimony received (line 11) Business or Farm (line 12 & 18) Capital gain or loss (line 13 if schedule D is
required) Rental property (line 17) Itemized deductions (line 40) Health Savings account deduction (line 25)
Eligible to file a 1040A or EZ If there are capital gains/losses but a Schedule D isn’t
required, then a 1040A is fine
1040, 1040A or 1040EZ?
Apply your knowledge!
Which EFC Calculation?
FM automatically protects a set amount of income
varied by household size and number in college (called IPA) Food 30% Housing 22% Transportation 9% Clothing/Personal Care 16% Medical 11% Other consumption 12%
US Taxes Paid Also considers state & other taxes
Income Protection Allowance
IPA Worksheets
This example is from Worksheet A (dependent students)
Asset Protection: Dept of Ed
automatically protects a set amount of assets based on the age of independent students or parents of dependent students The older the student or parent, the
greater the amount of assets protected – due to anticipated retirement
Asset Protection Allowance
Asset
Protection
Table
This example is from Worksheet A (dependent students)
Apply your knowledge!
Matching Exercise of EFC Terms
A myriad of elements go into the EFC!
You can’t “guesstimate” what someone’s EFC would be just by asking income information
Having a strong foundation of how the EFC works will help you know if a professional judgment (coming next) will help a student
Final Thoughts on Need Analysis
Professional Judgment
It’s Your Decision!
What is Professional Judgment?
Section 479A in the HEA authorizes us to use PJ
Adjusting Cost of Attendance components Adjusting data elements used to calculate
EFC Direct changes to EFC is not permitted
Performing a Dependency Override Establishing eligibility for a dependent
student to receive Federal Direct Unsubsidized loans if parent refuses to complete FAFSA and support student
Examples of PJ Situations
AGI Wages Earned Taxes Paid Number in Household Number in College Additional Financial Information Untaxed Income Asset information Dislocated Worker Status Federal Benefit Programs (i.e.- SNAP, WIC, TANF, etc.) Dependency Status
Only for dependent to independent
Elements that CAN be Adjusted
DOCUMENT! Keep in mind that all special circumstances
must be verified first to ensure you start with accurate data
Types of documents you may wish to collect Tax returns W2s Last pay stubs 3rd party documents Legal documents Letter from employers
First Rule of PJ is…
Loss of Income and/or Additional Expenses
Types of Income Losses
Losses of Income Unemployment or
income reduction Death of parent/spouse Divorce of
parent/student Loss of child support One-time lump sum
payout
See GEN-09-04
Additional Expenses Extended family support
Such as nursing home expenses
Unusual medical/dental expenses that exceed 11% of the IPA
Unusual non-discretionary debt that exceeds 12% of the IPA
Private school costs for children in elementary or high school
How could some of these factors affect a student’s EFC?
Hands on example: Let’s say you have a dependent student whose
parents experienced an annual medical expense totaling $5,000. The student has 4 in the household and 1 in college. How would you calculate how much of the $5,000 exceeds the 11% of the IPA?
Medical Expenses Example
Dependency Overrides & Unsubsidized Stafford
Eligibility
Authority given for dependency overrides HEA Section 480(d)
Any student who answers “No” to all the
dependency questions is dependent even if student is self-supporting Students who have extenuating circumstances can
request an FAA to consider a dependency override Requires documentation to the validity of the
extenuating circumstances Personal statement Letters from professionals Remember: DOCUMENT, DOCUMENT, DOCUMENT!
Dependency Overrides
Per CCRAA, Schools have the authority to accept the dependency override that was performed and approved by another school without additional documentation.
Factors to consider
Abandonment by parents Unable to locate a parent after
reasonable attempts Situations of abuse
Dependency Overrides
None of the following examples merit
a dependency override:1. Parents refuse to contribute to the
student's education 2. Parents are unwilling to provide
information on the FAFSA or for verification
3. Parents do not claim student as a dependent for income tax purposes
4. Student demonstrates total self-sufficiency
Dependency Overrides
Laura is a first-time freshman living with her
grandparents. She is not under legal guardianship, but she has been living with her grandparents since she was 5 when her father left the country. Her mother died when she was 2. She has had no contact with her father since she was 5 and neither has her grandparents, although he sent a check out of the blue when she turned 18 for $5,000.
Would you consider Laura independent? Why or why not?
You be the Judge…
FAAs may use professional judgment to
determine if a dependent student may be offered Federal Direct Unsubsidized loans without parental data on the FAFSA
To do this, FAAs must verify: Parent no longer provides financial support Parent refuses to file the FAFSA FAA must collect a signed statement from the
parent affirming the above while also certifying that they will not provide support in the future (Include the date support ended.)
Federal Direct Unsubsidized Loan Eligibility
Cost of Attendance Adjustments
Budgets, budgets, budgets!
1. Tuition & Fees 2. Books & Supplies3. Room & Board4. Transportation5. Personal Expenses
Standard COA Components
Additional mortgage/rent charges Unusual car repair or
transportation costs Dependent care costs Computer/Laptop expenses Unusual medical/dental expenses
not covered by insurance
Types of Adjustments to Consider
A PJ is award year specific and cannot carry forward from year to year unless subsequent request & documentation are received
You cannot directly change an EFC You cannot make changes to the EFC formula You may not establish automatic categories of
special circumstances. All PJ must be conducted on a case by case basis.
PJ cannot be used to circumvent the law PJ cannot be used to waive student eligibility
requirements PJ cannot make an Independent student dependent
What you CANNOT do in a PJ
Test your knowledge!
Match that PJ!Case Study
Understanding the complexity of the EFC
makes you an effective FAA! You have the authority to use professional
judgment so use it (with proper documentation)
Wrapping Up
2015-2016 EFC Formula Guide http://
ifap.ed.gov/efcformulaguide/attachments/090214EFCFormulaGuide1516.pdf
2015-2016 FSA Handbook, Application Verification Guide, Chapter 5, Special Cases
DCL: GEN-09-04, GEN-09-05, GEN-11-04, GEN-11-15
Resources
