Need Analysis Basics
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Transcript of Need Analysis Basics
Presented By
Cora ManuelSaint Mary’s College of CA
Need Analysis Basics
EFC
Expected Family Contribution
Measure of what the student and family can be expected to contribute to student’s cost of education
Expected Family Contribution Calculated from data collected on the FAFSA
Formula is in statuteDesigned to measure the family’s financial strength
ED publishes updated tables each year in the Federal Register
Principles of Need AnalysisFamily has primary responsibility to pay for educational costs
Student and parents are expected to contribute to the extent they are able
Families should be evaluated in an equitable and consistent manner
Need Analysis ConceptsNeed-based funds are available to assist with educational costs that exceed the family’s ability to pay
Assesses strength at the time of application
Family resources are devoted first to basic subsistence
Need Analysis ConceptsFM measures discretionary resourcesProtects resources needed for basic living
Establishes a portion available for education
Factors that affect EFCTaxable and untaxed incomeTaxes paidNumber in HouseholdNumber in CollegeAssetsAge of the older parent Number of wage earners
EFC CalculationsEFC result on ISIR reflects a 9 month EFCLaw specifies how an EFC must be calculated for periods of other than nine months
Results show on ISIR by number of months
9 month EFC must be used for Pell Grant eligibility
How is EFC Determined?Three distinct FM formulasRegularSimplifiedAutomatic zero
Regular FormulaThree versions of regular formulaDependent studentsIndependent students without dependents other than a spouse
Independent students with dependents other than a spouse
Alternate EFC FormulasSimplified formula
Assets are not considered in the calculation
Automatic Zero EFC formulaUntaxed income and assets are not considered in the calculation
Simplified Formula For dependent students
Parents’ AGI or earnings from work < $50,000 and
Parents are not required to file IRS form 1040ORMember of FAFSA household received federal means-test benefit
Simplified FormulaFor all independent students
Student (and spouse) AGI or earnings from work < $50,000 and
Student (and spouse) not required to file IRS form 1040ORMember of FAFSA household received federal means-test benefit
Automatic Zero EFCFor dependent students
Parents’ AGI or income earned from work is $20,000 or less andParents are not required to file IRS form 1040ORMember of FAFSA household received federal means-test benefit
Automatic Zero EFCFor independent students with dependents other than a spouse
Student’s (and spouse’s) AGI or income earned from work is $20,000 or less
andStudent (and spouse) not required to file IRS form 1040ORMember of FAFSA household received federal means-test benefit
SNT & Auto 0 EFCFederal Means-Tested Benefit Programs
Supplemental Security Income (SSI)Temporary Assistance for Needy Families (TANF)
Special Supplemental Nutrition Program for Women, Infants, and Children (WIC)
Food StampsFree or Reduced Price Lunches
The Web Family
Two parents with one working
Two children in familyOne child in collegeLive in CaliforniaOlder parent is age 42
Treatment of Income
Total Income (TI)
Base year income from all taxable and untaxable sourcesExclusions on FAFSA Worksheet C=Total Income
Treatment of Income
Available Income (AI) is portion ofincome remaining for discretionary Spending
Total incomeTotal Allowances=Available Income
Total AllowancesAllowances for taxes
U. S. Income tax paid
Estimate of state and other taxesState of residenceAmount of total income
FICA
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
Total Allowances Employment expense allowanceRepresents additional costs when both parents work
Applies to working single parent families
Treatment of Assets
Assets definedCash, savings, checkingInvestments and trustsReal estate equityBusiness/farm equity (not family owned)Protects first 60% of equity up to $105K
Decreases protection percentage after $105K
Treatment of Assets
Cash, savings, checking+Net worth of real estate and investments
+Adjusted net worth of business/farm
=Total Net Worth
Treatment of Parents’ Assets
Total Net WorthEducation Savings and Asset Protection Allowance
=Discretionary Net Worth
Treatment of Parents’ Assets Education Savings and Asset Protection AllowanceProtects assets for retirement and future education costs
Applies > age 25Increases with ageAdjusted for marital status
No protection for dependent students
Treatment of Parents’ Assets
Discretionary Net WorthX 12% asset conversion rate
=Contribution from Assets
Adjusted Available Income
Parents’ Available Income (+/-)+Parents’ contribution from assets (+/0)
=Total Adjusted Available Income (+/-)
Determining Parents’ Contribution
As income increases, amount needed for basic household expenses decreasesDiscretionary income increasesIncome available for education
Adjusted Available Income (AAI)X AAI contribution rate=Total Parents’ Contribution from AAI
Determining Parents’ Contribution
Total contribution from AAI is divided evenly among all household members in college
Total PC from AAI / Number in College
=9 month PC
Determining Student’s Contribution
Total of student taxable + untaxedincome State and federal taxes $3,080 IPA allowance for parents’ negative AAI= Available income (AI)X 50% assessment of AI= Student contribution from AI
Determining Student’s Contribution
Cash, savings, checking+Net worth of real estate and investments
+Adjusted net worth of business/farm
=Total Net WorthX 20% =Student contribution from assets
Determining EFC
Parents’ Contribution+Student’s contribution from AI
+Student’s contribution from assets
= 9 month EFC
Resources
2008-2009 FSA Handbook, Application & Verification Guide, Chapter 3
EFC Formula Guide on IFAP
Presented By
Cora ManuelSaint Mary’s College of CA
Thank You!