Cora Manuel

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Need Analysis Basics

• Presented By
• Cora Manuel
• Saint Marys College of CA

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EFC

• Expected Family Contribution
• Measure of what the student and family can be
  expected to contribute to students cost of
  education

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Expected Family Contribution

• Calculated from data collected on the FAFSA
• Formula is in statute
• Designed to measure the familys financial
  strength
• ED publishes updated tables each year in the
  Federal Register

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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
• 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
• Assesses strength at the time of application
• Family resources are devoted first to basic
  subsistence

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Need Analysis Concepts

• FM measures discretionary resources
• Protects resources needed for basic living
• Establishes a portion available for education

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Factors that affect EFC

• Taxable and untaxed income
• Taxes paid
• Number in Household
• Number in College
• Assets
• Age of the older parent
• Number of wage earners

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EFC Calculations

• EFC result on ISIR reflects a 9 month EFC
• Law 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

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How is EFC Determined?

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

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Regular Formula

• Three versions of regular formula
• Dependent students
• Independent students without dependents other
  than a spouse
• Independent students with dependents other than a
  spouse

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Alternate EFC Formulas

• Simplified formula
• Assets are not considered in the calculation
• Automatic Zero EFC formula
• Untaxed income and assets are not considered in
  the calculation

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Simplified Formula

• For dependent students
• Parents AGI or earnings from work
• Parents are not required to file IRS form 1040
• OR
• Member of FAFSA household received federal
  means-test benefit

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Simplified Formula

• For all independent students
• Student (and spouse) AGI or earnings from work 50,000 and
• Student (and spouse) not required to file IRS
  form 1040
• OR
• Member of FAFSA household received federal
  means-test benefit

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Automatic Zero EFC

• For dependent students
• Parents AGI or income earned from work is
  20,000 or less
• and
• Parents are not required to file IRS form 1040
• OR
• Member of FAFSA household received federal
  means-test benefit

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Automatic Zero EFC

• For independent students with dependents other
  than a spouse
• 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
• OR
• Member of FAFSA household received federal
  means-test benefit

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SNT Auto 0 EFC

• Federal 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 Stamps
• Free or Reduced Price Lunches

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The Web Family

• Two parents with one working
• Two children in family
• One child in college
• Live in California
• Older parent is age 42

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Treatment of Income

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

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Treatment of Income

• Available Income (AI) is portion of
• income remaining for discretionary
• Spending
• Total income
• Total Allowances
• Available Income

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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

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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

• Assets defined
• Cash, savings, checking
• Investments and trusts
• Real estate equity
• Business/farm equity (not family owned)
• Protects first 60 of equity up to 105K
• Decreases protection percentage after 105K

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Treatment of Assets

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

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Treatment of Parents Assets

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

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Treatment of Parents Assets

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

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Treatment of Parents Assets

• 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 / Number in College
• 9 month PC

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Determining Students Contribution

• Total of student taxable untaxed
• income
• State and federal taxes
• 3,080 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 20
• 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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Resources

• 2008-2009 FSA Handbook, Application
  Verification Guide, Chapter 3
• EFC Formula Guide on IFAP

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Thank You!

• Presented By
• Cora Manuel
• Saint Marys College of CA