Transcript CORE Module 6 Federal Methodology Slideshow

National Association of Student
Financial Aid Administrators Presents …
Module 6
Federal Methodology
MASFAA Conference 2011
Pamela W. Fowler, Executive Director
University of Michigan
© NASFAA 2011
Federal Methodology
Method for assessing ability to pay consists
of two steps:
• Measuring the family’s financial strength
• Assessing a portion of family’s financial
resources as a contribution toward
educational costs
Slide 6-2 © NASFAA 2011
Federal Methodology
• Methodology used to calculate expected
family contribution (EFC)
• Classifies students according to one of three
models:
– Model A: Dependent student
– Model B: Independent student without
dependents other than a spouse
– Model C: Independent student with dependents
other than a spouse
Slide 6-3 © NASFAA 2011
FM Formulas
Regular – student completes the entire FAFSA answering all financial
questions.
Simplified – student completes the FAFSA but does not report assets if
total AGI of parent income is under $50,000 (student income not
considered). If there is no tax return for parents income is total from
W-2 or any wages earned from work AND both student and parent
must be eligible to file a 1040A or 1040 EZ.
Independent student and spouse must meet the same criteria as the
parent of a dependent student.
For purposes of simplified formula; a foreign tax return is considered a
1040. A Puerto Rican tax return is considered a 1040A or EZ
Slide 6-4 © NASFAA 2011
Automatic Zero EFC
• If certain criteria are met no calculation is
performed, and the EFC automatically is
set to zero
• Automatic zero EFC is limited to:
– Model A: Dependent student
– Model C: Independent student with
dependents other than a spouse
Slide 6-5 © NASFAA 2011
Regular Formula
• Full data element formula
• EFC calculated for 9-month enrollment period
• Base-year income is used - 2010 is base year for
2011–12
• Round resulting amount to nearest whole
number: .001-.499 round down; .500 to .999
round up
Slide 6-6 © NASFAA 2011
Hand Calculation Time
• FAFSA Data
– State of Residence: Illinois
– Age of older parent = 55
– Household size 4; # in college 2
– Students income = 0; cash = $1300; sav=$2000
– Parents AGI = $119,614; taxes pd. = $12,036
– Wages – Mom = $70,032; Dad = $45,236
– Cash = $20,000; Investments = $88,000
– Education credits = $1500
Slide 6-7 © NASFAA 2011
Section A – Total Parental Income
• Mom’s wages plus Dad’s wages = Total parents income earned from
work
• Taxable income = AGI or total income earned from work
• Untaxed income = line 93 from FAFSA includes:
– Child Support Received
– IRA deductions and payments to SEP, SIMPLE & Keogh plans
– Tax exempt interest income
– Untaxed portions of IRA distributions
– Untaxed portions of pensions
– Housing, food and other living allowances paid to members of the
military, clergy and others
– Veterans non-education benefits
– Other untaxed income – worker’s compensation or disability
– Money received or paid on your behalf
Slide 6-8 © NASFAA 2011
• Basically everything taxed or untaxed is income.
Section B – Allowances Against Income
•
•
•
•
•
US Income tax paid
State and other taxes (Table A1)
Social Security (Table A2) for both Mom & Dad
Income protection allowance (Table A3)
Employment Expense Allowance
– 2 working parents – 35% of the lesser of the earned
incomes or $3500 whichever is less
– 1 parent family – 35% of earned income or $3500
– 2 parent family but only 1 parent works= $0
• Available income (AI) = total income minus total
allowances
Slide 6-9 © NASFAA 2011
Contribution from Assets
•
•
•
•
•
Cash, Savings and Checking plus
Net worth from investments plus
Net worth of business and/or investments +
Adjusted net worth of business/farm* Minus
Education savings and asset protection allowance
=
• Discretionary net worth times
• Asset conversion rate of 12% =
• Contribution from assets
Slide 6-10 © NASFAA 2011
Excluded Assets
• Possessions such as car, stereo, furniture, etc.
• The family’s home, even if it is part of a business
• The family’s farm (including equipment, livestock, etc.)
isn’t included as an investment if:
– It is the principal place of residence, AND
– The applicant (or parents) materially participated in the
farming operation
• Family-owned small businesses that have 100 or fewer
employees.
Slide 6-11 © NASFAA 2011
Parent’s Contribution
• AI plus contribution from assets = AAI
• Total PC from AAI =
• Amount from Table A6 divided by # in
college
Slide 6-12 © NASFAA 2011
Student Available Income
• Taxable income (AGI or wages) plus untaxed
income plus other income = total income – minus• Allowances against student’s income = US
income taxes paid; +state taxes from Table A7;
+social security tax allowance from Table A2;
+income protection allowance of $4500 and an
offset for a negative parental AAI = Total
Allowances
• If negative use 0
Slide 6-13 © NASFAA 2011
Student’s Contribution from Assets
• Cash, + savings, + net worth of
investments, + net worth of business/farm =
net worth
• Net worth assessed at 20% = contribution
from assets
Slide 6-14 © NASFAA 2011
Total EFC
•
•
•
•
Parent’s contribution +
Student’s contribution from AI +
Student’s contribution from assets +
= EFC (standard 9 month contribution)
Slide 6-15 © NASFAA 2011
Table A2 – Social Security Tax
• Calculate separately the Social Security tax of father, mother, and
student.
• Income Earned from Work* Social Security Tax
• $0 - $106,800
7.65% of income
• $106,801 or greater
$8,170.20 + 1.45% of amount > $106,800
• *Father’s/stepfather’s 2010 income earned from work is FAFSA/SAR
#86.
• Mother’s/stepmother’s 2010 income earned from work is FAFSA/SAR
#87.
• Student’s 2010 income earned from work is FAFSA/SAR #38.
• Social Security tax will never be less than zero.
Slide 6-16 © NASFAA 2011
Table A3: Income Protection Allowance
Number in parents’ household, including student
(FAFSA/SAR #72) Number of college students in household (FAFSA/SAR #73)
1
2
3
4
5
2 . . . . . . . . . . $16,230
$13,450
3 . . . . . . . . . . 20,210
17,450
$14,670
4 . . . . . . . . . . 24,970
22,190
19,430 $16,650
5 . . . . . . . . . . 29,460
26,680
23,920
21,140 $18,380
6 . . . . . . . . . . 34,460
31,680
28,920
26,140
23,380
5
Note: For each additional family member, add $3,890.
For each additional college student (except parents), subtract $2,760.
Slide 6-17 © NASFAA 2011
Table A4: Business/Farm Net Worth Adjustment
[for EFC Formula A (parents only)]
If the net worth of a
Then the adjusted
business or farm is— net worth is—
Less than $1
$0
$1 to $115,000
40% of net worth of business/farm
$115,001 to $345,000
$ 46,000 + 50% of net worth over $115,000
$345,001 to $580,000
$161,000 + 60% of net worth over $345,000
$580,001 or more
$302,000 + 100% of net worth over $580,000
Slide 6-18 © NASFAA 2011
Table A6: Parents’ Contribution from AAI
If parents’ AAI is—
is—
Less than -$3,409
The parents’ contribution from AAI
-$750
-$3,409 to $14,500
22% of AAI
$14,501 to $18,200
$3,190 + 25% of AAI over $14,500
$18,201 to $21,900
$4,115 + 29% of AAI over $18,200
$21,901 to $25,600
$5,188 + 34% of AAI over $21,900
$25,601 to $29,300
$6,446 + 40% of AAI over $25,600
$29,301 or more
$7,926 + 47% of AAI over $29,300
Slide 6-19 © NASFAA 2011
Slide 6-20 © NASFAA 2011