Need Analysis & Professional Judgment
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Transcript Need Analysis & Professional Judgment
Understanding the EFC
New Aid Officer Workshop 2015
What you will learn
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 is Need Analysis?
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.
Guiding Principles
• 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
Expected Family Contribution
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.
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?
EFC is Needed to Calculate Need
Cost of Attendance
(minus)EFC
Need
The EFC determines:
Pell eligibility
Room for need versus non-need-based aid
Basic EFC Formulas
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
For 15-16 EFC worksheets, go to IFAP:
http://ifap.ed.gov/fsahandbook/attachments/1516AVGCh3.pdf
EFC Calculations
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
Simplified Needs Test
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 1040EZ
OR
Qualify for a federal means test benefit
program
OR
Be a dislocated worker
Auto-Zero EFC
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 1040EZ
OR
Qualify for a federal means test benefit
OR
Be a dislocated worker
Only dependent students or independent students with dependents other than
a spouse qualify for an auto-zero EFC.
Federal Means Test Benefits
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
What is a Dislocated Worker?
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
1040, 1040A or 1040EZ?
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
Apply your knowledge!
Which EFC Calculation?
Income Protection Allowance
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
IPA Worksheets
This example is from Worksheet A (dependent students)
Asset Protection Allowance
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
Table
This example is from Worksheet A (dependent students)
Apply your knowledge!
Matching Exercise of EFC Terms
Final Thoughts on Need Analysis
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
It’s Your Decision!
What is Professional Judgment?
Section 479A in the HEA authorizes us to use PJ
Examples of PJ Situations
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
Elements that CAN be Adjusted
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
First Rule of PJ is…
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
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 nondiscretionary 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?
Medical Expenses Example
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?
Dependency Overrides &
Unsubsidized Stafford Eligibility
Authority given for dependency overrides HEA Section 480(d)
Dependency Overrides
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!
Per CCRAA, Schools have the authority to accept the dependency override that
was performed and approved by another school without additional
documentation.
Dependency Overrides
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 selfsufficiency
You be the Judge…
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?
Federal Direct Unsubsidized Loan
Eligibility
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.)
Cost of Attendance Adjustments
Budgets, budgets, budgets!
Standard COA Components
1.
2.
3.
4.
5.
Tuition & Fees
Books & Supplies
Room & Board
Transportation
Personal Expenses
Types of Adjustments to Consider
Additional mortgage/rent charges
Unusual car repair or transportation
costs
Dependent care costs
Computer/Laptop expenses
Unusual medical/dental expenses not
covered by insurance
What you CANNOT do in
a PJ
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
Test your knowledge!
Match that PJ!
Case Study
Wrapping Up
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)
Resources
2015-2016 EFC Formula Guide
http://ifap.ed.gov/efcformulaguide/attachments/0
90214EFCFormulaGuide1516.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
Questions?
Melissa Bohnsack
Training Specialist
Texas A&M University
[email protected]