Need Analysis & Professional Judgment

1. Need Analysis & Professional Judgment Understanding the EFC

2. What you will learn • Definition of need analysis • Factors that make up the EFC calculation and why they are important • Understand the various formulas • Understand various types of professional judgment decisions and how they are related to the EFC and Needs Analysis • Learn with is Professional Judgment • Types of PJ

3. 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.

4. 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

5. 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 students education for the year. The EFC is calculated according to a formula specified in the law.

6. What Comprises the EFC? EFC Federal Formula • AGI • Eligible to file a 1040A or EZ • Federal Means Test • Dislocated Worker Worksheets A, B, and C • Dependent • Independent w/no dependent(s) • Independent with dependent(s) Total Income • AGI • Wages Earned • Untaxed Income • Additional Financial Information Income Protection: • Taxes Paid • House Hold Size • Number in college • State and other Tax allowance Protection of Assets • Age of Student (if independent) • Age of Older Parent

7. What’s so important about the EFC?

8. 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

9. Three EFC Worksheets • Worksheet A • For dependent students • Worksheet B • For independent students without dependents (other than a spouse) • Worksheet C • For independent students with dependents other than a spouse For 11-12 EFC worksheets, go to IFAP: http://ifap.ed.gov/fsahandbook/attachments/1112AVGCh3.pdf (pages 51-77)

10. The EFC Formulas • There are 3 different EFC formulas • 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

11. 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 OR • Be a dislocated worker

12. Auto-Zero EFC • How does a student qualify for Auto-Zero? • Must have income (AGI/wages) of $31,000 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.

13. Federal Means Test Benefits • So exactly what is a federal means test benefit? • Supplemental Security Income (SSI) • Temporary Assistance for Needy Families (TANF) • Special Supplemental Nutritional Program for Women, Infants & Children (WIC) • Food Stamps • Free Reduced-Priced School Lunches

14. 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

15. 1040, 1040A or 1040EZ? • Required to file a long form (1040) if • $100K or more of wages (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) • Homebuyers credit (line 67) • 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

16. Apply your knowledge! Which EFC Formula?

17. Income Protection Allowance • Ed 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

18. IPA Worksheets This example is from Worksheet A (dependent students)

19. Asset Protection Allowance • Asset Protection: Dept of Ed automatically protects a set amount of assets based on Independent Student or Parents’ Age of a Dependent Student • The older the student or parent, the greater the amount of assets protected – due to anticipated retirement

20. Asset Protection Table This example is from Worksheet A (dependent students)

21. Apply your knowledge! Matching Exercise of EFC Terms

22. 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

23. Professional Judgment It’s Your Decision!

24. What is Professional Judgment? Section 479A in the HEA authorizes us to use PJ

25. 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 Unsubsidized Stafford if parent refuses to complete FAFSA and support student

26. 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 • Dependency Status • Only for dependent to independent

27. 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

28. Losses of Income & Additional Expenses Examples

29. Types of Losses of Income • 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?

30. 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?

31. Dependency Overrides & Unsubsidized Stafford Eligibility Examples Authority given for dependency overrides HEA Section 480(d)

32. Dependency Overrides • Any student who answers no to all the dependency questions are 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.

33. Dependency Overrides • Factors to consider • Documented, prolonged estrangement • Unable to locate a parent after reasonable attempts • Situations of abuse

34. Dependency Overrides None of the following examples merit a dependency override: • Parents refuse to contribute to the student's education • Parents are unwilling to provide information on the FAFSA or for verification • Parents do not claim student as a dependent for income tax purposes • Student demonstrates total self-sufficiency

35. 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?

36. Unsubsidized Stafford Eligibility • FAAs may use professional judgment to determine if a dependent student may be offered unsubsidized Stafford 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 that the above while also certifying that they will not provide support in the future

37. Cost of Attendance Adjustments Budgets, budgets, budgets!

38. Standard COA Components • Tuition & Fees • Books & Supplies • Room & Board • Transportation • Personal Expenses

39. 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 • Unusual Debt • Stafford loan fees (if applicable) • Nursing Home Expenses • Elementary/Secondary Private Tuition

40. Test your knowledge! Match that PJ!

41. Wrapping Up • Understanding the complexity of the EFC makes you that much more effective of an FAA! • You have the authority to use professional judgment so use it (with proper documentation)

42. Comments/Questions? Erika Cox, University of Texas at San Antonio