Session 33

1. Session 33 Expected Family Contribution (EFC) Deborah Tarpley Marianna Deeken

2. How is EFC Determined? • Three Federal Methodology (FM) models • Dependent student • Independent student • Independent student with dependents other than a spouse

3. How is EFC Determined? • Three distinct FM formulas • Regular • Simplified • Automatic zero

4. Alternate Formulas • Simplified Formula • Assets not considered • Parents’ AGI or earnings from work < $50,000 and • Parents are not required to file IRS form 1040 • Automatic Zero • EFC is automatically zero if • Parents’ AGI or income earned from work is $20,000 or less and • Parents are not required to file IRS form 1040

5. Independent Students • Independent Students without Dependents other than a spouse • Applies to single and married independent students • May NOT qualify for automatic zero EFC • May qualify for simplified formula • Student (and spouse) AGI or earnings from work < $50,000 and • Student (and spouse) not required to file IRS form 1040

6. Independent Students • Independent Students with Dependents other than a Spouse • Analysis looks much like that of parents of dependent students • EFC automatically zero if • Student’s (and spouse’s) AGI or income earned from work is $20,000 or less and • Student (and spouse) not required to file IRS form 1040

7. Independent Students • May qualify for simplified formula • Student (and spouse) AGI or earnings from work < $50,000 and • Student (and spouse) not required to file IRS form 1040

8. Simplified & Automatic Zero • Means-Tested Federal Benefit Programs • Students also qualify for simplified formula or automatic zero if, in addition to meeting relevant income thresholds, they or their parents received benefits from a means-tested federal benefit program • SSI • TANF • WIC • Food Stamps • Free or Reduced Price Lunches

9. Factors that affect EFC • Number in Household • Number in College • Taxed and Untaxed income • Taxes paid • Investments • Age of the older parent • Number of wage earners

10. 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 • Family should be accepted in its present financial condition • Families should be evaluated in an equitable and consistent manner

11. Need Analysis Concepts • Need-based funds are available to assist with educational costs that exceed the family’s ability to pay • FM assesses strength at the time of application • Family resources are devoted first to basic subsistence

12. Need Analysis Concepts • Beyond basic needs, families can exercise discretion • FM allowances protect family resources • Basic needs • Non-education related discretionary costs

13. Need Analysis Concepts • FM measures discretionary resources • Establishes a portion available for education

14. The Baldwin Family • The family in the example is • A married couple with 4 children who live in Missouri • Grandfather also lives with the family • Older parent is age 49 • Both parents work

15. Treatment of Income in FM • Total Income: Base year income from all taxable and untaxable sources -Exclusions (FAFSA Worksheet C) =Total Income

16. Treatment of Income in FM • Available Income • Portion of income remaining for discretionary spending: Total income -Total Allowances =Available Income (AI)

17. Total Allowances • Allowances for taxes • U. S. Income tax paid • Estimate of state and other taxes • State of residence • Amount of total income • FICA

18. 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

19. Total Allowances • Employment expense allowance • Represents additional costs when both parents work • Applies to working single parent families

20. Treatment of Assets in FM • Assets defined • Cash, savings, checking • Investments and trusts • Real estate equity • Business/farm equity (non-family only) • Protects first 60% of equity up to $105K • Decreases protection percentage after $105K

21. Treatment of Assets in FM Cash, savings, checking +Net worth of real estate and investments +Adjusted net worth of business/farm =Total Net Worth

22. Treatment of Parents’ Assets in FM Total Net Worth -Education Savings and Asset Protection Allowance =Discretionary Net Worth

23. Treatment of Parents’ Assets in FM • 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

24. Treatment of Parents’ Assets in FM Discretionary Net Worth X 12% (asset conversion rate) =Contribution from Assets

25. Adjusted Available Income Parents’ Available Income (+ / -) +Parents’ Contribution from Assets (+/ 0) =Total Adjusted Available Income (+ / -)

26. 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

27. Determining Parents’ Contribution • Total contribution from AAI is divided evenly among all household members in college Total PC from AAI = 9-month PC Number in College

28. Determining Student’s Contribution Total of student taxed + untaxed income - state and federal taxes - $2550 IPA -allowance for parents’ negative AAI = Available income (AI) X 50% assessment of AI = Student contribution from AI

29. Determining Student’s Contribution Cash, savings, checking +Net worth of real estate and investments +Adjusted net worth of business/farm =Total Net Worth X 35% =Student contribution from assets

30. Determining EFC Parents’ Contribution +Student’s Contribution from AI +Student’s Contribution from assets = 9 month EFC

31. What about Unusual Circumstances? • If you have a student with unusual circumstances you can use professional judgment to adjust: • Cost of Attendance • Adjust elements that are related to the student’s cost of attending the school • Data elements that are part of the formula • You may not adjust the bottom line

32. What if? • Mr. Baldwin has an accident and injures his back while putting a new roof on the house • The family has $10,000 in unreimbursed medical expenses • They have cashed in some of their investments to pay these expenses • They want to know if you can adjust their assets to take this unexpected event into account

33. What if? • Remember that the parents have no contribution from assets • Adjusting the assets by $10,000 will have no effect on the current EFC Pell Elig Flag Y Intermediate Values Primary EFC 2572 Secondary EFC TI 67644 PCA 0 Mon 1 324 Mon 7 2010 Mon 1 Mon 7 ATI 43012 AAI 24632 Mon 2 605 Mon 8 2291 Mon 2 Mon 8 STX 2010 TSC Mon 3 886 Mon 10 2609 Mon 3 Mon 10 EA 3100 TPC 6475 Mon 4 1167 Mon 11 2646 Mon 4 Mon 11 IPA 31630 PC 3237 Mon 5 1448 Mon 12 2683 Mon 5 Mon 12 AI 24632 STI 3731 Mon 6 1729 Mon 6 CAI SATI 2947 DNW -12700 SIC 392 NW 36200 SDNW 124 APA 48900 SCA 43 FTI 71375 Auto Zero EFC Flag Rejected Status Change Flag Duplicate SSN Flag EFC Change Flag INCREASE Verification Selection Flag Address Only Correction SNT Flag NO SAR C Change Flag Match Flags: SSN 4 SSA A DHS SS Y NSLDS 1 VA DHS Sec. Conf. Father SSN 4

34. What if? • Mr. Baldwin is still recovering from his accident but finds that, due to his injuries, he can no longer work at his current job in construction • Prior to the accident, business was slow, and Mr. Baldwin had only earned $3000 in 3 months • He is now collecting unemployment benefits of $270 per week • He can collect benefits for 26 weeks totaling $7020 • Mrs. Baldwin is still working, but they have no other income

35. What if? • If you make an adjustment based upon projected income, the new projected total income is $40,290 • New total allowances are $36,435 • New AI is $3855 • New PC is $424 • New EFC is $859

36. What if? • Mr. Baldwin is unable to find a job and has been counseled to seek job retraining • He is planning to enroll in a vocational program at the local community college • His tuition costs will be $2,028 for the year • The Baldwins would like to know if this additional information can be considered

37. What if? • If you consider the $2,028 as coming out of their income, new projected total income is $38,262 • New allowances are $36,374 • New AI is $1,888 • New PC is $208 • New EFC is $643

38. What if? • If you want to consider 3 in the household in college, then the projected income remains unchanged at $40,290 • New total allowances are $33,975 • New AI is $6315 • New PC is $463 • New EFC is $898

39. Additional Beginner’s Track Sessions • Session #34 - The Institutional Student Information Record (ISIR) • Session #35 - Awarding Aid • Session #36 - Disbursing Aid • Session #37 - IFAP, NSLDS, COD, FAA Accessto CPS On -Line • Session #38 - Financial Aid Professionals (FAP) Portal and Beyond - How We Communicate With You? • Session #39 - Uncover the Mysteries of How a Law Becomes Operational

40. We appreciate your feedback and comments.We can be reached at: • Phone: (303) 844-3677 x118 • Fax: (303) 844-5756 • Email: deborah.tarpley@ed.gov • Phone: (206) 615-2583 • Fax: (206) 615-2508 • Email: marianna.deeken@ed.gov