Understanding the EFC When Using Professional Judgment

1. Understanding the EFC When Using Professional Judgment Amy Sikes College of William & Mary VASFAA 2013

2. What is Professional Judgment? • FAAs have been granted authority under the Higher Education Act to take unusual and/or extraordinary circumstances into account when determining financial need • Enables responses to individual circumstances that were not anticipated in legislation or regulation • FAAs have flexibility in this process • …but must stay within the bounds of federal regulations • Each school should develop its own PJ policy • Can’t make PJ changes just because you feel sorry for a family

3. What triggers PJ? • FAA review of FAFSA data or school financial aid application • Student/parent request for special circumstances review • Discovery of other information • Resolution of conflicting information • Don’t let inexperience or fear of a program audit keep you from performing PJ – just be sure to do it properly!

4. Examples of allowable PJ changes • Loss of or reduction in income (includes dislocated worker/displaced homemaker) • Documentation required: Severance letter, unemployment insurance letter, etc.) • Excessive medical and/or dental expenses not paid by insurance • Documentation required: Taxes with Schedule A and/or bills • Divorce or separation • Documentation required: Copy of divorce decree or separation agreement • Death of a parent or spouse • Documentation required: Copy of death certificate • Extraordinary or catastrophic situations, such as those resulting from natural disasters • You are not limited to or required to perform PJ on these examples.

5. What you can’t do with PJ • Create a new cost of attendance category • Change the EFC formula • Make a student who is ineligible for Title IV aid eligible • Circumvent federal regulations • Include most post-enrollment expenses in CoA • Make across-the-board changes • put these in your Policy & Procedures manual

6. Other aspects of PJ • Document, document, document!! • Be consistent in your PJ decisions • Be aware of how PJ changes affect the EFC • Understand the Income Protection Allowance (IPA) for each category • Understand how the EFC formula works • If a student has been selected for verification, you MUST complete verification before using PJ • Do not need to verify if they haven’t been selected • Review the appropriate section of the AVG if you have questions or concerns • http://ifap.ed.gov/fsahandbook/attachments/1314AVGCh5.pdf

7. Back to the beginning… The Expected Family Contribution (EFC) is calculated using data input on the FAFSA EFC is an assessment of what the family can reasonably be expected to pay toward a student’s educational expenses FAFSA is a “snapshot” of the family’s financial situation on the day they file Primary responsibility to pay rests with the family, regardless of their willingness to do so

8. Basic need formula Cost of Attendance/Education (CoA/CoE) minus Expected Family Contribution (EFC) equals Demonstrated Financial Need Most schools then run a packaging formula against Need to determine the student’s aid eligibility. Changing the elements that make up the EFC generally changes the EFC itself, resulting in more or less Need.

9. Models for EFC formulae Dependent student with parent data (Formula A) Independent student without dependents other than a spouse (even if the student is the dependent of the spouse) (Formula B) Independent student with dependents other than a spouse (Formula C)

10. Three EFC formulae • Applied across all 3 EFC models • Regular Formula • Assesses contribution from student and parent (if applicable) via income and assets • Simplified Needs Test • Bypasses assets • Automatic Zero (Auto-Zero) • EFC automatically set to $0 • Does not apply to independent students without dependents other than a spouse

11. Simplified Needs Test Parents’ Adjusted Gross Income (AGI) or non-tax filer income from W-2s is less than $50,000, AND Parent indicates that he/she is a dislocated worker, OR Parents filed or were eligible to file 1040EZ/A, OR Household received means-tested federal benefits in 2011 or 2012 (SNAP benefits) Result: Bypasses assets in formula

12. Automatic Zero Parents’ Adjusted Gross Income (AGI) or non-tax filer income from W-2s is less than $24,000, AND Parent indicates that he/she is a dislocated worker, OR Parents filed or were eligible to file 1040EZ/A, OR Household received means-tested federal benefits in 2011 or 2012 (SNAP benefits) Result: Automatically calculates EFC as $0

13. Elements of EFC Calculation Household size Number in college AGI Taxes paid Assets Untaxed income Various credits (e.g., education tax credit, child support paid, combat pay)

14. More Elements of EFC Calculation • Number of wage earners • Amount of wages earned • Age of the older parent • Asset protection allowance • Income Protection Allowances (IPAs): • Food – 30% • Housing – 22% • Transportation – 9% • Clothing/personal care – 16% • Medical care – 11% • Other family consumption – 12%

15. More Elements of EFC Calculation • Parents’ contribution • Available income • Subtract allowances from total income • Taxes paid, SS tax, IPA, employment expense • Assets • Calculate discretionary net worth by subtracting asset protection allowance from total assets • Multiply discretionary net worth by 12% • Divided by number of dependents in college • Student’s contribution • Available income – subtract allowances, then assess at 50% • Assets – no allowances, assessed at 20%

16. Understand how your changes affect the EFC • Some changes appear to be counterintuitive • Lowering wages earned will raise the EFC, as this will lower the Social Security Tax allowance • Some changes have no net effect on the EFC • If assets are already below the asset protection allowance, there will be no change to EFC by lowering them • ALL changes must be documented! • http://ifap.ed.gov/fsahandbook/attachments/1314AVGCh3.pdf for details on EFC calculations

17. Questions?? Amy Sikes Assistant Director College of William & Mary amy@wm.edu 757-221-2422