Calculating an EFC Federal Methodology

1. Calculating an EFC Federal Methodology

2. Federal Methodology • Method for assessing ability to pay consists of two steps: • Measuring a family’s financial strength • Assessing a portion of family’s financial resources as being available to contribute toward educational costs

3. 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

4. Types of Formulas • Each student model has two formulas: • Regular • Simplified

5. Regular Methodology Dependent Student EFC Components • Parents’ contribution (PC) consisting of: • Contribution from parents’ available income • Contribution from parents’ assets • Student contribution (SC) consisting of: • Contribution from student’s available income • Contribution from student’s assets

6. Regular Methodology Independent Student EFC Components • Contribution from student’s (and spouse’s) available income • Contribution from student’s (and spouse’s) assets

7. Simplified Formula or simplified Needs test • Dependent Student Parent’s Combined AGI or earnings from work < $50,000 and either (1) the parents were not required to file an IRS Form 1040, (2) one of them is a dislocated worker as defined in the Workforce Investment Act or (3) anyone counted in their household size received a means-tested federal benefit during 2011 or 2012. Independent Student Student’s and spouse’s (if married) combined AGI or earnings from work < $50,000 and either (1) the student and spouse were not required to file an IRS Form 1040, (2) one of them is a dislocated worker as defined in the Workforce Investment Act or (3) anyone counted in their household size received a means-tested federal benefit during 2011 or 2012. • Assets not considered

8. AUTOMATIC ZERO EFC • If certain criteria are met no calculation is performed, EFC automatically is set to zero but is limited to: • Dependent student • parents’ combined AGI (for tax filers) or combined income earned from work (for non-filers) is $24,000 or less, and either • (1) the parents were not required to file an IRS Form 1040, • (2) one of them is a dislocated worker as defined in the Workforce Investment Act of 1998, or • (3) anyone counted in their household size received a means-tested federal benefit during 2011 or 2012. • Independent student with dependents other than a spouse • student’s and spouse’s combined AGI (for tax filers) or combined income earned from work (for non-filers) is $24,000 or less, and either • (1) the student and spouse were not required to file an IRS Form 1040, • (2) one of them is a dislocated worker as defined in the Workforce Investment Act of 1998, or • (3) anyone counted in the household size received a means-tested federal benefit during 2011 or 2012. • Independent students with no dependents other than a spouse do not qualify

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

10. Federal Methodology Characteristics • Base-year income is used • 2012 is base year for 2013-2014 • Allowances protect portions of income and assets • Distributes available family resources among all family members (other than dependent student’s parents) attending postsecondary schools • EFC calculated fornine-month enrollment period

11. Case Study David, Melanie’s Step-dad • Refer to description of case study in packet • Hand calculate an EFC for Melanie for 9 months • Review results Ann, Melanie’s Mom Melanie

12. Rounding Rules for calculating an EFC • Carry all calculations to three decimals • Round resulting amount to nearest whole number .001 to .499 rounded down .500 to .999 rounded up