Understanding Need Analysis for Educational Funding

Need Analysis • Basic Principles: • Students and their families are primarily responsible for the funding of a student’s educational expenses, to the extent possible. • Federal, State and institutional financial aid funds awarded to the right students, in the correct amount.

Need Analysis • Operational Principles: • Federal Methodology is intended to measure the ability of the student and his/her family to contribute to the total cost of a college education. • Only after the family’s ability to contribute has been measured will need-based financial aid be used to pay for postsecondary education.

Need Analysis • Definitions: • Cost of Education • Financial Resources • Estimated Family Contribution • The first step in Need Analysis is to find the • Estimated Family Contribution

Need Analysis - Dependent • Information Needed for Federal Methodology: • Student Income • Student Assets • Parent(s) Income • Parent(s) Assets • Number of People in the Household • Number of Children in College

Need Analysis Components • Student Income Components • Work • Investment Income • Benefits • Untaxed Income

Need Analysis Components • Student Asset Components: • Checking • Savings • Trusts • Real Estate • Investments • CA$H

Need Analysis Components • Parent Income Components • Custodial Parent and Spouse • Work Income • Investment Income • Additional financial information • Question #43 and #91 • Untaxed Income • Question #44 and #92

Need Analysis Components • Parent Asset Components: • Checking, Savings Balances • Investments (excluding retirement savings) • Real Estate (excluding home equity) • “Adjusted” Business Equity (excl. family farm) • CA$H

Need Analysis Components • Parent Household Size Components: • Parent(s) • Dependent Children • Grandparents • Anyone else receiving more than ½ of their support from the parents living in the household

Need Analysis Components • Number in College Components: • Dependents attending college at least ½ time in one term during the academic year • Parents are excluded • The school attended must be eligible for federal student aid • Military Academies and Some Religious Schools • Non-accredited schools

Need Analysis Components • Other Data Components – Reductions to EFC: • Taxes Paid • Federal Income Tax • State Specific Allowance • FICA (Social Security Tax) • Savings Allowance (age of older parent) • Child Support Paid (not on tax return) • Federal Work Study income

Need Analysis Formula • The formula in a nutshell… • Incomes minus taxes and other allowances • Equals available income • Add in a portion of assets (after protecting some) • Factor in the cost of living based on family size • How much is left is “contribution” • Divide contribution among number in college

Need Analysis Formula • Terms you should know… • Income Protection Allowance • Base Year • Available Income • Adjusted Available Income

Need Analysis Variations • Simplified Needs Test – Lower income families are not required to report assets, and assets are not considered. • Automatic Zero EFC - Very low-income families qualify for a zero EFC and the need analysis calculation is unnecessary. • Designed to simplify the aid process and make application easier for these families

Simple Needs Test • Eligibility… • Parent Adjusted Gross Income is $49,999 or less AND • Tax Return filed was the 1040A or 1040EZ OR • anyone in the household received benefits under a means-tested federal benefit program during the “base year” or the year preceding the base year (2009 and 2010) OR • the parent is a dislocated worker. • Result – Assets not considered in Need Analysis

Automatic Zero EFC • Eligibility… • Parent Adjusted Gross Income is $31,000 or less, AND • Tax Return filed was a 1040A or 1040EZ OR • Received benefits under a means-tested federal benefit program during the “base year” and or the year preceding the base year (2009 and 2010) OR • The parent is a dislocated worker • Result – EFC is automatically ZERO

Need Analysis - Independent • Independent Student Formula: • Parent Income and Assets not included or considered. • Need Analysis Formula is similar in structure, but it contains fewer steps… (obviously)…

Independent Student Criteria • Who is considered “Independent”… • Undergraduates are considered to be “dependent”, without regard to the reality of the individual student’s circumstances unless: • 24 (as of 12/31/11 for 2011-2012) • Married (before completing the FAFSA) • Provide more than half of the support of a child •  Continued on next slide 

Independent Student Criteria • Who is considered “Independent”… • Orphan or ward of the court • Placed in foster care after turning 13 years old • Adopted after turning 13 • U.S. military veteran or currently on active duty • Emancipated Minor • Homeless or at risk of homelessness • Made Independent by Professional Judgment • (but that’s another topic for another module)

Independent Student Formula • Independent students without dependents (other than spouse): • Treated like a dependent student in many ways • Income is treated harshly • Assets treated harshly

Independent Student Formula • Independent students with dependents (other than spouse): • Treated like parents of dependent student • Income protection • Asset protection

Questions ??? • Remember that this is a system designed by Congress. It is not supposed to make sense… • Therefore any question that begins with the word “Why…” cannot be answered logically • If you are from Brooklyn, “Hows Come…” means the same thing as “why”…

Understanding Need Analysis for Educational Funding