Presentation Transcript

1. Connecting Students and Parents to the Realities of “Need”, Awarding, and Affordability 2014 WASFAA Conference Reno, Nevada Mike Johnson, Director of Financial Aid, Pacific University
2. High and increasing cost of college High and increasing student and parent indebtedness Lack of transparency in cost and financial aid information Confusing or incomplete information about true cost and financial aid program details Current Concerns
3. The Higher Education Act of 1965, as amended – Section 472 defines Cost of Attendance Cost of Attendance
4. Only the COA components mentioned in statute may be used: Tuition and fees, including rental or purchase of equipment and supplies Books and supplies, transportation, and miscellaneous personal expenses, including the rental or purchase of a computer Room and board costs, described differently based on students’ dependency status and whether they live with parents Cost of Attendance
5. The statute also describes: How to treat less than half-time and incarcerated students How correspondence study, instruction through telecommunications, and study abroad are treated How to include dependent care costs, disability-related costs, cooperative education costs, and loan fees Cost of Attendance
6. The modern list of components is: Tuition and fees Room and board Books and supplies Transportation Personal and miscellaneous costs Cost of Attendance
7. When do you use actual amounts in the COA? Average amounts? How do you calculate averages? How and when do you present COA information on award notifications and in other communications? How does the COA at your school affect students’: “Unmet need”? Net price? Cost of Attendance – Points to Consider
8. How do you describe the COA to students and parents? Do you distinguish between direct and indirect costs? How do you determine indirect cost amounts? What do you say about the price (sticker price and net price) that your school charges? Do you find yourself defending it or apologizing for it? Cost of Attendance – Points to Consider
9. Need analysis has two parts: Estimating a student’s costs (COA) Calculating the Expected Family Contribution (EFC) Need analysis
10. Widely used methodologies for determining students’ need have included: John Monro’s “15% Rule” (1954) Institutional Methodology (1974) Congressional Methodology (1986) Federal Methodology (1992) Need analysis
11. Federal Methodology is detailed in Part F of Title IV of the Higher Education Act of 1965, as amended Updated tables appear each year in the Federal Register Federal Methodology must be used to determine a student’s eligibility for federal financial aid Other methodologies can be used to determine a student’s eligibility for institutional aid Need analysis
12. Families – as defined by the FAFSA – have the primary responsibility for meeting postsecondary costs The distribution of financial aid should be based on the family’s ability – not willingness – to pay Need analysis should provide a “snapshot” of the family’s financial circumstances at the time of application Federal Methodology - Assumptions
13. Regular formula Parent required to file a 2013 IRS Form 1040, or had 2013 income of $50,000 or more Includes consideration of assets Federal Methodology – Dependent Student
14. Simplified formula Parent’s household member received a federal means-tested benefit in 2012 or 2013 Parent filed, or was eligible to file, a 1040 A or EZ; or was not required to file a federal income tax return; or is a dislocated worker - and Parent’s 2013 income was $49,999 or less Excludes consideration of assets Federal Methodology – Dependent Student
15. Automatic zero formula Parent’s household member received a federal means-tested benefit in 2012 or 2013 Parent filed, or was eligible to file, a 1040 A or EZ; or was not required to file a federal income tax return; or is a dislocated worker - and Parent’s 2013 income was $24,000 or less Excludes consideration of income and assets Federal Methodology – Dependent Student
16. Income: Parent and student information are considered Total income is the sum of taxable income or income earned from work, anduntaxed income (including payments to retirement accounts) Additional Financial Information, which reduces reported income, include educationtax credits, child support paid, and taxable income from need-based employment Federal Methodology – Dependent Student, Regular Formula
17. Income Allowances against reported income include: U.S. income tax paid State and other taxes Social Security taxes Income protection allowance Employment expense allowance Federal Methodology – Dependent Student, Regular Formula
18. State and other taxes: Amounts come from tables that consider differences in tax rates in different states for families at different income levels Amounts range from 1% to 9% Federal Methodology – Dependent Student, Regular Formula
19. State and other taxes: % of total parent income $0 - $14,999 >$14,999 Student Alaska 2% 1% 0% Arizona 4% 3% 2% California 8% 7% 5% Hawaii 4% 3% 3% Idaho 5% 4% 3% Nevada 3% 2% 1% Oregon 7% 6% 5% Washington 4% 3% 1% Federal Methodology – Dependent Student, Regular Formula
20. Income protection allowance: Amounts come from a table that uses Bureau of Labor Statistics (BLS) data for lower budget expenditures, adjusted annually based on the Consumer Price Index (CPI) Amounts increase for each additional family member, decrease for each additional college student Federal Methodology – Dependent Student, Regular Formula
21. Income protection allowance*: Household size Number in college 1 2 3 4 $17,440 $14,460 $21,720 $18,750 $15,770 $26,830 $23,840 $20,870 $17,890 $31,650 $28,670 $25,700 $22,710 $37,020 $34,040 $31,070 $28,090 * set at $6,260 for dependent students Federal Methodology – Dependent Student, Regular Formula
22. Employment expense allowance: Amounts represent additional costs that families incur when two parents, or a single parent, work(s) Uses 35% of the lower income, or $4,000, whichever is less Federal Methodology – Dependent Student, Regular Formula
23. Assets Reported on the FAFSA include: Current balances of cash, savings, and checking Net worth of investments, including real estate (excluding retirement accounts and the family’s principle residence) Net worth of businesses and investment farms (excluding small family owned businesses and family farms) Federal Methodology – Dependent Student, Regular Formula
24. Assets Parent contribution from assets: Education Savings and Asset Protection Allowance subtracted from net worth to determine discretionary net worth Contribution is 12% of discretionary net worth Student contribution from assets: Contribution is 20% of net worth Federal Methodology – Dependent Student, Regular Formula
25. Education savings and asset protection allowance: Amounts come from a table that uses the age of the older parent, adjusted for one and two parent households Assets are increasingly protected as parent age increases Federal Methodology – Dependent Student, Regular Formula
26. Education savings and asset protection allowance: Allowances Age of older parent Two-parents One-parent 45* $30,700 $7,100 46 $31,500 $7,200 47 $32,200 $7,400 48 $33,000 $7,600 49 $33,800 $7,800 * 45 is the default if no date of birth indicated Federal Methodology – Dependent Student, Regular Formula
27. The formula’s use of actual, calculated, and assigned numbers make the EFC a financial aid eligibility index rather than an indication of a family’s true ability to pay. In light of that, how do the following affect a school’s ability to assess a student’s need? Federal Methodology – Points to Consider
28. A student who earned $6,200 is treated the same as one who did not work Basic annual living costs for families of four with one in college are set at just under $27,000 regardless of where they live Parents are expected to spend no more than $4,000 per year in work-related expenses such as clothing and transportation regardless of where they work Federal Methodology – Points to Consider
29. Money saved for retirement is not reported on the FAFSA, yet the effect of reported assets on the parent contribution is reduced as the age of the older parent increases At the same age of the older parent, two parents have more than four times the asset amount protected that single parents do How would you explain these aspects of need analysis to families? Would you explain them? Federal Methodology – Points to Consider
30. Schools’ awarding policies vary according to a variety of factors, including: School size School ownership (public/private) Fund availability Program participation Recruitment goals Retention strategies Awarding
31. Policy considerations include: Merit-based vs. need-based aid(level of need met/”gapping”) Price sensitivity of admit pool/school tolerance for ”discounting” Enrollment management goals/leveraging Packaging loans Continuing students’ aid packages Awarding
32. What level of detail does your school provide concerning its awarding policies? How is that decision made, and who makes it? What format(s) do you use for award notifications? How do you assess the effectiveness of the format(s)? Do you assess it? Communicating Award Information – Points to Consider
33. Net price calculators Required of all colleges that participate in Title IV programs Award Information
34. Financial Aid Shopping Sheet A “model financial aid letter” that schools are encouraged to use Award Information
35. Explain and show direct and indirect costs Direct Costs Tuition and fees $38,510 On-campus housing and meals $11,116 Total direct costs $49,626 Indirect Costs Books and supplies $ 1,050 Transportation $ 720 Personal $ 900 Total indirect costs $ 2,670 Cost of Attendance $52,296 Best Practices – Simple Approaches
36. Separate aid categories in award notifications Gift aid Presidential Scholarship $15,000 Federal Pell Grant $ 4,180 Oregon Opportunity Grant $ 2,000 Pacific Grant $11,700 Total gift aid $32,880 Self-Help aid Federal Work-Study $ 2,000 Federal Direct subsidized loan $ 3,500 Federal Direct unsubsidized loan $ 2,000 Total self-help aid $ 7,500 Best Practices – Simple Approaches
37. Provide information about the full cost of borrowing Average loan debt $29,000 Adjusted loan debt (1.072% fee) $29,314 Monthly repayment (10 years)$ 295 Total repayment (10 years) $35,381 Monthly repayment (20 years) $ 175 Total repayment (20 years) $42,116 Best Practices – Simple Approaches
38. Provide estimates of (and justifications for) future cost increases Tuition and feesTotal First year $38,510 $52,296 Second year (4%) $40,050 $54,388 Third year (4%)$41,652 $56,564 Fourth year (4%) $43,318 $58,827 Best Practices – Simple Approaches
39. Provide financial literacy information, especially to promote the importance of: Weekly budgeting Reducing expenses Developing savings plans Borrowing wisely Best Practices – Simple Approaches
40. What concepts do you use to tell students and parents how affordable your school is? Value of higher education/return on investment Comparisons with similar schools Comparisons with regional or national averages Based on certain metrics Communicating Affordability
41. Public 4-yearPrivate 4-year Cost of attendance $24,000 $52,000 Gift aid $5,000 $20,000 Net price - Year 1 $19,000 $32,000 Annual increase 7% 4% Net price - Year 2 $20,860 $34,080 - Year 3 $22,478 $36,243 - Year 4 $24,401 $38,493 - Year 5 $26,459 --- - Year 6 $28,661 --- Totals $141,679 $140,816 Communicating Affordability - Unsuccessfully
42. Cost of obtaining a Bachelor’s degree More than $140,000 Communicating Affordability - Unsuccessfully
43. College Scorecard Web tool created to allow easy comparisons between schools based on certain metrics Affordability Information
44. College Navigator More robust college comparison tool that uses information from the Integrated Postsecondary Education Data System (IPEDS) Affordability Information
45. How do you respond when students and parents ask about previous or future price increases? Cost to the institution of educating students Comparisons with similar schools’ patterns Comparisons with regional or national averages Are you comfortable defending your schools’ decisions in this area? Communicating Affordability
46. Thanks for participating Enjoy the rest of the conference! Connecting Students and Parents to the Realities of “Need”, Awarding, and Affordability