Harvard Summer Institute on College Admissions Financial Aid 102 Harvard Summer Institute on College Admissions

F. Duane Quinn Financial Aid Specialist duane201@charter.net

Sally Donahue Griffin Director of Financial Aid Senior Admissions Officer Harvard College sdonahue@fas.harvard.edu

Agenda Brief Review of 101 Calculation of the Family Contribution Institutional Vs. Federal

Theory (traditional) Parents and students are responsible for financing education costs......… Up to their ability.

Theory (traditional) The student and her family will benefit the most from higher education and should pay for it...... Borrowing Saving Working Financial Aid should offer students Access and Choice to higher education

Eligibility Cost less Family contribution = Eligibility for aid

New for current year, “Prior/Prior” In past family reported income from year just ending Often “estimated” tax information, then correct after taxes completed 17 -18 will use tax data from prior year (2015) filed taxes FAFSA available October 1: Not January 1 Colleges may alter filing deadlines

Determining the Family Contribution The Eligibility Index (EFC) Several variations We will concentrate on Dependent Student Theoretical Approach Contrast the Federal Methodology to the “Institutional Methodology”

1. Determining the Eligibility Index (EFC) Total Parent Income Taxable and Non-taxable for tax year last filed minus Taxes Paid (Fed. State and Local) minus Employment Allowance minus Income Protection Allowance ($27,540 4/1) minus Title IV Exclusion equals “Available Income”

2. Total Parental Assets Cash, Savings and Checking plus Other Real Estate / Investments (home?) plus Business Value (100 or more employees / adjusted) plus Farm Value = “Total Net Worth” less “Education Savings / Asset Protection Allowance (Age 50 = $21,200) times 12% Asset Conversion Rate

3. Determining Parent Share of EFC “Available Income” plus “Income Supplement” = “Adjusted Available Income” times Conversion Percentage divided Number Attending College = Eligibility Index from Parent(s)

4. Determining Student Share of Index Total Student Income less Taxes and FICA paid less $6420.00 Protection Allowance times 50% = Index Available From Income Total Student Assets X 20% = Index Available from Student Assets

5. Final Step add “Eligibility Index from Parent’s Income and Assets” plus “Eligibility Index- Student Income” plus “Eligibility Index- Student Assets* equal “ELIGIBILITY INDEX” (EFC)

Asset Impact on EFC An example: 4 in the family, 1 child in college: Family A Family B Family C Combined Parent Income $75,000 Combined Parent Assets $0 $150,000 EFC $7,819 $10,208 $14,438 Difference $2,389 $6,619 There is a generous parent asset protection allowance factored into the EFC formula. While assets (current value of savings, checking accounts, investments, and reportable businesses and farms) are considered in the financial aid formula, assets have minimal impact to the EFC, as it is primarily an income-driven formula Having saved for college or having other assets that you can use to help pay for college is a good thing; it gives families options for paying the balance due Families in the audience who have saved for college should feel good about it! All 529 plans are considered assets in the parents’ name and are treated in the same manner as every other parent asset. Parents have to list the 529 assets for ALL children, because the beneficiary (the child) can be changed, so one child could hypothetically end up using all 529 plans In this example: An additional 75K in savings only increases the EFC by $2,389 An additional 150K in savings only increases the EFC by $6,619 Remember this is parental assets (up to 6%) while student assets would be assessed at a higher rate (20%) Numbers were calculated using the U.S. Department of Education’s 2016-17 Federal Methodology Based on 2016-17 Federal Methodology: Courtesy of MEFA (Massachusetts Educational Financing Authority)

Income Impact on EFC An example: 4 in the family, 1 child in college: Family A Family B Family C Combined Parent Income $75,000 $100,000 $150,000 Combined Parent Assets $50,000 EFC $8,798 $17,245 $32,803 Difference $8,447 $24,005 The EFC formula can be heavily income-driven Income (all income, from taxable and non-taxable earnings and other sources) is assessed at a higher rate in the financial aid formula than assets EFC can change from year to year when income increases due to a raise, etc. In this example: An additional 25K in income increases the EFC by $8,447 An additional 75K in income (from $75,000) increases the EFC by $24,005 Colleges don’t tell families how to meet their EFC. For example, with family B, the college wouldn’t require the family to use any of their reported assets for education expenses. This is an option the family may choose Reminder, the EFC is determining how much the family can absorb in educational expenses over time. In many cases, families using multiple resources, which we will discuss later Families should not use these charts to calculate their own EFC; instead they should utilize EFC calculators Numbers were calculated using the U.S. Department of Education’s 2016-17 Federal Methodology Based on 2016-17 Federal Methodology: Courtesy of MEFA (Massachusetts Educational Financing Authority)

Federal Vs. Institutional Methodology Income = AGI from tax return Medical, dental, tuition costs upon appeal Institutional Does not recognize losses in taxable income Expenses collected on PROFILE

FM Vs. Institutional Methodology Federal No credit for educational savings Income and Assets combined to calculate EFC Institutional Credit (per child) for future higher ed. expenses EFC from Income and EFC from Assets

FM Vs. Institutional Methodology Federal Exclude home equity No incentive to save for higher education (Some in recent act) Institutional Include home equity (with option to cap) Incentive in (CESA) Cumulative Education Savings Allowance

FM Vs. Institutional Methodology Federal 20% of student assets EFC divided by # in college Based upon BLS Institutional 25% of student assets 60% for 2 45% for 3 Based upon CES

Eligibility Cost less Family contribution = Eligibility for aid

Example of “Packaging” COLLEGE “A” cost $40,000 - F.C $ 8,000 = need $32,000

The Financial Aid Package

The Financial Aid Package cost $40,000 $ 8,000. F. C.

The Financial Aid Package cost $40,000 need = $32,000 $ 8,000. F. C.

The Financial Aid Package cost $40,000 grant = $25,000 meet full need $ 3,000 work $4,000 loan $ 8,000. F. C.

The Financial Aid Package cost $40,000 unmet need “GAP” $5,000 grant = $20,000 $3,000 work $4,000 loan $ 8,000. F. C.