Understanding the EFC New Aid Officer Workshop 2017

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Presentation transcript:

Understanding the EFC New Aid Officer Workshop 2017 Need Analysis: Understanding the EFC New Aid Officer Workshop 2017 Rachael Fournier Associate Director of Financial Aid UT-Arlington rachael.fournier@uta.edu

What you will learn Definition of Need Analysis Factors that make up the EFC calculation and why they are important The various federal formulas Fundamentals of calculating an EFC

What is Need Analysis? Definition: The process of determining the student's Expected Family Contribution (EFC) based on the formula established by Congress. Also known as Federal Need Analysis Methodology and Federal Methodology, or FM.

Guiding Principles Primary responsibility to pay for education rests with the student and parents/family Family is expected to contribute to the extent it is able Families must be evaluated in an equitable manner Boeing 737, First flight: April 9, 1967

Expected Family Contribution (EFC) Definition: Measure of how much the student and his or her family can be expected to contribute to the cost of the student’s education for the year. The EFC is calculated according to a formula specified in the law. ATM : “The world's first ATM debuted at Barclay's Bank in London on June 27, 1967”

What Comprises the EFC? Basic EFC Formulas: Dependent Independent w/no dependent(s) Independent with dependent(s) Factors of EFC Calculations: AGI Eligible to file a 1040A or EZ Federal Means Test Dislocated Worker Total Income: Wages Earned Untaxed Income Additional Financial Information Income Protection: Taxes Paid Household Size Number in college State and other Tax allowance Protection of Assets: Age of Student (if independent) Age of Older Parent

What’s so important about the EFC? The Flying Nun: Premiered September 7, 1967

EFC is used to Calculate Need Cost of Attendance (minus)EFC Need The EFC determines: Pell eligibility Need versus non-need-based aid

Basic EFC Formulas Formula A Formula B Formula C For dependent students Formula B For independent students without dependents (other than a spouse) Formula C For independent students with dependents other than a spouse For 17/18 or 18/19 EFC worksheets, go to IFAP: Worksheets, Schedules & Tables

EFC Calculations There are 3 special EFC Calculations Regular Formula: Takes BOTH income & assets into account Simplified Needs Test (SNT):Takes only income into account Auto-Zero EFC: Student’s EFC is automatically zero

Simplified Needs Test How does a student qualify for SNT? Must have income (AGI/wages) of $50,000.00 or less AND Be eligible to file a 1040A or 1040EZ OR Qualify for a federal means test benefit program Be a dislocated worker FAFSA on the Web has a threshold question that will cause the asset questions to be skipped when the student seems eligible for the simplified formula or an automatic zero EFC. But in some instances, such as when using a paper FAFSA, a student who qualifies for the simplified formula will provide asset information. In those cases the CPS will calculate two EFCs: one using the assets and one excluding them. The EFC from the simplified formula (which excludes assets) is called the primary EFC and is printed on the front of the student’s SAR, while the EFC from the full calculation is called the secondary EFC and is printed in the FAA Information section.

Auto-Zero EFC How does a student qualify for Auto-Zero? Must have income (AGI/wages) of $25,000.00 or less AND Be eligible to file a 1040A or 1040EZ OR Qualify for a federal means test benefit Be a dislocated worker Only dependent students or independent students with dependents other than a spouse qualify for an auto-zero EFC.

Federal Means Test Benefits So exactly what is a federal means test benefit program? Supplemental Security Income (SSI) Temporary Assistance for Needy Families (TANF) Special Supplemental Nutritional Program for Women, Infants & Children (WIC) Food Stamps/SNAP Free Reduced-Priced School Lunches LUNAR ORBITER 3 Launched: February 5, 1967 A person need not have received the benefit for an entire year; receiving it at any time in the base or prior year qualifies. Also, an FAA may use professional judgment (PJ) to count a benefit if a person did not receive it during those 24 months but is receiving it now.

What is a Dislocated Worker? Was terminated or laid off from employment or received a notice of termination or layoff; Is unlikely to return to a previous occupation; and Is eligible for or has exhausted unemployment compensation, or is not eligible for compensation because, even though employed long enough to demonstrate attachment to the workforce, he or she had insufficient earnings or performed services for an employer that weren’t covered under a state’s unemployment compensation law; or Was terminated or laid off from employment or received a notice of termination or layoff as a result of any permanent closure of, or any substantial layoff at, a plant, facility, or enterprise; Is employed at a facility at which the employer made a general announcement that it will close; Was self-employed but is now unemployed due to economic conditions or natural disaster; or Is a displaced homemaker

1040, 1040A or 1040EZ? Required to file a long form (1040) if Wages are $100k or more(line 7) Alimony received (line 11) Business or Farm (line 12 & 18) Capital gain or loss (line 13 if schedule D is required) Rental property (line 17) Health Savings account deduction (line 25) Itemized deductions (line 40) Eligible to file a 1040A or EZ If there are capital gains/losses but a Schedule D isn’t required, then a 1040A is fine See IRS Publication 17 page 7: 1040 – must use if there is income that cannot be reported on a 1040A or 1040 EZ – i.e. alimony, business/farm, capital gain or loss/rental property; itemized deduction on Schedule A A foreign tax return counts as an IRS Form 1040, while a tax return for Puerto Rico, Guam, American Samoa, or the Virgin Islands counts as a Form 1040A or 1040EZ.

Apply your knowledge! Which EFC Calculation?

Test Your Federal Formula Knowledge Student is married with a child who they support more than 50%. Student and spouse AGI= $47,000, they reported $0.00 in assets, and marked yes to filling a 1040 however answered yes to being able to file a 1040 A or EZ, they answered no to all federal means test benefits, and no to being a dislocated worker – What is the correct formula? F. Simplified Needs Test (SNT)/Model B

Which EFC Calculation? The CPS will assign a _____ EFC to an independent student if: The student’s and spouse’s combined AGI is $25,000 AND Anyone counted in the household sized received a means-tested federal benefit during 2015 or 2016.

Income Protection Allowance FM automatically protects a set amount of income varied by household size and number in college (called IPA) Food 30% Housing 22% Transportation 9% Clothing/Personal Care 16% Medical 11% Other consumption 12% US Taxes Paid Also considers state & other taxes 30% food 22% housing 9% transportation 16% clothing Before adjusting for an unusual expense, consider whether it is already covered by the IPA. Mention later during this presentation - PJs

IPA Worksheets This example is from Worksheet A (dependent students)

Asset Protection Allowance Asset Protection: Dept of Ed automatically protects a set amount of assets based on the age of independent students or parents of dependent students The older the student or parent, the greater the amount of assets protected – due to anticipated retirement

Asset Protection Table This example is from Worksheet A (dependent students)

Apply your knowledge!

Dependent Student Example Parent Information Student Information AGI: $67,000 Parent 1 Income: $37,000 Parent 2 Income: $30,000 Untaxed Income: $2,500 Taxes Paid: $4,916 Investment: $20,000 Savings: $5,000 # in college : 1 # in Household : 4 AGI : $12,500 Income from work: $12,500 Taxes Paid: $853 Savings: $2,000

Why calculate an EFC? Students do not know how it is determined EFC perceived as the “gate keeper” for aid Ex: “What is the maximum amount my family can make and still get Pell?” Understanding how to calculate helps us explain how all pieces work together You may be asking yourself, “Why learn to do this”? The FAFSA does this for us.

Final Thoughts on Need Analysis A myriad of elements go into the EFC! You can’t “guesstimate” what someone’s EFC would be just by asking income information Having a strong foundation of how the EFC works will help you know if a professional judgment will help a student

Resources 2017-18 EFC Formula Guide https://ifap.ed.gov/efcformulaguide/attachmen ts/071416EFCFormulaGuide1718.pdf

Associate Director of Financial Aid Questions? Rachael Fournier Associate Director of Financial Aid UT - Arlington rachael.fournier@uta.edu