Hands on EFC Calculation Michelle Stipp Director, Student Finance Operations DeVry Education Group ILASFAA, President-Elect

Objectives for the session: Review the various EFC models and formulas Understand the methodology used in the calculation Calculate an EFC for a dependent student

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 It’s a consistent approach applied to all financial aid applicants

Knowledge is power! Understanding how the formulas work can enhance the counseling we provide to students Is this professional judgment going to impact the EFC? The more we know, the more confidently we can answer all those EFC questions from families!

How is an EFC Determined? Three models Dependent student Independent student without dependents other than a spouse Independent student with dependents other than a spouse

How is an EFC Determined? Three distinct formulas Regular Simplified Needs Test (SNT) Does not include assets Automatic Zero

SNT Formula To qualify: Parents’ combined AGI or wages was less than $50,000 AND Either: Parent was not required to file an IRS 1040 Form One parent was a dislocated worker OR Anyone counted in the household size received a means- tested benefit during 2014 or 2015 Independent students are also considered Noted on ISIR in the FAA information section SNT Flag (yes or no)

Automatic Zero An “Auto 0” EFC will be calculated when: Parents’ total AGI / earnings was $25,000 or less AND Either Parents were not required to file an IRS 1040 A parent is a dislocated worker OR Anyone counted in the household size received a means- tested federal benefit in 2014 or 2015 Also applies to Independent Students with Dependents other than a Spouse Does not apply to Independent Students without Dependents other than a Spouse Noted on the ISIR in the FAA Information section: Auto Zero Flag (yes or no)

Dependent Student EFC Components Parents’ contribution (PC) consisting of: Contribution from parents’ available income and assets Student contribution (SC) consisting of: Contribution from student’s available income and assets

Independent Student EFC Components Contribution from student’s (and spouse’s) available income and assets

Factors that Impact the EFC This includes: Number in Household Number in College Taxed and Untaxed Income Taxes Paid Assets and Investments Age of the Older Parent Number of Wage Earners

What do we need? Student ISIR 2015-2016 EFC Dependent Student Forms and Tables

So, let’s get calculating!

First, SNT or Auto 0 Check Does our student qualify for either? No, the AGI is over the threshold.

Determining the Parent Contribution (PC) Calculate Available Income Calculate Contribution from Assets Divide by Number in College

Parent’s Total Income

Parent Total Allowances These items reduce the parents available income. That’s a good thing!

A Closer Look at IPA An automatic protection of income to support the basic living expense of the family Varies based upon family size and the number in college Includes: 30% for food 22% for housing 9% for transportation 16% for clothing / personal expenses 11% for medical care 12% for other necessities

What about our student? The IPA is $32,380, which includes: $9714 for food $7124 for housing $2914 for transportation $5181 for clothing / personal expenses $3562 for medical care $3886 for other necessities What if our student requests special circumstances for $3000 in medical expenses?

IPA for Other Students Independent students: without dependents other than a spouse have a greater IPA of $9960. with a spouse who is not enrolled at least half time have an IPA $15,960. with dependents other than a spouse have an IPA table, similar to what we saw for the parent.

Parent Available Income

Parent’s Assets This is where the age of the parent makes a difference. The formula understands that parents are saving for their retirement and protects a portion of their assets accordingly.

Parent Contribution The number in college can make a big difference in the parent contribution.

Determining the Student Contribution (SC) Calculate Available Income Calculate Contribution from Assets

Student Total Income Federal Work Study earnings are included in line 34 and is subtracted from the student’s income.

Student Total Allowances Income protection is the same for all students. If the parent’s AAI is negative, it’s added as a positive. Why?

Student Contribution from Income 50% of the student’s available income goes toward the contribution

Student Assets Student assets are assessed at 20% while parent assets are only 12%.

Bringing it all together!

But, what if?

Wage Earners If both parents are wage earners, but report all of the income under one parent. Does this impact the EFC? Take a look at line 13 Two parent households with two working parents provide an employment expense allowance. In a two parent family with only one working parent, there is no employment expense allowance For our student, this would have increased the parent allowances by 4000, which would have reduced the EFC to 3171.

Other Factors What if the family lived in Iowa, instead of Illinois? The state allowance for Iowa is less than that of Illinois, which means less income is protected. This would have increased the parent contribution from 4127 to 4274. What if the family was paying $3000 in child support? This would reduce the parents total income, which would reduce the parent contribution from 4127 to 3424.

Key Takeaways! Remember how all of the information on the FAFSA can impact the EFC. Common items can be overlooked and make a difference in the EFC. Age, how many working parents, etc. Share your knowledge with families!

Questions?