Rachel Coghlan, Misty Parkinson | Dec U.S. Department of Education 2014 FSA Training Conference for Financial Aid Professionals Demonstrating Expected Family Contribution (EFC) Hand-Calculations Session 39

Agenda Purpose of the Expected Family Contribution (EFC) Formula calculation Six Types Intermediate steps Simplified Needs Test (SNT) Auto Zero (AZ) Exercise – Formula 1 Review exercise Overview of Formulas Wrap Up 2

Purpose What is an EFC An EFC is the calculated number determined based on information reported on the FAFSA The EFC along with other data is used by the school to determine a student’s financial aid package 3

EFC Formulas There are six different formulas used to calculate an EFC. The following items will determine which formula is used: Dependency Meets Simplified Needs or Auto Zero Number of Dependents 4

Simplified Needs/Auto Zero To qualify for simplified needs (SNT) Dependent Any parent’s means benefit question is yes, OR Parent is a dislocated worker, OR Parents filed or were eligible to file a 1040A/1040EZ, filed a 1040 but were not required to do so, or were not required to file any income tax return AND If tax filer, P. AGI is $49,999 or less If non tax filer, Father’s plus Mother’s Income is $49,999 or less 5

Simplified Needs/Auto Zero Independent Any student’s means benefit question is yes, OR Student is a dislocated worker, OR Student filed or were eligible to file a 1040A/1040EZ, filed a 1040 but were not required to do so, or were not required to file any income tax return AND If tax filer, S. AGI is $49,999 or less If non tax filer, Student’s plus Spouse’s Income is $49,999 or less Auto Zero Same requirements as SNT except dollar limit is $24,000 For independent students, those without dependents other than a spouse cannot receive an automatic zero EFC 6

Formula Types Long Form Version 1: Dependent 2: Independent Without Dependents Other Than A Spouse 3: Independent With Dependents Other Than A Spouse Simplified Needs Test (SNT) Version 4: Simplified Dependent 5: Simplified Independent Without Dependents Other Than A Spouse 6: Simplified Independent With Dependents Other Than A Spouse Formulas 1 & 4 use both parent’s and student data Formulas 2,3, 5 & 6 use only student and spouse data 7

EFC Formula Primary/Secondary EFC Primary EFC is used for all federal student aid programs Schools use Secondary EFC for institutional aid awarding If SNT is met, but long form data (asset info) has been completed then Secondary formula is 1, 2, or 3 Signature Reject(s): If record only has signature reject(s), only the primary EFC is calculated and placed in the Signature Reject EFC the school cannot pay on this record 8

EFC Formula If record qualifies for Auto Zero EFC: Primary EFC set to 0 If long form data is present no Secondary EFC is calculated Alternate EFCs Eleven alternate EFCs are calculated for programs of shorter than or longer than nine months Displayed under EFC1, EFC2, EFC3….. 9

EFC Formula Each formula uses FAFSA data such as: AGI, household size, and number in college to calculate the EFC Annually, information changes in the following tables: Income Protection Allowance Adjusted Net Worth of a Business or Farm Education Savings and Asset Protection Allowances Assessment Schedule and Rates Social Security Tax Tables 10

Formula 1 - Example Need the following items Pre-populated FAFSA EFC Formula Guide for formula A EFC Worksheet Note: Formulas in EFC Formula Guide are labeled differently than in this presentation Formula 1 = A, Formula 4 = A Simplified Formula 2 = B, Formula 5 = B Simplified Formula 3 = C, Formula 6 = C Simplified 11

Parent’s Income 1Par AGI (Field 85) 2aParent 1 Income (Field 88) 2bParent 2 Income (Field 89) 3Par Taxable Income 4Total Untaxed income (94a – 94i) 5Taxable & Untaxable IncomeLines Total Add Fin Info (93a – 93f) 7Total IncomeLine 5 – Line

Allowance Against Parent Income 8Parent Taxes Paid (Field 86) 9State and other tax allowanceTable A1 (State Legal Res and Total Income) 10Parent 1 SS Tax AllowanceTable A2 (P1 Income Earned) 11Parent 2 SS Tax AllowanceTable A2 (P2 Income Earned) 12Income Protection AllowanceTable A3 (P Household, P Number in College) 13Employment expense allowance 14Total AllowancesAdd lines 8 to

Par Contribution - Available Income Total Income (Line 7) Total allowances (Line 14) 15Available IncomeLine 7 – Line

Parent Contributions from Assets 16Parent Cash (Field 90) 17Par Net Investment (Field 91) 18Par Business/Farm (Field 92) 19Adjusted Net Worth Bus/FarmTable A4 (P Bus/Farm) 20Net WorthAdd Lines 16, 17, 19 21Asset Protection AllowanceTable A5 22Discretionary Net WorthLine 20 – Line 21 23Asset conversion rate 12% 24Contribution from assets set to

Parents’ Contribution Available Income (Line 15) Contribution from Assets (Line 24) 25Adjusted Available Income (AAI)Total 2 lines above 26Total parents contributions from AAI Table A6 (Par AAI) 27Par Number in College (Field 74) 28Par ContributionLine 26 divided by Line

Student Income 29Student AGI (Field 36) 30Student Income (Field 39) 31Taxable IncomeTax filer – Line 29 Non filer – Line 30 32Total Untaxed income (45a – 45j) 33Taxable & Untaxable IncomeLines Total Add Fin Info (44a – 44f) 35Total IncomeLine 33 – Line

Student Allowances Against Income 36Student Taxes Paid (Field 37) 37State and other tax allowanceTable A7 (State Legal Res and Total Income) 38SS Tax AllowanceTable A2 (Student Income Earned) 39Income Protection Allowance Allowance for Parent negative Adjusted Available Income 41Total AllowancesAdd lines 36 to

Stu Contribution from Available Income Total Income (Line 35) Total allowances (Line 41) 42Available Income (AI)Line 35 – Line 41 43Assessment of AI50% 44Student Contribution from AITake 50% of AI If negative set to set to 0 19

Student Contribution From Assets 45Student Cash (Field 41) 46Student Net Investment (Field 42) 47Student Business/Farm (Field 43) 48Net WorthAdd Lines Assessment rate20% 50Contribution from assets

Expected Family Contribution Parents’ Contribution (Line 28) Student Contribution from AI (Line 44) Student Contribution from Assets (Line 50) 51Expected Family ContributionAdd Lines 28, 44 and

FAA Access View 22

Formulas 2 to 6 Quick Notes: Formula 4 is the same as Formula 1 minus the parent’s contribution from assets The other formulas (2,3, 5, 6) are for Independent students Determine which formula by 1.Have dependents other than a spouse, and 2.Qualify for SNT or Auto Zero EFC Use only information from student and spouse Some EFC factors vary among the independent formulas: Income Protection Allowance Employment Allowance Student Contribution from Income Student Contribution from Assets 23

References EFC Guide: de1415.pdf Financial Aid Handbook, Chapter 3: EFC Formula Table Federal Register Notice 24

QUESTIONS? 25