How to make an American EFC KASFAA Fall Training October 3, 2013 Tanya McGee and Katie Starling

Dependent Independent w/out dependents other than a spouse Independent with dependents other than a spouse –Simplified Needs Test (SNT): pared down version of each formula with fewer data elements

Formulas (A,B,C) vs. ISIR record layout (1-6) Formula A (ISIR formula 1)- full needs test; dependent Formula B (ISIR formula 2)- full needs test; independent without dependents other than a spouse Formula C (ISIR formula 3)- full needs test; independent with dependents other than a spouse

Formula A (SNT) (ISIR formula 4)- Simplified Needs Test; dependent Formula B (SNT) (ISIR formula 5)- Simplified Needs Test; independent without dependents other than a spouse Formula C (SNT) (ISIR formula 6)- Simplified Needs Test; independent with dependents other than a spouse

Qualifications for Simplified Needs Test Dependent student Parents’ combined AGI (tax filers) or income earned from work (non-tax filers) less than $50,000 and EITHER (1) eligible to file 1040A or EZ or (2) at least one parent is a dislocated worker or (3) anyone in the household size received a means-tested federal benefit during the last two calendar years. Independent student Student and spouse’s combined AGI (tax filers) or income earned from work (non-tax filers) less than $50,000 and EITHER (1) eligible to file 1040A or EZ or (2) either student or spouse is a dislocated worker or (3) anyone in the household size received a means-tested federal benefit during the last two calendar years.

Qualifications for Auto-Zero EFC Dependent student Parents’ combined AGI (tax filers) or income earned from work (non-tax filers) is $24,000 or less and EITHER (1) eligible to file 1040A or EZ or (2) at least one parent is a dislocated worker or (3) anyone in the household size received a means-tested federal benefit during the last two calendar years. Independent student Student and spouse’s combined AGI (tax filers) or income earned from work (non-tax filers) is $24,000 or less and EITHER (1) eligible to file 1040A or EZ or (2) either student or spouse is a dislocated worker or (3) anyone in the household size received a means-tested federal benefit during the last two calendar years. NOTE: An independent student without dependents other than a spouse is NOT eligible for an automatic zero EFC

Questions 44a through 44j (student) and 92a through 92i (parent) Payments to tax-deferred pension and saving plans IRA deductions & payments to self-employed SEP, SIMPLE, Kough, etc Child support RECEIVED Tax exempt interest Untaxed portions of IRA distributions (exclude rollovers) Untaxed portions of pensions (exclude rollovers) Military and Clergy allowances Veterans noneducation benefits Other untaxed income Money received, or paid on your behalf (students only)

Questions 43a through 43f (student) and 91a through 91f (parent) Education Credits (NOT the refundable portion) Child Support PAID Taxable earnings from need-based employment Taxable student grant and scholarship aid REPORTED TO THE IRS IN AGI Combat pay (ONLY INCLUDE TAXABLE COMBAT PAY) Earnings from work under a CO-OP program offered by a college

Income Protection Allowance How is the Income Protection Allowance determined? It increases based on the number of people in the household size, and decreases based on the number of students in the household. What does the income protection allowance protect? 30% of the income protection allowance is for food 22% is for housing 09% is for transportation expenses 16% is for clothing and personal care items 11% is for medical care 12% is for other family consumption

Case Study: Xavier Money Xavier is 22 years old. When he is not at school, he lives in Kansas with his mom Wilma (DOB 7/13/67), his dad Ivan (DOB 9/26/59) and his 3 younger siblings. His two sisters Robin and Freda are both attending local colleges. The Moneys file joint taxes and claim all of their children. Mr. Money is a minister and earned $31370 from wages in addition to receiving a housing allowance of $33067 last year. Mrs. Money has a PhD but due to a layoff has only recently been able to get work as an administrative assistant. She earned $22391 in wages last year. After various adjustments to their income, the Money family’s Adjusted Gross Income (AGI) was $44,155. They itemize deductions, and with several of their children attending college, the Moneys claimed an Education Credit for their children’s expenses in the amount of $1238 at which point their tax liability was reduced to $0. The Moneys believe whole heartedly in saving for the future, and they have built a nest egg worth over $200,000 which they hold in various investments and CDs. Xavier’s only income came from a part time job which was not work study eligible. He filed taxes, and his AGI was $8955. He had no other untaxed income. In rebellion against his family’s values, he spent all of his money and saved none of it.

Case Study: Xavier Money Calculate an EFC for Xavier. Which formula should you use? What is the parents’ taxable income? What is their total additional financial information? What is their total income (TI)? What is their taxes paid? What is their state and other tax allowance (STX)? What is the correct amount for Total Allowances (ATI)? What is the amount of Available Income (AI)? What is the Contribution from Assets (SCA)? What is the Parents’ Contribution? (PC) What is Xavier’s Contribution from Available Income(CAI)? What is Xavier’s Expected Family Contribution?

Case Study: Jed I. Night Jed is 22 years old. He got married to his high school sweetheart Leigha on June 30, On July 1 he filed his FAFSA. Jed worked full time last year while going to school. He earned $14,698 in wages and $16 in taxable interest. Since he claimed himself on his taxes, he was able to deduct the interest he has been paying on his private loans of $1,379. His Adjusted Gross Income is $13,335. His tentative tax is $358. His (gross) education credit is $1500. He has no untaxed forms of income. Leigha is also 22 years old. She is working full time, and is NOT going to school at this time. She also filed taxes and claimed her own exemption. Her income came entirely from her wages of $11,277. Her total tax liability after her deduction and exemption was $154. No untaxed income. Both Jed and Leigha have lived in Kansas all their lives. They have no children, and they have managed to put $3,000 in the bank. They hope to use this money to put a down payment on a home some day. Neither of them own any property and neither of them are self employed.

Case Study: Jed I. Night Calculate an EFC for Jed. Which formula should you use? What is Jed and Leigha’s AGI? What is their total additional financial information? What is their total income? What is their taxes paid? What is their state and other tax allowance (STX)? Calculate Jed and Leigha’s Social Security Tax. What is the correct amount for Total Allowances (ATI)? What is the amount of Available Income (AI)? What is the Contribution from Available Income (CAI)? What is the Contribution from Assets (SCA)? What is Jed’s Expected Family Contribution? Now… What if Leigha decided to attend college? What would happen to the EFC? Are you surprised?

Case Study: Owen A. Lott Owen is a 37 year old disabled veteran who is attending school full time in an online program. He lives in Georgia with his wife, Irna, who is 32 and is enrolled half time at American International University in an MBA program. They have two children, Marta and Heike who are 7 and 12 years old. Currently, Irna is the only breadwinner in the house. She earned $33,895 from wages last year. The family had no other taxable income. After itemizing deductions, the Lott family had $0 tax liability. Irna had education expenses for which she can claim a refundable education credit. Owen’s education expenses are covered by his GI Bill. Additionally, Owen received $21,036 non-education benefits from the department of Veteran’s Affairs last year. Owen and Irna have about $3,000 in the bank, and additionally, they have $200,000 invested which they received as an inheritance when Irna’s father passed away a few years ago.

Case Study: Owen A. Lott Calculate an EFC for Owen. Which formula should you use? What is Owen and Irna’s AGI? What is their total untaxed income and benefits? What is their total additional financial information? What is their total income (TI)? What is their taxes paid? What is their state and other tax allowance (STX)? What is the correct amount for Total Allowances (ATI)? What is the amount of Available Income (AI)? What is Owen and Irna’s Discretionary net worth (DNW)? What is the Contribution from Assets (CA)? What is the Adjusted Available Income (AAI)? What is the total contribution from Adjusted Available Income? What is Owen’s Expected Family Contribution? Are you surprised?

References EFC Formula Guide, aGuide1415.pdf aGuide1415.pdf Application and Verification Guide (AVG),