1. Need Analysis & Professional Judgment
Understanding the EFC
ABC Workshop 2017
Kimberly Schwaeble – Rice University
Julie Wittmis – Texas Women’s University

2. What you will learn Definition of Need Analysis
Factors that make up the EFC calculation and why they are important
The various federal formulas
Types of professional judgment decisions and how they are related to the EFC and Need Analysis
What is Professional Judgment
Types of PJ

3. 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.

4. 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

5. Expected Family Contribution
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.

6. 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

7. What’s so important about the EFC?

8. EFC is Needed to Calculate Need
Cost of Attendance
(minus)EFC
Need
The EFC determines:
Pell eligibility
Room for need versus non-need-based aid

9. Basic EFC Formulas Formula A 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 EFC worksheets, go to IFAP:

10. 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

11. Simplified Needs Test How does a student qualify for SNT?
Must have income (AGI/wages) of $50, 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.

12. Auto-Zero EFC How does a student qualify for Auto- Zero?
Must have income (AGI/wages) of $25, 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.

13. 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
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.

14. 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

15. 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)
Itemized deductions (line 40)
Health Savings account deduction (line 25)
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.

16. Apply your knowledge!
Which EFC Calculation?

17. 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

18. IPA Worksheets

19. 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

20. Asset Protection Table

21. 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 (coming next) will help a student

22. Professional Judgment
It’s Your Decision!

23. What is Professional Judgment?
Section 479A in the HEA authorizes us to use PJ

24. Examples of PJ Situations
Adjusting Cost of Attendance components
Adjusting data elements used to calculate EFC
Direct changes to EFC is not permitted
Performing a Dependency Override
Establishing eligibility for a dependent student to receive Federal Direct Unsubsidized loans if parent refuses to complete FAFSA and support student

25. Elements that CAN be Adjusted
AGI
Wages Earned
Taxes Paid
Number in Household
Number in College
Additional Financial Information
Untaxed Income
Asset information
Dislocated Worker Status
Federal Benefit Programs (i.e.- SNAP, WIC, TANF, etc.)
Dependency Status
Only for dependent to independent

26. First Rule of PJ is… DOCUMENT!
Keep in mind that all special circumstances must be verified first to ensure you start with accurate data
Types of documents you may wish to collect
Tax returns
W2s
Last pay stubs
3rd party documents
Legal documents
Letter from employers
AVG – 75: You must complete verification for a selected student before you exercise professional judgment to adjust any values that are used to calculate the EFC. But making a PJ adjustment does not require you to verify an application that isn’t selected. Institution’s preference to verify students who are not selected by ED ; however, ensure this is documented within institution’s policies and procedures.
If a student is not selected and data elements are change, must ensure is coded as a PJ to prevent CPS from selecting the student for verification.
AVG-82 When professional judgment (PJ) is used (and coded correctly) to adjust an application that is not selected for verification, the CPS prevents the subsequent transaction from being selected for verification.

27. Loss of Income and/or Additional Expenses

28. Types of Income Losses Loss of Income Additional Expenses
Extended family support
Such as nursing home expenses
Unusual medical/dental expenses that exceed 11% of the IPA
Unusual non- discretionary debt that exceeds 12% of the IPA
Private school costs for children in elementary or high school
Loss of Income
Unemployment or income reduction
Death of parent/spouse
Divorce of parent/student
Loss of child support
One-time lump sum payout
See GEN-09-04
Please refer to your institution’s policy for handling judgments related to Private school cost.
Private school cost- there is wide range of opinion about considering this cost due this cost can be considered as discretionary. Situations where family has no choice – religious school or medical, emotional, physical, or perhaps academic program reasons.

29. Medical Expenses Example
Hands on example:
Let’s say you have a dependent student whose parents experienced an annual medical expense totaling $5,000. The student has 4 in the household and 1 in college. How would you calculate how much of the $5,000 exceeds the 11% of the IPA?
$26,290*11%= $ then $5000-$ = $ is the amount you will remove from the AGI listed on the FAFSA

30. Dependency Overrides & Unsubsidized Stafford Eligibility
Authority given for dependency overrides HEA Section 480(d)

31. Dependency Overrides
Any student who answers “No” to all the dependency questions is dependent even if student is self-supporting
Students who have extenuating circumstances can request an FAA to consider a dependency override
Requires documentation to the validity of the extenuating circumstances
Personal statement
Letters from professionals
Remember: DOCUMENT, DOCUMENT, DOCUMENT!
CCRAA- must re-evaluate the following year
Per CCRAA, Schools have the authority to accept the dependency override that was performed and approved by another school without additional documentation.

32. Dependency Overrides Factors to consider Abandonment by parents
Unable to locate a parent after reasonable attempts
Situations of abuse
Abuse- threatens the student’s health and safety

33. Dependency Overrides
None of the following examples merit a dependency override:
Parents refuse to contribute to the student's education
Parents are unwilling to provide information on the FAFSA or for verification
Parents do not claim student as a dependent for income tax purposes
Student demonstrates total self- sufficiency

34. You be the Judge…
Laura is a first-time freshman living with her grandparents. She is not under legal guardianship, but she has been living with her grandparents since she was 5 when her father left the country. Her mother died when she was 2. She has had no contact with her father since she was 5 and neither has her grandparents, although he sent a check out of the blue when she turned 18 for $5,000.
Would you consider Laura independent?
Why or why not?
AVG-116
A third party that knows the student’s situation—such as a teacher, counselor, medical authority, member of the clergy, prison administrator, government agency, or court—should establish the unusual circumstances. Evidence can be a signed letter or an official document, such as a court order. If third party documentation is truly not available, the school may—though it is not required to—accept a signed and dated statement from the student or a family member detailing the unusual circumstances. Such a statement should be a last resort.

35. Federal Direct Unsubsidized Loan Eligibility
FAAs may use professional judgment to determine if a dependent student may be offered Federal Direct Unsubsidized loans without parental data on the FAFSA
To do this, FAAs must verify:
Parent no longer provides financial support
Parent refuses to file the FAFSA
FAA must collect a signed statement from the parent affirming the above while also certifying that they will not provide support in the future (Include the date support ended.)
FYI - If the parents refuse to sign and date a statement to this effect, you must get documentation from a third party (the student himself is not sufficient), such as a teacher, counselor, cleric, or court.

36. Cost of Attendance Adjustments
Budgets, budgets, budgets!

37. Standard COA Components
Tuition & Fees
Books & Supplies
Room & Board
Transportation
Personal Expenses

38. Types of Adjustments to Consider
Additional mortgage/rent charges
Unusual car repair or transportation costs
Dependent care costs
Computer/Laptop expenses
Unusual medical/dental expenses not covered by insurance
Cost need to occur during the award year
LTHT Budgets- cannot have personal cost such as computer/laptop expense – would not recommend making an adjustment

39. What you CANNOT do in a PJ
A PJ is award year specific and cannot carry forward from year to year unless subsequent request & documentation are received
You cannot directly change an EFC
You cannot make changes to the EFC formula
You may not establish automatic categories of special circumstances. All PJ must be conducted on a case by case basis.
PJ cannot be used to circumvent the law
PJ cannot be used to waive student eligibility requirements
PJ cannot make an Independent student dependent

40. Wrapping Up
Understanding the complexity of the EFC makes you an effective FAA!
You have the authority to use professional judgment so use it! (with proper documentation)

41. Resources
EFC Formula Guide EFCFormulaGuide1718.pdf
FSA Handbook, Application and Verification Guide, Chapter 5, Special Cases
DCL: GEN-09-04, GEN-09-05, GEN-11-04, GEN-11-15

42. Questions? Kimberly Schwaeble: KS56@rice.edu
Julie Witmiss: