1. NEED ANALYSIS AND PROFESSIONAL JUDGMENTS JUSTIN CHASE BROWN CORTNEYJO SANDIDGE UNIVERSITY OF MISSOURI

2. TRAINING OBJECTIVES i. Principles of Need Analysis ii. Need Analysis Variations iii. Professional Judgment iv. Dependent Case Study v. Case Study On Your Own http://ifap.ed.gov/efcformulaguide/attachments/091913EFCFormulaGuide1415.pdf

3. PRINCIPLES OF NEED ANALYSIS  the assessment of the difference between a family’s ability to pay for college (EFC) and the college’s cost of attendance (COA)  Guiding premise:  Students and their families are primarily responsible for the funding of a student’s educational expenses, to the extent possible.

4. PRINCIPLES OF NEED ANALYSIS First step  Calculating the Expected Family Contribution (EFC)  Operational principles  Federal methodology is intended to measure the ability of the student and his/her family to contribute to the total cost of a college education.  Only after the family’s ability to contribute has been measured will need-based financial aid be used to pay for postsecondary education.

5. PRINCIPLES OF NEED ANALYSIS  Student/family files FAFSA  Federal processor performs calculations  Student information = Student Contribution  Including spouse, if independent and married  Parental information = Parent Contribution  For dependent students  Household size and number in college

6. NEED ANALYSIS COMPONENTS  Basic components:  Income  Allowances  Assets  Number in household  Number in college

7. NEED ANALYSIS FORMULA IN A NUTSHELL Income Allowances Available income Assets Cost of living Contribution # in college EFC

8. ALLOWANCES  U.S. income tax paid allowance  State and other tax allowance  Social Security tax allowance  Income Protection Allowance  Parent’s negative Adjusted Available Income (dependent students only)

9. INCOME PROTECTION ALLOWANCE  Allowance for basic living expenses of a family, which varies according to the number in the household and college  In general, it can be assumed that:  30% of IPA is for food  22% of IPA is for housing  9% of IPA is for transportation expenses  16% of IPA is for clothing/personal care  11% of IPA is for medical care  12% of IPA is for other family consumption

10. SAVING FOR COLLEGE  Many families feel they are penalized if they save money for college.  Two largest assets for most families are not included in need analysis (home equity and retirement savings)  There is also an asset protection allowance that varies according to eldest parent’s age  Assessment rate on assets is relatively low

11. NEED ANALYSIS VARIATIONS FORMULA ADependent students FORMULA B Independent student without dependents other than spouse FORMULA C Independent students with dependents other than spouse

12. NEED ANALYSIS VARIATIONS Regular (full) Formula Simple Needs Formula Lower-income families (assets not considered) Automatic Zero Formula Very low-income families (Zero EFC)

13. SIMPLE NEEDS TEST  Eligibility  Parent AGI ≤ $49,999 and one of the following are true:  Parent filed or eligible to file 1040A/EZ  Parent was not required to file a tax return  Parent is a dislocated worker  Anyone in the household received means-tested Federal benefits in 2012 or 2013 [ DEPENDENT – FORMULA A ]

14. SIMPLE NEEDS TEST  Eligibility  Student/spouse AGI ≤ $49,999 and one of the following are true:  Student/spouse filed or eligible to file 1040A/EZ  Student/spouse was not required to file a tax return  Student/spouse is a dislocated worker  Anyone in the student/spouse household received means-tested Federal benefits in 2012 or 2013 [ INDEPENDENT – FORMULA C ]

15. AUTOMATIC ZERO FORMULA  Eligibility  Income threshold $24,000 ($23,000 in 13AY)  Parent income ≤ $24,000 and one of the following are true:  Parent filed or eligible to file 1040A/EZ  Parent was not required to file a tax return  Parent is a dislocated worker  Anyone in the household received means-tested Federal benefits in 2012 or 2013 [ DEPENDENT – FORMULA A ]

16. AUTOMATIC ZERO FORMULA  Eligibility  Income threshold $24,000 ($23,000 in 13AY)  Student/spouse income ≤ $24,000 and one of the following are true:  Student/spouse filed or eligible to file 1040A/EZ  Student/spouse was not required to file a tax return  Student/spouse is a dislocated worker  Anyone in the student/spouse household received means-tested Federal benefits in 2012 or 2013 [ INDEPENDENT – FORMULA C ]

17. NEED ANALYSIS TERMS  Base year  Refers to the tax year the FAFSA calculates  Available Income  Refers to the assessed portion of discretionary income  Adjusted Available Income  Refers to the available income plus contribution from assets/discretionary net worth

18. NEED ANALYSIS TERMS  Terms you should know…  Income Protection Allowance  Base Year  Available Income  Adjusted Available Income  Simplified/Simple Needs Formula  Automatic Zero Formula  Dependent versus Independent

19. PROFESSIONAL JUDGMENT  Can you apply professional judgment to the need analysis formula? NO!  The need analysis formula cannot be altered  Elements of the formula may be changed with professional judgment (e.g., income earned from work, adjusted gross income, child support received, etc.)  When adjusted, these elements will change the result of the EFC when the formula is applied  Permissible under Section 479A of the HEA. Must have adequate documentation and adjustments must be made on a case-by-case basis (cannot apply to a category of students)  Professional judgment can also apply to areas such as dependency status, cost of attendance, satisfactory academic progress, etc.

20. EXAMPLES OF SPECIAL CIRCUMSTANCES IN HEA  Elementary or secondary school tuition expenses  Medical, dental, or nursing home expenses not covered by insurance  Remember that approximately 11% of the Income Protection Allowance is set aside from the need analysis formula for the family’s medical costs  Unusually high or dependent care costs  Recent unemployment of family member or independent student  Notice what effect Dislocated Worker status has on the need analysis formula

21. “UNREASONABLE” ADJUSTMENT EXAMPLES  Vacation expenses  Tithing expenses  Standard living expenses such as utilities, bills, credit card payments, cell phone, children’s allowances, etc.  Standard maintenance items such as lawn care, home repair, fuel, etc.  Remember the Income Protection Allowance in which these types of costs are already protected from the need analysis formula

22. VERIFICATION  If the student is selected for verification, you must verify the file before making any professional judgment adjustment.  You may have an institutional policy to verify any file prior to making a professional judgment decision.

23. PJ CASE STUDIES:  Xena is married and has two children  Had $2,300 in unreimbursed medical expenses  Xena is the only family member in college  Daisy is a dependent student living with her mother and sister; she is the only family member in college  Daisy’s mother has incurred credit card debt of $8,000

24. PJ CASE STUDIES:  Topanga’s parent’s own a rental home with a net worth of $145,000  The rental home is destroyed due to Hurricane Sandy  Family loses potential rental income and insurance settlement is expected  Screech is a 20-year-old student and had lived with his mother and two younger siblings when in high school. His mother remarried last year and has a prenuptial agreement with the stepfather that he will not cover expenses for Screech.  Screech asks that his stepfather’s income be excluded because his mother and stepfather married after he started college.

25. WORKSHEETS AND TABLES

26. DEPENDENT CASE STUDY Clint Westwood lives with two sisters, Gretchen and Winifred, and parents in Cooter, MO. He is enrolling in college as a freshman this year. He has a summer job where he earned $1,300 last year and has $200 in a savings account. His mother, Dolly, is a secretary and earned $31,987 in 2013, and step- father, Cecil, works for the city and has one other child, Bartholomew (age 22), who attends college half-time. Last year, Cecil earned $62,246 and they have $0 in investments, $0 in a checking account, $0 in education tax credits, and $5,331 in federal income tax paid. They will file an IRS 1040. Cecil is 50 years old and Dolly is 47 years old and AGI is $106,400.

27. CLINT WESTWOOD $106,400 $62,246 $31,987 $94,233 $106,400 $0 $106,400 $0 $106,400 $5,331 4% $4,256 $4,762 $2,447 $34,040 $4,000 $54,836 $106,400 $54,836 $51,564 $0 $34,600 - $34,600 $0 $51,564 $0 $51,564 ($51,564 - $31,500) x 47% + $8,523 = $17,953 2 $8,977 $0 $40 $ 9,017

28. CASE STUDY ON YOUR OWN  Quinn Fabray [Dependent]  Napoleon Dynamite [Dependent]  Emma Pillsbury [Independent]  Rudy Ruettiger [Dependent]  Anheuser Busch [Dependent]  Ronald Burgundy [Independent]  Larry Crowne [Independent]

29. NEED ANALYSIS AND PROFESSIONAL JUDGMENTS JUSTIN CHASE BROWN CORTNEYJO SANDIDGE UNIVERSITY OF MISSOURI QUESTIONS?