1. National Association of Student Financial Aid Administrators Presents… © NASFAA 2006 Federal Methodology Module 6

2. Slide 6 - 2 © NASFAA 2006 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

3. Slide 6 - 3 © NASFAA 2006 Federal Methodology Formula used to calculate expected family contribution (EFC) Classifies students according to one of three models: –Dependent student –Independent student without dependents other than a spouse –Independent student with dependents other than a spouse

4. Slide 6 - 4 © NASFAA 2006 Dependent Student EFC Components Parents’ contribution (PC) consisting of: –Contribution from parents’ available income –Contribution from parents’ assets Student contribution (SC) consisting of: –Contribution from student’s available income –Contribution from student’s assets

5. Slide 6 - 5 © NASFAA 2006 Independent Student EFC Components Contribution from student’s (and spouse’s) available income Contribution from student’s (and spouse’s) assets

6. Slide 6 - 6 © NASFAA 2006 Federal Methodology Characteristics Base-year income is used – 2005 is base year for 2006-07 Allowances protect portions of income and assets Distributes available family resources among all family members (other than dependent student’s parents) attending postsecondary schools EFC calculated for nine-month enrollment period

7. Slide 6 - 7 © NASFAA 2006 Dependent Model: Parents’ Contribution from Available Income Taxable income (tax filer AGI or non-filer earnings) +Untaxed income and benefits –Excludable income (i.e., education credits, child support paid, taxable earnings from FWS or other need-based work programs, certain taxable student aid) = Total income

8. Slide 6 - 8 © NASFAA 2006 Dependent Model: Parents’ Contribution from Available Income U.S. income tax paid +State and other taxes +Social Security tax (FICA) +Income protection allowance +Employment expense allowance =Total allowances

9. Slide 6 - 9 © NASFAA 2006 Dependent Model: Parents’ Contribution from Available Income Total income –Total allowances =Available income (may be negative)

10. Slide 6 - 10 © NASFAA 2006 Dependent Model: Parents’ Contribution from Assets Cash, savings, and checking accounts + Current investments, including real estate, net worth + Adjusted business and/or investment farm net worth =Total net worth –Education savings and asset protection allowance =Discretionary net worth x12% Asset conversion rate =Contribution from assets (if negative, set to 0)

11. Slide 6 - 11 © NASFAA 2006 Dependent Model: Total Parents’ Contribution Available income +Contribution from assets =Adjusted available income (AAI) xAssessment rate =Total parents’ contribution ÷Number in college (excluding parents) =Parents’ contribution (if negative, set to 0)

12. Slide 6 - 12 © NASFAA 2006 Dependent Model: Contribution from Student’s Available Income Taxable income (tax filer AGI or non-filer earnings) +Untaxed income and benefits –Excludable income (from FAFSA Worksheet C) =Total income

13. Slide 6 - 13 © NASFAA 2006 Dependent Model: Contribution from Student’s Available Income U.S. income tax paid +State and other taxes +Social Security tax (FICA) +Income protection allowance ($2,550) + Parents’ AAI (only if negative; added as positive amount) =Total allowances

14. Slide 6 - 14 © NASFAA 2006 Dependent Model: Contribution from Student’s Available Income Total income –Total allowances =Available income (AI) x 50% Assessment rate =Student contribution from AI (if negative, set to 0)

15. Slide 6 - 15 © NASFAA 2006 Dependent Model: Contribution from Student’s Assets Cash, savings, and checking accounts + Current investments, including real estate, net worth + Business and/or investment farm net worth =Total net worth x 35% Assessment rate =Student’s contribution from assets

16. Slide 6 - 16 © NASFAA 2006 Dependent Model: EFC Student’s contribution from AI +Student’s contribution from assets =Student contribution Parents’ contribution +Student’s contribution =EFC

17. Slide 6 - 17 © NASFAA 2006 Dependent Model: Simplified EFC Formula, Income Criterion Parents’ 2005 AGI is $49,999 or less if tax filers; or Parents’ 2005 total earnings from work is $49,999 or less if non-filers

18. Slide 6 - 18 © NASFAA 2006 Dependent Model: Simplified EFC Formula, Tax Filing Criterion Tax filing criterion no longer applicable to student as of 7/1/06 Tax filing criterion applies to parents only New alternative to tax filing criterion if parents or student received benefits under a means-tested federal benefit program

19. Slide 6 - 19 © NASFAA 2006 Dependent Model: Automatic Zero EFC, Income Criterion Parents’ 2005 AGI, if tax filers, or total earned incomes, for non-filers, is $20,000 or less Parents meet same tax filing criteria as for simplified formula

20. Slide 6 - 20 © NASFAA 2006 Dependent Model: Automatic Zero EFC, Tax Filing Criterion Tax filing criterion applies only to parent Dependent student is not required to meet the tax filing criterion New alternative to tax filing criterion if parents or student received benefits under a means-tested federal benefit program

21. Slide 6 - 21 © NASFAA 2006 Independent Student without Dependents Other than a Spouse: Regular Formula Taxable income (tax filer AGI or non- filer earnings) +Untaxed income and benefits –Excludable income (i.e., education credits, child support paid, taxable earnings from FWS or other need- based work programs, certain taxable student aid) = Total income

22. Slide 6 - 22 © NASFAA 2006 Independent Student without Dependents Other than a Spouse: Regular Formula Total income –U.S. income tax paid –State and other taxes –Social Security tax (FICA) –Income protection allowance –Employment expense allowance =Available income X50% Assessment rate =Student contribution from available income (may be negative)

23. Slide 6 - 23 © NASFAA 2006 Independent Student without Dependents Other than a Spouse: Regular Formula Cash, savings, and checking accounts + Current investments, including real estate, net worth + Adjusted business and investment farm net worth =Total net worth –Asset protection allowance =Discretionary net worth x 35% Asset conversion rate =Student contribution from assets (if negative, set to 0)

24. Slide 6 - 24 © NASFAA 2006 Independent Student without Dependents Other than a Spouse: Regular Formula Contribution from available income (AI) +Contribution from assets =Contribution from AI and assets ÷Number enrolled in college at least half time =EFC

25. Slide 6 - 25 © NASFAA 2006 Independent Student with Dependents Other than a Spouse: Regular Formula Almost identical to the formula used to calculate the parents’ contribution for the dependent student

26. Slide 6 - 26 © NASFAA 2006 Independent Student Models: Simplified EFC Formula, Income Criterion Student’s (and spouse’s) 2005 AGI is $49,999 or less if tax filers; or Student’s (and spouse’s) 2005 total earnings from work is $49,999 if non- filers

27. Slide 6 - 27 © NASFAA 2006 Independent Models: Simplified EFC Formula, Tax Filing Criterion Independent applicant and spouse (if married) must both meet tax filing criterion New alternative to tax filing criterion if independent student or spouse received benefits under a means-tested federal benefit program

28. Slide 6 - 28 © NASFAA 2006 Independent Student Models: Automatic Zero EFC Not applicable for independent student without dependents other than a spouse

29. Slide 6 - 29 © NASFAA 2006 Independent Student with Dependents Other than a Spouse Model: Automatic Zero EFC Student’s (and spouse’s) 2005 AGI or total earned income is $20,000 or less Both student and spouse (if married) must meet tax filing criterion New alternative to tax filing criterion if independent student or spouse received benefits under a means-tested federal benefit program

30. Slide 6 - 30 © NASFAA 2006 Rounding Rules Carry all calculations to three decimals Round resulting amount to nearest whole number.001 to.499 rounded down.500 to.999 rounded up

31. Slide 6 - 31 © NASFAA 2006 EFC Recalculation for Other than Nine Months EFCs adjusted for enrollment periods other than nine months cannot be used to determine Federal Pell Grant eligibility Alternate EFCs on Student Aid Report (SAR) and Institutional Student Information Record (ISIR)

32. Slide 6 - 32 © NASFAA 2006 EFC Recalculation: Dependent Model Enrollment period less than nine months –Straight proration of PC –Straight proration of student’s contribution from available income –No proration of student’s contribution from assets

33. Slide 6 - 33 © NASFAA 2006 EFC Recalculation: Dependent Model Enrollment period greater than nine months –Step 1: Calculate parents’ alternate AAI –Step 2: Calculate alternate PC –Step 3: Calculate parents’ contribution per month

34. Slide 6 - 34 © NASFAA 2006 EFC Recalculation: Dependent Model Enrollment period greater than nine months –Step 4: Calculate adjustment to PC for number of months that exceed nine –Step 5: Calculate adjusted PC

35. Slide 6 - 35 © NASFAA 2006 EFC Recalculation: Dependent Model Step 6: Calculate adjusted EFC for enrollment period greater than nine months Adjusted PC (from Step 5) + Student’s nine-month contribution from AI +Student’s nine-month contribution from assets = Adjusted EFC

36. Slide 6 - 36 © NASFAA 2006 EFC Recalculation: Independent Models Straight proration of EFC is used for period of enrollment less than nine months No proration for period of enrollment more than nine months

37. Slide 6 - 37 © NASFAA 2006 Summer EFC Calculation: First Approach If summer is not considered part of upcoming award year, subtract nine-month EFC from alternate EFC corresponding to total number of months enrolled during the award year

38. Slide 6 - 38 © NASFAA 2006 Summer EFC Calculation: First Approach If summer is considered part of upcoming award year: –Package summer using appropriate alternate EFC –Calculate EFC for regular academic year by subtracting alternate EFC used for the summer from alternate EFC corresponding to total number of months enrolled during the award year

39. Slide 6 - 39 © NASFAA 2006 Summer EFC Calculation: Second Approach Use monthly share of EFC May be used whether summer is first or last term of award year if school knows student’s summer enrollment plans prior to packaging

40. Slide 6 - 40 © NASFAA 2006