1. Need Analysis TASFAA New Aid Officer’s Workshop May 18, 2010 Lyn Wheeler Kinyon, Assistant Director THECB, Grants and Special Programs lyn.kinyon@thecb.state.tx.us

2. Foundation of Our Profession Access and choice are the cornerstones of the financial aid profession Access and choice are the cornerstones of the financial aid profession How we define financial need through the process of need analysis determines whether or not, and to what extent, a student has access and choice How we define financial need through the process of need analysis determines whether or not, and to what extent, a student has access and choice

3. Expert Knowledge is Essential Provide effective and proficient counseling to students and parents Provide effective and proficient counseling to students and parents Make effective and appropriate professional judgment decisions Make effective and appropriate professional judgment decisions Provide useful input to affect positive change to the current system Provide useful input to affect positive change to the current system

4. Basic Principles of Need Analysis The family has the primary responsibility to pay for educational costs The family has the primary responsibility to pay for educational costs Students and parents are expected to contribute to the extent they are able Students and parents are expected to contribute to the extent they are able The family should be accepted in its present financial condition The family should be accepted in its present financial condition Families should be evaluated equitably and in a consistent manner Families should be evaluated equitably and in a consistent manner

5. Definition of Need Analysis Need Analysis is the method by which we measure the amount of assistance a student will require to meet his/her educational costs Need Analysis is the method by which we measure the amount of assistance a student will require to meet his/her educational costs Elements of need analysis: Elements of need analysis: Cost of Attendance (COA) - the amount it will cost a student to attend an institution during a period of enrollment Cost of Attendance (COA) - the amount it will cost a student to attend an institution during a period of enrollment Expected Family Contribution (EFC) - the family’s ability to contribute toward the cost of attendance Expected Family Contribution (EFC) - the family’s ability to contribute toward the cost of attendance

6. Cost of Attendance (COA) COA’s should be: COA’s should be: Realistic - providing students with an accurate projection of reasonable educational costs Realistic - providing students with an accurate projection of reasonable educational costs Adequate - allowing a student to live at a moderate level Adequate - allowing a student to live at a moderate level Developed in a systematic way Developed in a systematic way Applied consistently Applied consistently Documented Documented

7. COA Components COA components are defined by law COA components are defined by law  Standard or basic components - included in each COA  Additional components - can be added to the standard or basic COA for students who qualify for the additional allowance

8. Standard or Basic Components Tuition and Fees Tuition and Fees Tuition – the actual or average tuition normally assessed students carrying the same workload Tuition – the actual or average tuition normally assessed students carrying the same workload Fees – the required fees for all students or broad categories of students (e.g., undergraduate, graduate, etc.) Fees – the required fees for all students or broad categories of students (e.g., undergraduate, graduate, etc.) Room and Board Room and Board Students without dependents residing with parents Students without dependents residing with parents Students residing off-campus Students residing off-campus Students without dependents residing in campus housing – standard amount normally assessed most residents Students without dependents residing in campus housing – standard amount normally assessed most residents Books/Supplies Books/Supplies Miscellaneous/Personal Miscellaneous/Personal Transportation Transportation

9. Additional Components Dependent care allowance Dependent care allowance Disability-related allowance Disability-related allowance Cooperative education allowance Cooperative education allowance Study abroad allowance Study abroad allowance Educational loan fee allowance Educational loan fee allowance Cost of first professional credential Cost of first professional credential

10. COA Categories Enrollment categories Enrollment categories Full-time, part-time, less than half-time Full-time, part-time, less than half-time In-state, out-of-state, in-district, out-of-district In-state, out-of-state, in-district, out-of-district Undergraduate, graduate Undergraduate, graduate Room and board categories Room and board categories  On campus, off campus, living with parent Other - incarcerated students, study abroad programs, correspondence study programs Other - incarcerated students, study abroad programs, correspondence study programs

11. Fixed and Variable Expenses Fixed Expenses – set by the institution Fixed Expenses – set by the institution Tuition and fees Tuition and fees On-campus room and board On-campus room and board Variable Expenses – not set by the institution Variable Expenses – not set by the institution Books and supplies Books and supplies Off-campus room and board Off-campus room and board Transportation, dependent care, etc. Transportation, dependent care, etc.

12. Collecting Data for Expense Determination Published institutional sources Published institutional sources Expense surveys Expense surveys Personal interviews Personal interviews Student budget questionnaires Student budget questionnaires Student expense diaries Student expense diaries Local community sources Local community sources Local and national publications Local and national publications

13. Expected Family Contribution (EFC) The EFC is the measure of the student’s and his/her family’s ability to contribute to the cost of the student’s education The EFC is the measure of the student’s and his/her family’s ability to contribute to the cost of the student’s education As specified by law, the EFC is determined through a calculation called Federal Methodology (FM) As specified by law, the EFC is determined through a calculation called Federal Methodology (FM)

14. Collecting Data for EFC Determination The Free Application for Federal Student Aid (FAFSA) is used to collect the data needed for the FM calculation The Free Application for Federal Student Aid (FAFSA) is used to collect the data needed for the FM calculation Data reported on the FAFSA includes: Data reported on the FAFSA includes: Information to determine dependency status Information to determine dependency status Household size and number in college Household size and number in college Taxable income, untaxed income, and assets Taxable income, untaxed income, and assets Type of tax return filed and income tax paid Type of tax return filed and income tax paid Age of the older parent or independent student Age of the older parent or independent student Number of wage earners Number of wage earners State of legal residence State of legal residence Child support paid Child support paid

15. Federal Methodology (FM) In general, FM assesses: In general, FM assesses: The family structure The family structure The family’s resources needed for the basic sustenance needs of the family members – food, clothing, and shelter The family’s resources needed for the basic sustenance needs of the family members – food, clothing, and shelter The family’s resources needed for other non-discretionary expenses – SS tax (FICA), federal and state tax, other taxes, etc. The family’s resources needed for other non-discretionary expenses – SS tax (FICA), federal and state tax, other taxes, etc. The family’s available resources for discretionary spending – entertainment, higher education, etc. The family’s available resources for discretionary spending – entertainment, higher education, etc. The portion of the family’s discretionary resources available to contribute toward the expense of a higher education The portion of the family’s discretionary resources available to contribute toward the expense of a higher education

16. Federal Methodology (FM) Three FM Formulas Three FM Formulas Formula A - dependent student and parent Formula A - dependent student and parent Formula B - independent student (and spouse) without dependents (other than a spouse) Formula B - independent student (and spouse) without dependents (other than a spouse) Formula C - independent student (and spouse) Formula C - independent student (and spouse) with dependents (other than a spouse) Three FM Formula Variations Three FM Formula Variations Regular Regular Simplified Simplified Automatic Zero EFC Automatic Zero EFC

17. Dependent vs.Independent Dependent EFC Formula Dependent EFC Formula Parents’ ability to contribute to educational expenses (PC) Parents’ ability to contribute to educational expenses (PC) Student’s ability to contribute to educational expenses (SC) Student’s ability to contribute to educational expenses (SC) Independent EFC Formula Independent EFC Formula Student’s (and spouse’s if applicable) ability to contribute to educational expenses (SC) Student’s (and spouse’s if applicable) ability to contribute to educational expenses (SC) Parents’ ability to contribute is not assessed Parents’ ability to contribute is not assessed

18. Independent Student Definition At least age 24 as of Jan.1 of award year At least age 24 as of Jan.1 of award year Veteran of the U.S. Armed Forces or currently serving on active duty for purposes other than training Veteran of the U.S. Armed Forces or currently serving on active duty for purposes other than training Master’s or Doctoral student Master’s or Doctoral student Legally married Legally married Orphan or ward of the court Orphan or ward of the court Legal dependents other than a spouse Legal dependents other than a spouse Emancipated minor Emancipated minor Court determined legal guardianship Court determined legal guardianship Homeless or unaccompanied youth Homeless or unaccompanied youth Professional judgment Professional judgment

19. Definition of Parent The definition of parent includes: The definition of parent includes: A biological parent A biological parent An adoptive parent An adoptive parent A step-parent (if married to the biological parent) A step-parent (if married to the biological parent) The definition of parent does not include: The definition of parent does not include: A legal guardian A legal guardian A step-parent (no longer married to biological parent) A step-parent (no longer married to biological parent) A grandparent, aunt, or uncle A grandparent, aunt, or uncle A foster parent A foster parent

20. FM’s Approach to Data Base year data for income (2009 is base year for the 2010-11 award year) Base year data for income (2009 is base year for the 2010-11 award year) verifiable information is available verifiable information is available data for a full, complete calendar year data for a full, complete calendar year Other data is as of the date of application or for the upcoming application period Other data is as of the date of application or for the upcoming application period assets and marital status assets and marital status family size and number in college family size and number in college Formula tables establish and use allowances against income and assets in the calculation Formula tables establish and use allowances against income and assets in the calculation

21. Treatment of Income Total Income Total Income Taxable Income (AGI or earnings from work) +Untaxed Income and Benefits (child support rec’d, living allowances, etc.) ̶Excludable Income ̶Excludable Income (child support paid, taxable financial aid, etc.) =Total Income

22. Treatment of Income (cont’d) Available Income - portion of the yearly total income available for discretionary spending Available Income - portion of the yearly total income available for discretionary spending Total Income ̶ Total Allowances ̶ Total Allowances (U.S. Income Tax Paid, State and Other Taxes, Social Security Tax, Income Protection Allowance, and Employment Expense Allowance) _____________________________________________ = Available Income

23. Treatment of Assets Contribution from Assets – excluding the family’s primary residence Contribution from Assets – excluding the family’s primary residence Cash, Savings, and Checking Accounts +Net Worth of Business or Investment Farm (adjusted percentage of value less debt) +Net worth of Other Real Estate or Investment (value less debt) _____________________________________________ =Asset Net Worth

24. Assets (cont’d) Contribution from Assets Contribution from Assets Asset Net Worth ̶Education Savings and Asset Protection Allowance ̶Education Savings and Asset Protection Allowance_____________________________________ =Discretionary Net Worth xAppropriate Conversion Rate _____________________________________ =Contribution from Assets

25. Student or Parent Contribution Student or Parent Contribution Student or Parent Contribution Available Income +Contribution from Assets ______________________________________ =Adjusted Available Income (AAI) xAppropriate Taxation Rate ________________________________ = Gross Student Contribution (SC) or Gross Parent Contribution (PC)

26. Student/Parent Contribution (cont’d) Parent Contribution (Dependent) Parent Contribution (Dependent) Gross Parent Contribution (PC) ÷# in College (excluding parents) ÷# in College (excluding parents) _______________________________ _______________________________ Net Parent Contribution (PC) Student Contribution (Independent) Student Contribution (Independent) Gross Student Contribution (SC) ÷# in College ÷# in College _______________________________ _______________________________ Net Student Contribution (SC)

27. Total Estimated Family Contribution (EFC) Dependent EFC Dependent EFC Parent Contribution (PC) +Student Contribution (SC) _____________________________________ =Dependent Student EFC Independent EFC Independent EFC Student Contribution (SC) _____________________________________ =Independent Student EFC

28. Simplified Formula Variation Dependent Applicant Qualifications for the Simplified Formula: Parents’ base year AGI/Earnings < $50,000 Parents’ base year AGI/Earnings < $50,000AND Parents were not required to file an IRS Form 1040, or Parents were not required to file an IRS Form 1040, or the parent is a dislocated worker, or anyone counted the parent is a dislocated worker, or anyone counted in the parents’ household size received a federal means-tested benefit program in the prior year (base year) or prior, prior year (SSI, food stamps, free or reduced price school lunches, TANF, or WIC) in the parents’ household size received a federal means-tested benefit program in the prior year (base year) or prior, prior year (SSI, food stamps, free or reduced price school lunches, TANF, or WIC)

29. Simplified Formula (Con’t) Independent Applicant Qualifications for the Simplified Formula: Student/Spouse base year AGI/Earnings < $50,000 Student/Spouse base year AGI/Earnings < $50,000 AND AND Student/spouse were not required to file an IRS Form 1040, or the student (or spouse) is a dislocated worker, or anyone counted in the student’s household size received a federal means-tested benefit program during the prior year (base year) or prior, prior year (SSI, food stamps, free or reduced price school lunches, TANF, or WIC) Student/spouse were not required to file an IRS Form 1040, or the student (or spouse) is a dislocated worker, or anyone counted in the student’s household size received a federal means-tested benefit program during the prior year (base year) or prior, prior year (SSI, food stamps, free or reduced price school lunches, TANF, or WIC)

30. Automatic Zero EFC Variation Dependent Applicant Qualifications for Automatic Zero EFC: Parents’ base year AGI/Earnings <= $30,000 Parents’ base year AGI/Earnings <= $30,000 AND AND Parents were not required to file an IRS Form 1040, or the parent is a dislocated worker, or anyone counted in the household size received a federal means-tested benefit during the prior year (base year) or prior, prior year (SSI, food stamps, free or reduced price school lunches, TANF, or WIC) Parents were not required to file an IRS Form 1040, or the parent is a dislocated worker, or anyone counted in the household size received a federal means-tested benefit during the prior year (base year) or prior, prior year (SSI, food stamps, free or reduced price school lunches, TANF, or WIC)

31. Automatic Zero EFC (Con’t) Independent Applicant Qualifications for Automatic Zero EFC: Student/Spouse base year AGI/earnings <= $30,000 Student/Spouse base year AGI/earnings <= $30,000 AND AND Student/Spouse were not required to file an IRS Form 1040, or the student (or spouse) is a dislocated worker, or anyone counted in the household size received a federal means-tested benefit during the prior year (base year or prior, prior year (SSI, food stamps, free or reduced price school lunches, TANF, or WIC) Student/Spouse were not required to file an IRS Form 1040, or the student (or spouse) is a dislocated worker, or anyone counted in the household size received a federal means-tested benefit during the prior year (base year or prior, prior year (SSI, food stamps, free or reduced price school lunches, TANF, or WIC) Not applicable for independent students without dependents other than a spouse Not applicable for independent students without dependents other than a spouse

32. Initial and Alternate EFC’s Initial EFC on the ISIR is for 9 months Initial EFC on the ISIR is for 9 months Alternate EFC’s can be found on the ISIR for enrollment periods other than 9 months Alternate EFC’s can be found on the ISIR for enrollment periods other than 9 months Enrollment periods < 9 months - both the SC and the PC are adjusted Enrollment periods < 9 months - both the SC and the PC are adjusted Enrollment periods > 9 months - no adjustment to the SC; the PC is adjusted Enrollment periods > 9 months - no adjustment to the SC; the PC is adjusted Alternate or prorated EFC’s cannot be used to determine Federal Pell Grant eligibility Alternate or prorated EFC’s cannot be used to determine Federal Pell Grant eligibility

33. Questions ??? Thoughts ??? Comments ???

34. FM Hand Calculation Case Studies Trainer Johnny N. Thalocker (dependent with divorced parents and a stepparent) Coach Judy B. Sunburned (single independent with no dependents)

35. Case Study One – Johnny (dependent student) Johnny is a 21 year old undergraduate student. His parents are divorced and his mother is re-married. He lives with his mother, his stepfather, and his two younger sisters in New York City. His mother, Sue, is 43, and his step-father, Bill, is 42. Together, they filed a 1040 for 2009, reporting an AGI of $75,790, a $1,500 education tax credit, and a tax liability of $7,696. They claimed Johnny as their only exemption other than themselves. Sue earned wages of $27,560 in 2009. She also made $2,250 in payments to a tax deferred pension plan, and receives $750 a month in child support for Johnny’s two sisters. Bill is self-employed and earned $47,300 of which $46,000 was in wages and $1,300 was in business income. His business is valued at $236,000 with a $158,000 debt against it. Sue and Bill also have $9,600 in stocks and $11,333 in savings. Johnny had earnings of $700 in 2009 from his Work-Study job. He filed a 1040EZ and had no income tax liability. He has no savings or assets.

36. Case Study Two – Judy (independent student) Judy is a 50 year old single student with no dependents. She lives in the District of Columbia where she has lived all of her life. She works as a training camp coach in the summer and an office assistant in the fall and spring semesters while attending school full-time at a local university. Judy earned $11,176 through both of her jobs in 2009. She filed an IRS Form 1040A for the 2009 tax year reporting an adjusted gross income of $11,597, taxable interest income in the amount of $421, an education tax credit of $400, and an income tax liability of $658. She has $4,000 in a money market account and no other savings or investments. Judy received no untaxed income in 2009.