1. Professional Judgment Presented by Renee Pelletier Financial Aid Advisor Office of Financial Aid and Scholarship Services

2. Session Overview What and Why of Professional Judgment Foundations of Need Analysis Overview of Federal Methodology When and How of Professional Judgment

3. What is Professional Judgment Discretion used by Financial Aid Administrators in specific areas of student aid administration to decide whether the standard procedures apply to a given case.

4. Why Professional Judgment is Used Gives Financial Aid Administrators the authority to consider special circumstances on a case-by-case basis Enables responsiveness to student circumstances that can’t be fully anticipated in legislation or regulation Promotes access by targeting delivery of aid to qualified students in need

5. Foundation of Need Analysis

6. Philosophy of Need-Based Aid Paying for college is a partnership – Dependency status defines partnership – First responsibility of student and family – Aid is a supplement to family resources

7. Family Responsibility Need analysis measures ability to pay not willingness to pay

8. Goal of Need Analysis A reasonable family contribution – A snapshot of family financial resources

9. Principles of Need Analysis Equity: Fairness in need analysis – Horizontal Equity Consistent treatment of people in similar circumstances – Vertical Equity Appropriately differing treatment of people in different circumstances

10. Principles of Need Analysis Basic family needs come first – Need analysis provides allowances for non- discretionary expenses After measuring discretionary resources, need analysis assesses the portion available for educational costs

11. Overview of Federal Methodology Income – Major determinant of family contribution – Taxable + Untaxed Income – Additional Financial Information items are then subtracted to get Total Income

12. Overview of Federal Methodology Allowances – Federal Income Tax – Social Security Tax – State and other taxes – Employment Expense Allowance – Income Protection Allowance (IPA)

13. Overview of Federal Methodology Total Income – Allowances = Available Income

14. Overview of Federal Methodology Assets – Cash, savings, checking – Money market funds – Equity in real estate other than primary residence – Trust funds – CDs, stocks, bonds, mutual funds – Coverdell & 529 college savings plans – Business or non-family farm equity Does not include value of small business that family owns and controls more than 50% and the business has 100 or fewer FT or FT equivalent employees

15. Overview of Federal Methodology Assets do not include – Equity of primary residences – Value of life insurance – Retirement plans 401k plans Pension funds Annuities Non-education IRAs Keogh plans

16. Overview of Federal Methodology Asset Protection Allowance (APA) – Protects a portion of parental assets for retirement, postsecondary education for the student’s siblings, emergencies, and other purposes – Set using the age of the older parent and parents’ marital status

17. Overview of Federal Methodology Discretionary Net worth = Net worth – APA Asset Assessment Rate – Used to convert discretionary net worth into and “income equivalent” (contribution from assets)

18. Overview of Federal Methodology Available Income + Contribution from Assets = Adjusted Available Income Adjusted Available Contribution (AAI) Rate – Determines the portion of AAI that parents are expected to contribute toward the education of their dependent children Total parents’ contribution from AAI ÷ number in college = Expected Family Contribution (EFC)

19. Differences between IM and FM Treatment of Assets – Equity of primary residence considered – Family farm equity considered – Option to asses retirement assets – Cumulative Education Savings Allowance Assumes family has saved a percentage of income for college based on income and the number of children in the household

20. Use of Professional Judgment

21. When Professional Judgment is Used Can change data values (not data elements or allowance values) – Income data – Asset data Can adjust Cost of Attendance (COA) Can change student status data – dependency override

22. When Professional Judgment is Used Cannot adjust Federal Methodology Cannot change the Expected Family Contribution (EFC) Cannot change an ineligible student to an eligible student Cannot make an otherwise federally independent student dependent

23. Use of Professional Judgment With this flexibility comes responsibility and accountability on the part of the Financial Aid Administrator Evaluation – Appropriateness of adjustments Implementation – Where adjustments are made COA vs. need analysis data values

24. Use of Professional Judgment Decisions supported by data – Authority to use data that best represents current family circumstances – Cannot be based solely on a feeling but on a reasonable amount of data and information Evaluation of data – Source – Accuracy – Appropriateness DOCUMENTATION

25. Special Circumstances Tuition expenses at an elementary or secondary school Medical, dental, or nursing home expenses not covered by insurance Unusually high child care or dependent care costs Recent unemployment of a family member or an independent student A student or family member who is a dislocated worker – Underemployment or displaced homemaker Other changes in family’s income or assets

26. Dependency Overrides Unusual circumstances – Abusive family environment – Abandonment – Unusual circumstances do not preclude a student from answering “yes” to a homeless question, if applicable – Unusual circumstances may lead to situations that do not warrant a dependency override by themselves

27. Dependency Overrides Circumstances that DO NOT warrant a Dependency Override – Parents refuse to contribute to educational costs – Parents unwilling to provide information on FAFSA or for verification purposes – Parents do not claim the student as a dependent for income tax purposes – Student demonstrates total self-sufficiency

28. Alternatives to Dependency Overrides School may use professional judgment to award an Unsubsidized Stafford Loan to a dependent student – Whose parent(s) refuses to provide parental information for the FAFSA – Who does not receive financial support from parent(s) – Must be documented – Student must file the FAFSA and be otherwise eligible for federal aid Institutional funds – Availability – Ease of processing (no FAFSA required)

29. Conclusions Needs analysis is the starting point for Financial Aid Administrators Special Circumstances must be evaluated on a case-by-case basis Professional Judgment is not black and white – Decisions will vary from institution to institution and from administrator to administrator – No right or wrong, but must be able to justify decisions Documentation, documentation, documentation

30. Questions