Need Analysis & Professional Judgment

Understanding the EFC

What you will learn Definition of need analysis Factors that make up the EFC

calculation and why they are important Understand the 3 Federal Formulas Learn what is Professional Judgment Understand various types of

professional judgment decisions and how they are related to the EFC and Needs Analysis

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.

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

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 students education for the year. The EFC is calculated according to a formula specified in the law.

What Comprises the EFC?EFC Federal Formula AGI Eligible to file a 1040A or EZ Federal Means Test Dislocated Worker

Worksheets A, B, and C Dependent Independent w/no

dependent(s) Independent with dependent(s)

Total Income AGI Wages Earned Untaxed Income Additional Financial Information

Income Protection: Taxes Paid House Hold Size Number in college State and other Tax

allowance

Protection of Assets Age of Student (if

independent) Age of Older Parent

What’s so important about the EFC?

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

Three EFC Worksheets Worksheet A

For dependent students Worksheet B

For independent students without dependents (other than a spouse)

Worksheet C For independent students with

dependents other than a spouse

For 11-12 EFC worksheets, go to IFAP: http://ifap.ed.gov/fsahandbook/attachments/1112AVGCh3.pdf (pages 51-77)

The EFC Formulas There are 3 different EFC formulas

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

Simplified Needs Test How does a student qualify for SNT?

Must have income (AGI/wages) of $49,999 or less

ANDAnswer Yes to one of the following:1. Be eligible to file a 1040A or 1040EZ2. Qualify for a federal means test benefit3. Be a dislocated worker

Auto-Zero EFC How does a student qualify for Auto-

Zero? Must have income (AGI/wages) of

$23,000 or lessANDAnswer Yes to one of the following:1. Be eligible to file a 1040A or 1040EZ2. Qualify for a federal means test benefit3. Be a dislocated worker

Only dependent students or independent students with child or dependents other than a spouse qualify for an auto-zero EFC. (EFC Formula Worksheets A &C only)

Federal Means Test Benefits

Supplemental Security Income (SSI) Temporary Assistance for Needy Families

(TANF) Special Supplemental Nutritional Program

for Women, Infants & Children (WIC) Food Stamps Free Reduced-Priced School Lunches

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

Is the Applicant Eligible to File a 1040A or 1040EZ? Required to file a long form (1040) if

$100K or more of wages (line 7) Alimony received (line 11) Business (line 12) Capital gain or loss (line 13 only if

schedule D is required) Rental property (line 17) Farm (line 18) Itemized deductions (line 40) Homebuyers credit (line 67)

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

Apply your knowledge!

Which EFC Formula?

Income Protection Allowance Ed 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

IPA Worksheets

This example is from Worksheet A (dependent students)

Asset Protection Allowance Asset Protection: Dept of Ed

automatically protects a set amount of assets based on Independent Student or Parents’ Age of a Dependent Student The older the student or parent, the

greater the amount of assets protected – due to anticipated retirement

Asset Protection Table

Note: Dependent students have no protection of assets.

Apply your knowledge!

Matching Exercise of EFC Terms

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 the EFC will assist with your understanding of the following: Professional Judgment Verification Elements

Apply your knowledge!

2012-2013 Manual EFC Calculation

Professional Judgment

It’s Your Decision!

What is Professional Judgment?

Section 479A in the HEA authorizes us to use PJ

Examples of PJ Situations

Adjusting EFC data elements Losses of Income Additional Expenses

Performing a Dependency Override

Parent Refusal to complete a FAFSA and refuses to provide financial support

Adjusting Cost of Attendance components

EFC 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 Dependency Status

Only for dependent to independent

First Rule of PJ is…DOCUMENT!

A school must exercise PJ on correct applicant data before processing PJ to ensure accuracy

A school must wait until a corrected ISIR returns before processing PJ only for students who were selected for verification and processor determined a correction is needed

Types of Documentation

Types of documents you may wish to collect Tax returns W2s Last pay stubs 3rd party documents Legal documents Letter from employers

Losses of Income & Additional Expenses

Examples

Types of Losses of Income Losses 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

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

How could some of these factors affect a student’s EFC?

Medical Expenses Example Let’s say you have a dependent student whose parents

experienced an annual medical expense totaling $5,000. After reviewing the ISIR you notice the following: HHS: 4 Number in College: 1 EFC = $2972 AGI : $59,123 IPA: $25,210

How much of the $5,000 exceeds 11% of the IPA?

Dependency Overrides & Unsubsidized Stafford

EligibilityExamples

Authority given for dependency overrides HEA Section 480(d)

Dependency Overrides Any student who answers no to all the

dependency questions are dependent even if student is self-supporting

Students who have extenuating circumstances can request an FAA to consider a dependency override

Per CCRAA, Schools have the authority to accept the dependency override that was performed and approved by another school without additional documentation.

Dependency Overrides Requires documentation to the validity

of the extenuating circumstances Personal statement Letters from professionals

Factors to consider Documented, prolonged estrangement Unable to locate a parent after

reasonable attempts Situations of abuse

Remember: DOCUMENT, DOCUMENT, DOCUMENT!

Dependency OverridesNone of the following examples merit a

dependency override:

1. Parents refuse to contribute to the student's education

2. Parents are unwilling to provide information on the FAFSA or for verification

3. Parents do not claim student as a dependent for income tax purposes

4. Student demonstrates total self-sufficiency

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?

Unsubsidized Stafford Eligibility FAAs may use professional judgment to

determine if a dependent student may be offered unsubsidized Stafford 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 that the above while also certifying that they will not provide support in the future

You be the Judge…

Hector is about to be a freshman at Best Ever Community College in the city of Fairview. Hector lives at home with parents in Fairview. Hector’s parents charge him room and board for living in their home. Hector’s parents do not carry him on their health and auto insurance policies. Hector asks his parents to complete the parental part of the FAFSA and they refuse.

Cost of Attendance Adjustments

Budgets, budgets, budgets!

Standard COA Components1. Tuition & Fees 2. Books & Supplies3. Room & Board4. Transportation5. Personal Expenses

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 Unusual Debt Stafford loan fees (if applicable) Nursing Home Expenses Elementary/Secondary Private Tuition

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 is 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

Test your knowledge!

Match that PJ & Case Studies!

Wrapping Up Understanding the complexity of the EFC

makes you that much more effective of an FAA!

You have the authority to use professional judgment so use it (with proper documentation)

Resources

2012-2013 EFC Formula Guide http://ifap.ed.gov/ifap/byAwardYear.jsp?type=efcformulaguide

2012-2013 FSA Handbook, Application Verification Guide, Chapter 5, Special Cases

DCL: GEN-09-04, GEN-09-05, GEN-11-04, GEN-11-15

NASFAA 2010: Electronic Handout: Special Populations: Tips for Completing the FAFSA

NASFAA 2009: Q&A from Dependency Status: It’s not the Riddle of the Sphinx Webinar

Comments/Questions?

Erika Cox & April Gonzales, University of Texas at San Antonio