fm: broken and/or too political? h eather mcdonnell - sarah lawrence college
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FM: Broken and/or Too Political? H eather McDonnell - Sarah Lawrence College. The Premise. Federal Methodology is subject to - attempts to control Federal Pell Grant Expenditures – entitlement program - political expediency – pork barrel legislation - PowerPoint PPT PresentationTRANSCRIPT
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FM: Broken and/or Too Political?FM: Broken and/or Too Political?
HHeather McDonnell - eather McDonnell - Sarah Lawrence CollegeSarah Lawrence College
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Federal Methodology is subject to
- attempts to control Federal Pell Grant Expenditures – entitlement program
- political expediency – pork barrel legislation
Federal Methodology lacks collaboration of practitioners and economists
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Based on its historical foundation
Based on its philosophical roots
In its practical application
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Creation of Needs Analysis
A fictional dramatizationA fictional dramatization
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Early 1950’s work by John Munro of Harvard
Mid-1950’s: College Scholarship Service (CSS) founded by small group of private colleges. Established criteria to measure college students and their families' ability to contribute to their education based on family income and assets.
Mid-1970’s: National Task Force on Student Aid Problems – Keppel Task Force – developed Uniform Methodology
Partnership – Collaboration
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1986 – Congressional Methodology – with Professional Judgment
1992 - Higher Education Amendments- Mandated sole use of a single, free application for Title IV funds (Free Application for Federal Student Aid, or FAFSA); - Mandated a single need analysis methodology, called the Federal Need Analysis (FM);
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An objective and uniformly applied formula designed to establish the relative financial strength of families to meet education expenses over time.
Equity Principle – Allowing full access to educational opportunity and leveling the playing field for access to financial resources for higher education vertical equity – varying contributions according
to available resources – income and assets – people with more pay more
horizontal equity – families with relatively equal resources will be assessed at the same level
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eq·ui·ta·ble
adj. 1. Marked by or having equity; just and impartial.. Just to all parties: equal, even, evenhanded,
2. Free from bias in judgment: fair, fair-minded, impartial, just, nonpartisan, objective, unbiased, unprejudiced. Idiom: fair and square. See fair
noun The quality or
state of being just and unbiased:
u·ni·form
adj. 1. Always the same, as in character or degree; unvarying.2. Conforming to one principle, standard, or rule; consistent.3. Being the same as or consonant with another or others.4. Unvaried in texture, color, or design.
ob·jec·tive
adj. 1. Of or having to do with a material object.2. Having actual existence or reality.3. Uninfluenced by emotions or personal prejudices: an objective critic. See Synonyms at fair1.
Source: Webster-Merriam Dictionary
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rea·son·able adjective 1 a: being in accordance with
reason <a reasonable theory>
b: not extreme or excessive <reasonable requests>
c: moderate, fair <a reasonable chance> <a reasonable price>
d: inexpensive 2 a: having the faculty of reason
b: possessing sound judgment <a reasonable man>
- re·al·ism noun 1: concern for fact or
reality and rejection of the impractical and visionary
2 a: a doctrine that universals exist outside the mind; specifically : the conception that an abstract term names an independent and unitary reality
b: a theory that objects of sense perception or cognition exist independently of the mind
Source: Webster-Merriam Dictionary
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The foundation of needs analysis is the ability to pay
Do we know enough about the family’s economic situation to make a reasonable and realistic determination?
AGI is not always a true reflection of a family’s income and resources
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The only verifiable document available that provides a picture of family income.
Limitations: Designed to determine what portion of
income is taxable. Some changes in the tax law designed to
spur the economy – protecting income from being taxed.
Changes in the tax laws do not necessarily lead to change in the treatment of income and expenses within Needs Analysis.
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Family One
Both parents earn $20,000
AGI = $40,000
Family Two
Self-employed Schedule C shows
$125,000 gross receipts with $85,000 of business expenses (possible inclusion of expenses for office in the home, business travel expenses, etc.)
AGI - $40,000
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Un-reimbursed Business Expenses - $5,000
Expenses used in calculating AGI – $45,000
Dad $40,000
Mom $10,000
$100,000 assets
Parent Contribution $1,816
Expenses not used in calculating AGI – 50,000
Dad $40,000
Mom $10,000
$100,000 assets
Parent Contribution $4,211
Does anyone allow Business Expenses under Professional Judgment?
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$150,000 in Liquid Assets
AGI – $80,000
Dad – 48 - $50,000
Mom $30,000
$150,000 assets
Parent Contribution $16,895
AGI – $80,000
Dad - 48 - $50,000
Mom $30,000
$150,000 business assets treated as business assets
Parent Contribution $12,073
AGI – $80,000
Dad - 48 - $50,000
Mom $30,000
$150,000 business assets not counted
Parent Contribution $11,052
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728 Cases of Grant Eligible, First-Year Admitted Applicants
28 had FM PC = IM PC – 3.9% 247 had FM Parent Contribution less
than IM Parent Contribution – 33.9% 453 had FM Parent Contribution
greater than IM Parent Contribution – 62.2%
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FM tables are based upon taxes paid by 1040 Schedule A filers How many 1040 A or EZ filers do you have?
Excludes sales tax Doesn’t everyone pay sales tax on
something? Rates don’t vary by income
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FM has adjusted the 1967 Bureau of Labor Statistics (BLS) Standard of Living by inflation Spending habits have changed since
1967 Cell phones Computers Internet service Cable
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We want families to save for college yet do we give any realistic saving allowance to families with younger children?
FM spends down the family “wealth” on the oldest college bound child
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Breakdown of Parental Net Worth
Investments -- 12.7%
Home -- 70.1%
Business -- 3.7%
Farm -- .8%
Other Real Estate -- 6.4%
Assets in Siblings' Names -- .6%
Cash, Savings -- 5.8%
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Home Equity $20 billion
Business Equity $1.1 billion
Farm Equity $227 million
Parental Assets in Siblings Names $171 million
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Measure of a family’s economic strength over time
Tax advantages (Schedule A) Refinancing as an option Mortgage payments are stable
Renters are subject to random increases Renters pay more of their income for
housing
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A great accountant can make the difference!
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A good financial aid practitioner is an artist who uses needs analysis as a science
A great practitioner is a scientist who uses needs analysis as an art form
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If it’s reasonable, most families can manage without major lifestyle or college choice changes Sacrifice is assumed. The degree will
depend on prior planning and the value the family places on a college education
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Is it possible to recreate a partnership in how parent contributions – financial need – is determined?
Is it possible to create a needs analysis system that is based on objective, equitable and uniformly applied economic criteria?
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I. Pell Formula – to control expenditures for entitlement programs Pell, ACG, SMART Grants
II. A nationally formulated assessment tool that provides an equitable and uniformly applied approach to collecting and analyzing financial data for campus based funds – federal and institutional.