Need AnalysisNeed Analysis

TASFAA New Aid Officer’s TASFAA New Aid Officer’s WorkshopWorkshop

May 18, 2010May 18, 2010

Lyn Wheeler Kinyon, Assistant DirectorLyn Wheeler Kinyon, Assistant DirectorTHECB, Grants and Special ProgramsTHECB, Grants and Special Programs

lyn.kinyon@thecb.state.tx.uslyn.kinyon@thecb.state.tx.us

Foundation of Our ProfessionFoundation of Our Profession

AccessAccess and and choicechoice are the cornerstones of are the cornerstones of the financial aid professionthe financial aid profession

How we define financial need through the How we define financial need through the process of need analysis determines process of need analysis determines whether or not, and to what extent, a whether or not, and to what extent, a student has student has accessaccess and and choicechoice

Expert Knowledge is EssentialExpert Knowledge is Essential

Provide effective and proficient counseling to Provide effective and proficient counseling to students and parentsstudents and parents

Make effective and appropriate professional Make effective and appropriate professional judgment decisionsjudgment decisions

Provide useful input to affect positive change Provide useful input to affect positive change to the current system to the current system

Basic Principles of Need AnalysisBasic Principles of Need Analysis

The The familyfamily has the primary responsibility to has the primary responsibility to pay for educational costspay for educational costs

Students Students andand parents are expected to parents are expected to contribute to the extent they are ablecontribute to the extent they are able

The family should be accepted in its The family should be accepted in its presentpresent financial conditionfinancial condition

Families should be evaluated Families should be evaluated equitablyequitably and and in a in a consistentconsistent manner manner

Definition of Need AnalysisDefinition of Need Analysis

Need Analysis is the method by which we Need Analysis is the method by which we measure the amount of assistance a student measure the amount of assistance a student will require to meet his/her educational costswill require to meet his/her educational costs

Elements of need analysis:Elements of need analysis: Cost of AttendanceCost of Attendance (COA) - the amount it will (COA) - the amount it will

cost a student to attend an institution during a cost a student to attend an institution during a period of enrollmentperiod of enrollment

Expected Family ContributionExpected Family Contribution (EFC) - the family’s (EFC) - the family’s ability to contribute toward the cost of attendanceability to contribute toward the cost of attendance

Cost of Attendance (COA)Cost of Attendance (COA) COA’s should be:COA’s should be:

RealisticRealistic - providing students with an accurate - providing students with an accurate projection of reasonable educational costsprojection of reasonable educational costs

AdequateAdequate - allowing a student to live at a - allowing a student to live at a moderate level moderate level

Developed in a Developed in a systematicsystematic way way Applied Applied consistentlyconsistently DocumentedDocumented

COA ComponentsCOA Components

COA components are defined by lawCOA components are defined by law StandardStandard or or basicbasic components - included in components - included in

each COAeach COA AdditionalAdditional components - can be added to the components - can be added to the

standard or basic COA for students who qualify standard or basic COA for students who qualify for the additional allowancefor the additional allowance

Standard or Basic ComponentsStandard or Basic Components Tuition and FeesTuition and Fees

Tuition – the actual or average tuition normally assessed Tuition – the actual or average tuition normally assessed students carrying the same workloadstudents carrying the same workload

Fees – the required fees for all students or broad categories of Fees – the required fees for all students or broad categories of students (e.g., undergraduate, graduate, etc.)students (e.g., undergraduate, graduate, etc.)

Room and BoardRoom and Board Students without dependents residing with parentsStudents without dependents residing with parents Students residing off-campusStudents residing off-campus Students without dependents residing in campus housing – Students without dependents residing in campus housing –

standard amount normally assessed most residentsstandard amount normally assessed most residents Books/SuppliesBooks/Supplies Miscellaneous/PersonalMiscellaneous/Personal TransportationTransportation

Additional ComponentsAdditional Components

Dependent care allowanceDependent care allowance Disability-related allowanceDisability-related allowance Cooperative education allowanceCooperative education allowance Study abroad allowanceStudy abroad allowance Educational loan fee allowanceEducational loan fee allowance Cost of first professional credentialCost of first professional credential

COA CategoriesCOA Categories Enrollment categoriesEnrollment categories

Full-time, part-time, less than half-timeFull-time, part-time, less than half-time In-state, out-of-state, in-district, out-of-districtIn-state, out-of-state, in-district, out-of-district Undergraduate, graduateUndergraduate, graduate

Room and board categoriesRoom and board categories On campus, off campus, living with parentOn campus, off campus, living with parent

Other - incarcerated students, study Other - incarcerated students, study abroad programs, correspondence study abroad programs, correspondence study programsprograms

Fixed and Variable ExpensesFixed and Variable Expenses

Fixed Expenses – set by the institutionFixed Expenses – set by the institution Tuition and feesTuition and fees On-campus room and boardOn-campus room and board

Variable Expenses – not set by the institutionVariable Expenses – not set by the institution Books and suppliesBooks and supplies Off-campus room and boardOff-campus room and board Transportation, dependent care, etc.Transportation, dependent care, etc.

Collecting Data for Expense Collecting Data for Expense DeterminationDetermination

Published institutional sourcesPublished institutional sources Expense surveysExpense 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 publicationsLocal and national publications

Expected Family Contribution Expected Family Contribution (EFC)(EFC)

The EFC is the measure of the student’s and The EFC is the measure of the student’s and his/her family’s ability to contribute to the cost his/her family’s ability to contribute to the cost of the student’s education of the student’s education

As specified by law, the EFC is determined As specified by law, the EFC is determined through a calculation called Federal through a calculation called Federal Methodology (FM) Methodology (FM)

Collecting Data for EFC DeterminationCollecting Data for EFC Determination The Free Application for Federal Student Aid The Free Application for Federal Student Aid

(FAFSA) is used to collect the data needed for (FAFSA) is used to collect the data needed for the FM calculationthe FM calculation

Data reported on the FAFSA includes:Data reported on the FAFSA includes: Information to determine dependency statusInformation to determine dependency status Household size and number in collegeHousehold 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 paidType of tax return filed and income tax paid Age of the older parent or independent studentAge of the older parent or independent student Number of wage earnersNumber of wage earners State of legal residenceState of legal residence Child support paidChild support paid

Federal Methodology (FM) Federal Methodology (FM)

In general, FM assesses:In general, FM assesses: The The familyfamily structure structure The family’s resources needed for the The family’s resources needed for the basic sustenance basic sustenance

needsneeds of the family members – food, clothing, and shelter of the family members – food, clothing, and shelter The family’s resources needed for other The family’s resources needed for other non-discretionary non-discretionary

expensesexpenses – SS tax (FICA), federal and state tax, other – SS tax (FICA), federal and state tax, other taxes, etc.taxes, etc.

The family’s available resources for The family’s available resources for discretionary spendingdiscretionary spending – entertainment, higher education, etc.– entertainment, higher education, etc.

The portion of the family’s discretionary resources The portion of the family’s discretionary resources available to contribute toward the expense of a available to contribute toward the expense of a higher higher educationeducation

Federal Methodology (FM)Federal Methodology (FM)

Three FM FormulasThree FM Formulas Formula AFormula A - dependent student and parent - dependent student and parent Formula B Formula B - independent student (and spouse) - independent student (and spouse)

without dependents (other than a spouse)without dependents (other than a spouse) Formula C Formula C - independent student (and spouse) - independent student (and spouse)

with dependents (other than a spouse)with dependents (other than a spouse)

Three FM Formula VariationsThree FM Formula Variations Regular Regular SimplifiedSimplified Automatic Zero EFCAutomatic Zero EFC

Dependent vs.IndependentDependent vs.Independent

DependentDependent EFC Formula EFC Formula Parents’ ability to contribute to educational Parents’ ability to contribute to educational

expenses (PC)expenses (PC) Student’s ability to contribute to educational Student’s ability to contribute to educational

expenses (SC)expenses (SC)

IndependentIndependent EFC Formula EFC Formula Student’s (and spouse’s if applicable) ability Student’s (and spouse’s if applicable) ability

to contribute to educational expenses (SC)to contribute to educational expenses (SC) Parents’ ability to contribute is not assessedParents’ ability to contribute is not assessed

Independent Student DefinitionIndependent Student Definition

At least age 24 as of Jan.1 of award yearAt least age 24 as of Jan.1 of award year Veteran of the U.S. Armed Forces or currently Veteran of the U.S. Armed Forces or currently

serving on active duty for purposes other than serving on active duty for purposes other than trainingtraining

Master’s or Doctoral studentMaster’s or Doctoral student Legally marriedLegally married Orphan or ward of the courtOrphan or ward of the court Legal dependents other than a spouseLegal dependents other than a spouse Emancipated minorEmancipated minor Court determined legal guardianshipCourt determined legal guardianship Homeless or unaccompanied youthHomeless or unaccompanied youth Professional judgmentProfessional judgment

Definition of ParentDefinition of Parent

The definition of parent includes:The definition of parent includes: A biological parentA biological parent An adoptive parentAn 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 The definition of parent does notnot include: include: A legal guardianA legal guardian A step-parent (no longer married to biological A step-parent (no longer married to biological

parent)parent) A grandparent, aunt, or uncleA grandparent, aunt, or uncle A foster parentA foster parent

FM’s Approach to DataFM’s Approach to Data Base year data for income (2009 is base Base year data for income (2009 is base

year for the 2010-11 award year) year for the 2010-11 award year) verifiable information is availableverifiable information is available data for a full, complete calendar yeardata for a full, complete calendar year

Other data is as of the date of application Other data is as of the date of application or for the upcoming application periodor for the upcoming application period

assets and marital statusassets and marital status family size and number in collegefamily size and number in college

Formula tables establish and use Formula tables establish and use allowances against income and assets in allowances against income and assets in the calculationthe calculation

Treatment of IncomeTreatment of Income Total IncomeTotal Income

Taxable IncomeTaxable Income

(AGI or earnings from work)(AGI or earnings from work)

++ Untaxed Income and BenefitsUntaxed Income and Benefits (child support rec’d, living (child support rec’d, living

allowances, etc.)allowances, etc.)

Excludable IncomeExcludable Income (child support paid, taxable financial aid, (child support paid, taxable financial aid,

etc.)etc.)

== Total IncomeTotal Income

Treatment of Income (cont’d)Treatment of Income (cont’d) Available IncomeAvailable Income - portion of the yearly - portion of the yearly

total income available for discretionary total income available for discretionary spendingspending

Total IncomeTotal Income

Total AllowancesTotal Allowances (U.S. Income Tax Paid, State and Other (U.S. Income Tax Paid, State and Other

Taxes, Taxes, Social Security Tax, Income Protection Social Security Tax, Income Protection Allowance, Allowance, and Employment Expense Allowance)and Employment Expense Allowance)

__________________________________________________________________________________________

== Available IncomeAvailable Income

Treatment of AssetsTreatment of Assets Contribution from AssetsContribution from Assets – excluding the – excluding the

family’s primary residencefamily’s primary residenceCash, Savings, and Checking Cash, Savings, and Checking

AccountsAccounts

++ Net Worth of Business or Net Worth of Business or Investment Investment FarmFarm

(adjusted percentage of value less debt)(adjusted percentage of value less debt)

++ Net worth of Other Real EstateNet worth of Other Real Estate or Investment or Investment (value less debt)(value less debt)

__________________________________________________________________________________________

== Asset Net WorthAsset Net Worth

Assets (cont’d)Assets (cont’d) Contribution from AssetsContribution from Assets

Asset Net WorthAsset Net Worth

Education Savings and Asset Education Savings and Asset Protection Protection

AllowanceAllowance

__________________________________________________________________________

== Discretionary Net WorthDiscretionary Net Worth

xx Appropriate Conversion RateAppropriate Conversion Rate

__________________________________________________________________________

== Contribution from AssetsContribution from Assets

Student or Parent ContributionStudent or Parent Contribution Student or Parent ContributionStudent or Parent Contribution

Available IncomeAvailable Income++ Contribution from AssetsContribution from Assets______________________________________ ______________________________________ == Adjusted Available Income (AAI)Adjusted Available Income (AAI)xx Appropriate Taxation RateAppropriate Taxation Rate________________________________________________________________

== Gross Student Contribution (SC) Gross Student Contribution (SC)

or or Gross Parent Contribution (PC)Gross Parent Contribution (PC)

Student/Parent Contribution (cont’d)Student/Parent Contribution (cont’d) Parent ContributionParent Contribution (Dependent) (Dependent)

Gross Parent Contribution Gross Parent Contribution (PC)(PC) ÷÷ # in College (excluding parents)# in College (excluding parents)

______________________________________________________________Net Parent Contribution (PC)Net Parent Contribution (PC)

Student ContributionStudent Contribution (Independent) (Independent)Gross Student Contribution Gross Student Contribution

(SC)(SC) ÷÷ # in College# in College

______________________________________________________________Net Student Contribution (SC)Net Student Contribution (SC)

Total Estimated Family Contribution Total Estimated Family Contribution (EFC)(EFC)

Dependent EFCDependent EFCParent Contribution (PC)Parent Contribution (PC)

++ Student Contribution (SC)Student Contribution (SC)_____________________________________

== Dependent Student EFCDependent Student EFC

Independent EFCIndependent EFCStudent Contribution (SC)Student Contribution (SC)

__________________________________________________________________________

== Independent Student EFCIndependent Student EFC

Simplified Formula VariationSimplified Formula Variation

Dependent Applicant Qualifications for the Dependent Applicant Qualifications for the Simplified Formula:Simplified Formula:

Parents’ base year AGI/Earnings < $50,000Parents’ base year AGI/Earnings < $50,000

ANDAND Parents were not required to file an IRS Form Parents were not required to file an IRS Form

1040, 1040, oror

the parent is a dislocated worker, the parent is a dislocated worker, oror anyone anyone counted counted

in the parents’ household size received a in the parents’ household size received a federal federal means-tested benefit program in means-tested benefit program in the prior year (base the prior year (base year) or prior, prior year (SSI, year) or prior, prior year (SSI, food stamps, free or food stamps, free or reduced price school lunches, reduced price school lunches, TANF, or WIC)TANF, or WIC)

Simplified Formula (Con’t)Simplified Formula (Con’t)

Independent Applicant Qualifications for the Independent Applicant Qualifications for the Simplified Formula:Simplified Formula:

Student/Spouse base year AGI/Earnings < $50,000Student/Spouse base year AGI/Earnings < $50,000

ANDAND Student/spouse were not required to file an IRS Student/spouse were not required to file an IRS

Form 1040, Form 1040, oror the student (or spouse) is a the student (or spouse) is a dislocated worker, dislocated worker, oror anyone counted in the anyone counted in the student’s household size received a federal means-student’s household size received a federal means-tested benefit program during the prior year (base tested benefit program during the prior year (base year) or prior, prior year (SSI, food stamps, free or year) or prior, prior year (SSI, food stamps, free or reduced price school lunches, TANF, or WIC)reduced price school lunches, TANF, or WIC)

Automatic Zero EFC VariationAutomatic Zero EFC Variation

Dependent Applicant Qualifications for Dependent Applicant Qualifications for Automatic Zero EFC:Automatic Zero EFC:

Parents’ base year AGI/Earnings <= $30,000 Parents’ base year AGI/Earnings <= $30,000

ANDAND Parents were not required to file an IRS Form Parents were not required to file an IRS Form

1040, 1040, oror the parent is a dislocated worker, the parent is a dislocated worker, oror anyone counted in the household size received a anyone counted in the household size received a federal means-tested benefit during the prior federal means-tested benefit during the prior year (base year) or prior, prior year (SSI, food year (base year) or prior, prior year (SSI, food stamps, free or reduced price school lunches, stamps, free or reduced price school lunches, TANF, or WIC)TANF, or WIC)

Automatic Zero EFC (Con’t)Automatic Zero EFC (Con’t)

Independent Applicant Qualifications for Independent Applicant Qualifications for Automatic Zero EFC:Automatic Zero EFC:

Student/Spouse base year AGI/earnings <= Student/Spouse base year AGI/earnings <= $30,000$30,000 ANDAND

Student/Spouse were not required to file an IRS Student/Spouse were not required to file an IRS Form 1040, Form 1040, oror the student (or spouse) is a the student (or spouse) is a dislocated worker, dislocated worker, oror anyone counted in the anyone counted in the household size received a federal means-tested household size received a federal means-tested benefit during the prior year (base year or prior, benefit during the prior year (base year or prior, prior year (SSI, food stamps, free or reduced price prior year (SSI, food stamps, free or reduced price school lunches, TANF, or WIC)school lunches, TANF, or WIC)

Not applicable for independent students without Not applicable for independent students without dependents other than a spousedependents other than a spouse

Initial and Alternate EFC’sInitial and Alternate EFC’s

Initial EFC on the ISIR is for 9 monthsInitial EFC on the ISIR is for 9 months Alternate EFC’s can be found on the ISIR Alternate EFC’s can be found on the ISIR

for enrollment periods other than 9 for enrollment periods other than 9 monthsmonths

Enrollment periods < 9 months - both the SC and Enrollment periods < 9 months - both the SC and the PC are adjustedthe PC are adjusted

Enrollment periods > 9 months - no adjustment to Enrollment periods > 9 months - no adjustment to the SC; the PC is adjustedthe SC; the PC is adjusted

Alternate or prorated EFC’s cannot be Alternate or prorated EFC’s cannot be used to determine Federal Pell Grant used to determine Federal Pell Grant eligibilityeligibility

QuestionsQuestions??????

ThoughtsThoughts??????

CommentsComments??????

FM Hand Calculation FM Hand Calculation Case StudiesCase Studies

Trainer Johnny N. ThalockerTrainer Johnny N. Thalocker((dependentdependent with divorced parents and a with divorced parents and a

stepparent)stepparent)

Coach Judy B. SunburnedCoach Judy B. Sunburned(single (single independentindependent with no dependents) with no dependents)

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.

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.