connecting students and parents to the realities of “need”, awarding, and affordability
DESCRIPTION
Connecting Students and Parents to the Realities of “Need”, Awarding, and Affordability. 2014 WASFAA Conference Reno, Nevada Mike Johnson, Director of Financial Aid, Pacific University. High and increasing cost of college High and increasing student and parent indebtedness - PowerPoint PPT PresentationTRANSCRIPT
2014 WASFAA ConferenceReno, Nevada
Mike Johnson, Director of Financial Aid, Pacific University
Connecting Students and Parents to the
Realities of “Need”, Awarding, and
Affordability
High and increasing cost of collegeHigh and increasing student and parent
indebtednessLack of transparency in cost and financial aid
informationConfusing or incomplete information about true
cost and financial aid program details
Current Concerns
The Higher Education Act of 1965, as amended – Section 472 defines Cost of Attendance
Cost of Attendance
Only the COA components mentioned in statute may be used:Tuition and fees, including rental or purchase of equipment
and suppliesBooks and supplies, transportation, and miscellaneous
personal expenses, including the rental or purchase of a computer
Room and board costs, described differently based on students’ dependency status and whether they live with parents
Cost of Attendance
The statute also describes:How to treat less than half-time and incarcerated studentsHow correspondence study, instruction through
telecommunications, and study abroad are treatedHow to include dependent care costs, disability-related
costs, cooperative education costs, and loan fees
Cost of Attendance
The modern list of components is:Tuition and feesRoom and boardBooks and suppliesTransportationPersonal and miscellaneous costs
Cost of Attendance
When do you use actual amounts in the COA? Average amounts? How do you calculate averages?
How and when do you present COA information on award notifications and in other communications?
How does the COA at your school affect students’: “Unmet need”? Net price?
Cost of Attendance – Points to Consider
How do you describe the COA to students and parents? Do you distinguish between direct and indirect costs? How do you determine indirect cost amounts?
What do you say about the price (sticker price and net price) that your school charges? Do you find yourself defending it or apologizing for it?
Cost of Attendance – Points to Consider
Need analysis has two parts:Estimating a student’s costs (COA)Calculating the Expected Family Contribution (EFC)
Need analysis
Widely used methodologies for determining students’ need have included: John Monro’s “15% Rule” (1954) Institutional Methodology (1974)Congressional Methodology (1986) Federal Methodology (1992)
Need analysis
Federal Methodology is detailed in Part F of Title IV of the Higher Education Act of 1965, as amendedUpdated tables appear each year in the Federal Register
Federal Methodology must be used to determine a student’s eligibility for federal financial aid
Other methodologies can be used to determine a student’s eligibility for institutional aid
Need analysis
Families – as defined by the FAFSA – have the primary responsibility for meeting postsecondary costs
The distribution of financial aid should be based on the family’s ability – not willingness – to pay
Need analysis should provide a “snapshot” of the family’s financial circumstances at the time of application
Federal Methodology - Assumptions
Regular formulaParent required to file a 2013 IRS Form 1040, or had 2013
income of $50,000 or more Includes consideration of assets
Federal Methodology – Dependent Student
Simplified formulaParent’s household member received a federal means-
tested benefit in 2012 or 2013Parent filed, or was eligible to file, a 1040 A or EZ; or was
not required to file a federal income tax return; or is a dislocated worker - and
Parent’s 2013 income was $49,999 or lessExcludes consideration of assets
Federal Methodology – Dependent Student
Automatic zero formulaParent’s household member received a federal means-
tested benefit in 2012 or 2013Parent filed, or was eligible to file, a 1040 A or EZ; or was
not required to file a federal income tax return; or is a dislocated worker - and
Parent’s 2013 income was $24,000 or lessExcludes consideration of income and assets
Federal Methodology – Dependent Student
Income:Parent and student information are consideredTotal income is the sum of taxable income or income
earned from work, and untaxed income (including payments to retirement accounts)
Additional Financial Information, which reduces reported income, include education tax credits, child support paid, and taxable income from need-based employment
Federal Methodology – Dependent Student, Regular Formula
IncomeAllowances against reported income include:U.S. income tax paid State and other taxes Social Security taxes Income protection allowanceEmployment expense allowance
Federal Methodology – Dependent Student, Regular Formula
State and other taxes:Amounts come from tables that consider differences in tax
rates in different states for families at different income levels
Amounts range from 1% to 9%
Federal Methodology – Dependent Student, Regular Formula
State and other taxes: % of total parent income$0 - $14,999 >$14,999 Student
Alaska 2% 1% 0%Arizona 4% 3% 2%California 8% 7% 5%Hawaii 4% 3% 3% Idaho 5% 4% 3%Nevada 3% 2% 1%Oregon 7% 6% 5%Washington 4% 3% 1%
Federal Methodology – Dependent Student, Regular Formula
Income protection allowance:Amounts come from a table that uses Bureau of Labor
Statistics (BLS) data for lower budget expenditures, adjusted annually based on the Consumer Price Index (CPI)
Amounts increase for each additional family member, decrease for each additional college student
Federal Methodology – Dependent Student, Regular Formula
Income protection allowance*:Household size Number in college
1 2 3 42 $17,440 $14,4603 $21,720 $18,750 $15,7704 $26,830 $23,840 $20,870 $17,8905 $31,650 $28,670 $25,700 $22,7106 $37,020 $34,040 $31,070 $28,090
* set at $6,260 for dependent students
Federal Methodology – Dependent Student, Regular Formula
Employment expense allowance:Amounts represent additional costs that families incur
when two parents, or a single parent, work(s)Uses 35% of the lower income, or $4,000, whichever is less
Federal Methodology – Dependent Student, Regular Formula
AssetsReported on the FAFSA include:Current balances of cash, savings, and checkingNet worth of investments, including real estate (excluding
retirement accounts and the family’s principle residence)Net worth of businesses and investment farms (excluding
small family owned businesses and family farms)
Federal Methodology – Dependent Student, Regular Formula
AssetsParent contribution from assets:Education Savings and Asset Protection Allowance
subtracted from net worth to determine discretionary net worth
Contribution is 12% of discretionary net worth Student contribution from assets:Contribution is 20% of net worth
Federal Methodology – Dependent Student, Regular Formula
Education savings and asset protection allowance:Amounts come from a table that uses the age of the older
parent, adjusted for one and two parent householdsAssets are increasingly protected as parent age increases
Federal Methodology – Dependent Student, Regular Formula
Education savings and asset protection allowance:Allowances
Age of older parent Two-parents One-parent45* $30,700 $7,10046 $31,500 $7,20047 $32,200 $7,40048 $33,000 $7,60049 $33,800 $7,800
* 45 is the default if no date of birth indicated
Federal Methodology – Dependent Student, Regular Formula
The formula’s use of actual, calculated, and assigned numbers make the EFC a financial aid eligibility index rather than an indication of a family’s true ability to pay.
In light of that, how do the following affect a school’s ability to assess a student’s need?
Federal Methodology – Points to Consider
A student who earned $6,200 is treated the same as one who did not work
Basic annual living costs for families of four with one in college are set at just under $27,000 regardless of where they live
Parents are expected to spend no more than $4,000 per year in work-related expenses such as clothing and transportation regardless of where they work
Federal Methodology – Points to Consider
Money saved for retirement is not reported on the FAFSA, yet the effect of reported assets on the parent contribution is reduced as the age of the older parent increases
At the same age of the older parent, two parents have more than four times the asset amount protected that single parents do
How would you explain these aspects of need analysis to families? Would you explain them?
Federal Methodology – Points to Consider
Schools’ awarding policies vary according to a variety of factors, including: School size School ownership (public/private) Fund availabilityProgram participationRecruitment goals Retention strategies
Awarding
Policy considerations include:Merit-based vs. need-based aid (level of need
met/”gapping”)Price sensitivity of admit pool/school tolerance for
”discounting”Enrollment management goals/leveragingPackaging loansContinuing students’ aid packages
Awarding
What level of detail does your school provide concerning its awarding policies? How is that decision made, and who makes it?
What format(s) do you use for award notifications? How do you assess the effectiveness of the format(s)? Do you assess it?
Communicating Award Information – Points to Consider
Net price calculatorsRequired of all colleges that participate in Title IV programs
Award Information
Financial Aid Shopping SheetA “model financial aid letter” that schools are encouraged
to use
Award Information
Explain and show direct and indirect costsDirect Costs Tuition and fees $38,510 On-campus housing and meals $11,116 Total direct costs $49,626
Indirect Costs Books and supplies $ 1,050 Transportation $ 720 Personal $ 900 Total indirect costs $ 2,670
Cost of Attendance $52,296
Best Practices – Simple Approaches
Separate aid categories in award notificationsGift aid Presidential Scholarship $15,000 Federal Pell Grant $ 4,180 Oregon Opportunity Grant $ 2,000 Pacific Grant $11,700 Total gift aid $32,880
Self-Help aid Federal Work-Study $ 2,000 Federal Direct subsidized loan $ 3,500 Federal Direct unsubsidized loan $ 2,000 Total self-help aid $ 7,500
Best Practices – Simple Approaches
Provide information about the full cost of borrowing
Average loan debt $29,000Adjusted loan debt (1.072% fee) $29,314
Monthly repayment (10 years) $ 295Total repayment (10 years) $35,381
Monthly repayment (20 years) $ 175Total repayment (20 years) $42,116
Best Practices – Simple Approaches
Provide estimates of (and justifications for) future cost increases
Tuition and fees Total First year $38,510
$52,296 Second year (4%) $40,050
$54,388Third year (4%) $41,652
$56,564 Fourth year (4%) $43,318
$58,827
Best Practices – Simple Approaches
Provide financial literacy information, especially to promote the importance of:Weekly budgetingReducing expensesDeveloping savings plansBorrowing wisely
Best Practices – Simple Approaches
What concepts do you use to tell students and parents how affordable your school is?Value of higher education/return on investmentComparisons with similar schoolsComparisons with regional or national averagesBased on certain metrics
Communicating Affordability
Public 4-year Private 4-yearCost of attendance $24,000 $52,000Gift aid $5,000 $20,000Net price - Year 1 $19,000 $32,000Annual increase 7% 4%Net price - Year 2 $20,860 $34,080
- Year 3 $22,478 $36,243 - Year 4 $24,401 $38,493 - Year 5 $26,459 --- - Year 6 $28,661 ---
Totals $141,679 $140,816
Communicating Affordability - Unsuccessfully
Cost of obtaining a Bachelor’s degree
More than $140,000
Communicating Affordability - Unsuccessfully
College ScorecardWeb tool created to allow easy comparisons between
schools based on certain metrics
Affordability Information
College NavigatorMore robust college comparison tool that uses information
from the Integrated Postsecondary Education Data System (IPEDS)
Affordability Information
How do you respond when students and parents ask about previous or future price increases? Cost to the institution of educating studentsComparisons with similar schools’ patternsComparisons with regional or national averages
Are you comfortable defending your schools’ decisions in this area?
Communicating Affordability
Thanks for participatingEnjoy the rest of the conference!
Connecting Students and Parents to the Realities of “Need”, Awarding, and Affordability