Need Analysis

Basic Principles:

o Students and their families are primarily responsible for the funding of a student’s educational expenses, to the extent possible. o Federal, State and institutional financial aid funds awarded to the right students, in the correct amount.

Need Analysis

Operational Principles:

o Federal Methodology is intended to measure the ability of the student and his/her family to contribute to the total cost of a college education.o Only after the family’s ability to contribute has been measured will need-based financial aid be used to pay for postsecondary education.

Need Analysis

Definitions:o Cost of Educationo Financial Resourceso Estimated Family Contribution

The first step in Need Analysis is to find theEstimated Family Contribution

Need Analysis - Dependent

Information Needed for Federal Methodology:

o Student Incomeo Student Assetso Parent(s) Incomeo Parent(s) Assetso Number of People in the Householdo Number of Children in College

Need Analysis Components

Student Income Components

o Worko Investment Income o Benefitso Untaxed Income

Need Analysis Components

Student Asset Components:

o Checkingo Savingso Trustso Real Estateo Investmentso CA$H

Need Analysis Components

Parent Income Components o Custodial Parent and Spouseo Work Incomeo Investment Incomeo Additional financial information

o Question #43 and #91o Untaxed Income

oQuestion #44 and #92

Need Analysis Components

Parent Asset Components:

o Checking, Savings Balanceso Investments (excluding retirement savings)o Real Estate (excluding home equity)o“Adjusted” Business Equity (excl. family farm)o CA$H

Need Analysis Components

Parent Household Size Components:

o Parent(s)o Dependent Childreno Grandparentso Anyone else receiving more than ½ of their support from the parents living in the household

Need Analysis Components

Number in College Components:

o Dependents attending college at least ½ time in one term during the academic year

o Parents are excludedo The school attended must be eligible for federal student aido Military Academies and Some Religious Schoolso Non-accredited schools

Need Analysis Components

Other Data Components – Reductions to EFC:o Taxes Paid

o Federal Income Taxo State Specific Allowance o FICA (Social Security Tax)

o Savings Allowance (age of older parent)o Child Support Paid (not on tax return)o Federal Work Study income

Need Analysis Formula

The formula in a nutshell…o Incomes minus taxes and other allowanceso Equals available income o Add in a portion of assets (after protecting some)o Factor in the cost of living based on family sizeo How much is left is “contribution”o Divide contribution among number in college

Need Analysis Formula

Terms you should know…o Income Protection Allowanceo Base Yearo Available Incomeo Adjusted Available Income

Need Analysis Variations

o Simplified Needs Test – Lower income families are not required to report assets, and assets are not considered.o Automatic Zero EFC - Very low-income families qualify for a zero EFC and the need analysis calculation is unnecessary. o Designed to simplify the aid process and make application easier for these families

Simple Needs Test

Eligibility…

o Parent Adjusted Gross Income is $49,999 or less ANDo Tax Return filed was the 1040A or 1040EZ ORo anyone in the household received benefits under a means-tested federal benefit program during the “base year” or the year preceding the base year (2009 and 2010) ORo the parent is a dislocated worker.o Result – Assets not considered in Need Analysis

Automatic Zero EFC

Eligibility…o Parent Adjusted Gross Income is $31,000 or less, ANDo Tax Return filed was a 1040A or 1040EZ ORo Received benefits under a means-tested federal benefit program during the “base year” and or the year preceding the base year (2009 and 2010) ORo The parent is a dislocated workero Result – EFC is automatically ZERO

Need Analysis - Independent

Independent Student Formula:o Parent Income and Assets not included or considered.o Need Analysis Formula is similar in structure, but it contains fewer steps… (obviously)…

Independent Student Criteria

Independent Student Criteria

Who is considered “Independent”…o Orphan or ward of the courto Placed in foster care after turning 13 years oldo Adopted after turning 13o U.S. military veteran or currently on active dutyo Emancipated Minoro Homeless or at risk of homelessnesso Made Independent by Professional Judgment

(but that’s another topic for another module)

Independent Student Formula

Independent students without dependents (other than spouse):o Treated like a dependent student in many wayso Income is treated harshlyo Assets treated harshly

Independent Student Formula

Independent students with dependents (other than spouse):o Treated like parents of dependent studento Income protectiono Asset protection

Questions ???

o Remember that this is a system designed by Congress. It is not supposed to make sense…o Therefore any question that begins with the word “Why…” cannot be answered logicallyo If you are from Brooklyn, “Hows Come…” means the same thing as “why”…