# Presentation: 068116

## Session 33

- Expected Family Contribution (EFC)
- Deborah Tarpley
- Marianna Deeken

## How is EFC Determined?

- Three Federal Methodology (FM) models
- Dependent student
- Independent student
- Independent student with dependents other than a spouse

**Notes:**
We are going to focus on the Dependent student model.  Independent student with dependent other than spouse are treated much like parents.

## How is EFC Determined?

- Three distinct FM formulas
- Regular
- Simplified
- Automatic zero

## Alternate Formulas 

- Simplified Formula
- Assets not considered
- Parents’ AGI or earnings from work < $50,000 *and*
- Parents  are not *required* to file IRS form 1040
- Automatic Zero
- EFC is automatically zero if
- Parents’ AGI or income earned from work is $20,000 or less and
- Parents are not required to file IRS form 1040

## Independent Students

- Independent Students without Dependents other than a spouse
- Applies to single and married independent students
- May NOT qualify for automatic zero EFC
- May qualify for simplified formula
- Student (and spouse) AGI or earnings from work < $50,000 and
- Student (and spouse) not required to file IRS form 1040

## Independent Students	

- Independent Students with Dependents other than a Spouse
- Analysis looks much like that of parents of dependent students
- EFC automatically zero if
- Student’s (and spouse’s) AGI or income earned from work is $20,000 or less and
- Student (and spouse) not required to file IRS form 1040

## Independent Students	

- May qualify for simplified formula
- Student (and spouse) AGI or earnings from work < $50,000 and
- Student (and spouse) not required to file IRS form 1040

## Simplified & Automatic Zero

- Means-Tested Federal Benefit Programs
- Students also qualify for simplified formula or automatic zero if, in addition to meeting relevant income thresholds, they or their parents received benefits from a means-tested federal benefit program
- SSI
- TANF
- WIC
- Food Stamps
- Free or Reduced Price Lunches

## Factors that affect EFC

- Number in Household
- Number in College
- Taxed and Untaxed income
- Taxes paid
- Investments
- Age of the older parent
- Number of wage earners

## Principles of Need Analysis

- Family has primary responsibility to pay for educational costs
- Student and parents are expected to contribute to the extent they are able
- Family should be accepted in its present financial condition
- Families should be evaluated in an equitable and consistent manner

## Need Analysis Concepts

- Need-based funds are available to assist with educational costs that exceed the family’s ability to pay
- FM assesses strength at the time of application
- Family resources are devoted first to basic subsistence

## Need Analysis Concepts

- Beyond basic needs, families can exercise discretion
- FM allowances protect family resources
- Basic needs
- Non-education related discretionary costs

## Need Analysis Concepts

- FM measures discretionary resources
- Establishes a portion available for education

## The Baldwin Family

- The family in the example is
- A married couple with 4 children who live in Missouri
- Grandfather also lives with the family
- Older parent is age 49
- Both parents work

## Treatment of Income in FM

- Total Income:
- Base year income from all taxable and untaxable sources
- -Exclusions (FAFSA Worksheet C)
- =Total Income

## Treatment of Income in FM 

- Available Income
- Portion of income remaining for discretionary spending:
- Total income
- -Total Allowances
- =Available Income (AI)

## Total Allowances

- Allowances for taxes
- U. S. Income tax paid
- Estimate of state and other taxes
- State of residence
- Amount of total income
- FICA

## Total Allowances

- Income Protection Allowance-IPA
- Estimates amount needed for basic needs
- Based on Bureau of Labor Statistics lower budget expenditures adjusted for CPI
- Increases with each household member
- Decreases with each member in college

## Total Allowances 

- Employment expense allowance
- Represents additional costs when both parents work
- Applies to working single parent families

## Treatment of Assets in FM

- Assets defined
- Cash, savings, checking
- Investments and trusts
- Real estate equity
- Business/farm equity (non-family only)
- Protects first 60% of equity up to $105K
- Decreases protection percentage after $105K

## Treatment of Assets in FM 

**Treatment of Assets in FM **

- Cash, savings, checking
- +Net worth of real estate and investments
- +Adjusted net worth of business/farm
- =Total Net Worth

## Treatment of Parents’ Assets in FM 

- Total Net Worth
- -Education Savings and Asset Protection Allowance
- =Discretionary Net Worth

## Treatment of Parents’ Assets in FM 

- Education Savings and Asset Protection Allowance
- Protects assets for retirement and future education costs
- Applies > age 25
- Increases with age
- Adjusted for marital status
- No protection for dependent students

## Treatment of Parents’ Assets in FM 

- Discretionary Net Worth
- X 12% (asset conversion rate)
- =Contribution from Assets

## Adjusted Available Income

- Parents’ Available Income (+ / -)
- +Parents’ Contribution from Assets (+/ 0)
- =Total Adjusted Available Income (+ / -)

## Determining Parents’ Contribution

- As income increases, amount needed for basic household expenses decreases
- Discretionary income increases
- Income available for education
- Adjusted Available Income (AAI)
- X  AAI contribution rate
- =Total Parents’ Contribution from AAI

## Determining Parents’ Contribution

- Total contribution from AAI is divided evenly among all household members in college
- Total PC from AAI	= 9-month PC
- Number in College

## Determining Student’s Contribution

- Total of student taxed + untaxed income
- - state and federal taxes
- - $2550 IPA
- -allowance for parents’ negative AAI
- = Available income (AI)
- X 50% assessment of AI
- = Student contribution from AI

## Determining Student’s Contribution

- Cash, savings, checking
- +Net worth of real estate and investments
- +Adjusted net worth of business/farm
- =Total Net Worth
- X 35%
- =Student contribution from assets

## Determining EFC

- Parents’ Contribution
- +Student’s Contribution from AI
- +Student’s Contribution from assets
- = 9 month EFC

## What about Unusual Circumstances?

- If you have a student with unusual circumstances you can use professional judgment to adjust:
- Cost of Attendance
- Adjust elements that are related to the student’s cost of attending the school
- Data elements that are part of the formula
- You may not  adjust the bottom line

## What if?

- Mr. Baldwin has an accident and injures his back while putting a new roof on the house
- The family has $10,000 in unreimbursed medical expenses
- They have cashed in some of their investments to pay these expenses
- They want to know if you can adjust their assets to take this unexpected event into account

## What if?

- Remember that the parents have no contribution from assets
- Adjusting the assets by $10,000 will have no effect on the current EFC

- Pell Elig Flag          Y                                        Intermediate Values
- Primary EFC          2572  Secondary EFC                         TI     67644 PCA        0
- Mon 1    324 Mon 7   2010  Mon 1        Mon 7                    ATI    43012 AAI    24632
- Mon 2    605 Mon 8   2291  Mon 2        Mon 8                    STX     2010 TSC
- Mon 3    886 Mon 10  2609  Mon 3        Mon 10                   EA      3100 TPC     6475
- Mon 4   1167 Mon 11  2646  Mon 4        Mon 11                   IPA    31630 PC      3237
- Mon 5   1448 Mon 12  2683  Mon 5        Mon 12                   AI     24632 STI     3731
- Mon 6   1729               Mon 6                                 CAI          SATI    2947
-                                                                  DNW   -12700 SIC      392
-                                                                  NW     36200 SDNW     124
-                                                                  APA    48900 SCA       43
-                                                                               FTI    71375
- Auto Zero EFC Flag         Rejected Status Change Flag           Duplicate SSN Flag
- EFC Change Flag  INCREASE  Verification Selection Flag           Address Only Correction
- SNT Flag               NO                                        SAR C Change Flag
- Match Flags: SSN 4  SSA A  DHS    SS Y  NSLDS 1  VA    DHS Sec. Conf.   Father SSN 4

## What if?

- Mr. Baldwin is still recovering from his accident but finds that, due to his injuries, he can no longer work at his current job in construction
- Prior to the accident, business was slow, and Mr. Baldwin had only earned $3000 in 3 months
- He is now collecting unemployment benefits of $270 per week
- He can collect benefits for 26 weeks totaling $7020
- Mrs. Baldwin is still working, but they have no other income

## What if?

- If you make an adjustment based upon projected income, the new projected total income is $40,290
- New total allowances are $36,435
- New AI is $3855
- New PC is $424
- New EFC is $859

## What if?

- Mr. Baldwin is unable to find a job and has been counseled to seek job retraining
- He is planning to enroll in a vocational program at the local community college
- His tuition costs will be $2,028 for the year
- The Baldwins would like to know if this additional information can be considered

## What if?

- If you consider the $2,028 as coming out of their income, new projected total income is $38,262
- New allowances are $36,374
- New AI is $1,888
- New PC is $208
- New EFC is $643

## What if?

- If you want to consider 3 in the household in college, then the projected income remains unchanged at $40,290
- New total allowances are $33,975
- New AI is $6315
- New PC is $463
- New EFC is $898

## Additional Beginner’s Track Sessions

- Session #34 - The Institutional Student Information Record (ISIR)
- Session #35 - Awarding Aid
- Session #36 - Disbursing Aid
- Session #37 - IFAP, NSLDS, COD, FAA Accessto CPS On -Line
- Session #38 - Financial Aid Professionals (FAP) Portal and Beyond - How We Communicate With You?
- Session #39 - Uncover the Mysteries of How a Law Becomes Operational

## We appreciate your feedback and comments.We can be reached at:

- Phone: (303) 844-3677 x118
- Fax: (303) 844-5756
- Email: deborah.tarpley@ed.gov
- Phone:  (206) 615-2583
- Fax: (206) 615-2508
- Email: marianna.deeken@ed.gov