Understanding Need Analysis

and Calculating the EFC Financial Aid 101

David Mahoney, Bates CollegeOctober 10, 2008

Agenda

• Overview of need analysis formula • Expected family contribution (EFC) • Discussion of financial need and

cost of attendance• Case study and EFC calculation

Need Analysis Overview/Financial Need

• Need analysis– Overall process of determining a

student’s financial need and eligibility for certain programs.

– Calculates the EFC• EFC is a measurement of a family’s ability to

contribute toward education cost.

Need Analysis Overview/Financial Need

• There are three basic formulas: • Dependent student• Independent student with no

dependents• Independent student with dependents

other than a spouse

• General elements of need analysis:

• Income• Number of dependents• Number of family members attending college• Assets• Marital status of the student• Age of older parent of a dependent student• Additional expenses incurred• Income and asset protection allowance• Education savings and asset protection allowance

Need Analysis Overview/Financial Need

Need Analysis Overview/Financial Need

• What’s not included:

• Parent and/or student debts• Whether or not a student lives

with his or her parents

Need Analysis Overview/Financial Need

• Income Protection Allowance• Allows for the most basic living expenses• Varies by household and number in

college• Developed using Bureau of Labor

Statistics (BLS) for a low standard of living and adjusted for the Consumer Price index (CPI)

Need Analysis Overview/Financial Need

• Formula Variations:- Simplified Needs Test (SNT)

• Parent or student (if independent) eligible to file IRS form 1040A or 1040EZ

OR• Recipient of benefits from needs-tested benefit

programsAND• Income less than $49,999

- Auto-Zero• Same as SNT, but earned income must be under

$20,000

EFC Overview

• What is the EFC?

• The Expected Family Contribution (EFC), is defined as a measure of the student’s (and the student’s parents’, if applicable,) ability to pay for college.

EFC Overview

• The EFC is not:

• The student’s bill for tuition and fees

EFC Overview

• How can I estimate my EFC?

• EFC worksheets• FAFSA4caster

www.fafsa4caster.ed.gov• Other online estimators

www.collegeboard.com

EFC Overview

• How the EFC is created• Student files the FAFSA• FAFSA data is calculated• Student receives a Student Aid

Report (SAR)• School receives an ISIR• The EFC will be displayed on both the

student’s SAR and school’s ISIR

EFC Overview

• There’s no EFC on my Student Aid Report!• Sometimes, the EFC is not calculated• Failure to sign the FAFSA is the most

common reason an EFC was not calculated

• Both the SAR and ISIR will indicate any errors or omissions

EFC Overview

• The EFC is used as a tool in awarding:• Federal Pell Grants• Other Federal Grant Programs, such

as ACG• State Grants• Institutional and other need-based aid

EFC Overview

• Some students may have more than one EFC.

• Federal Methodology (FM)- Used for most types of aid

- Always used when determining eligibility for

federal programs

• Institutional Methodology (IM)- Determined by forms such as the CSS Profile

- Used by some schools to award scholarship aid

Cost of Attendance

• The Cost of Attendance, or COA, is an estimate on what school will actually cost for a student.

• Tuition and Fees• Books• Room and Board• Transportation• Other

• Need Equation:

Cost of Attendance

- Expected Family Contribution

= Financial Need

Financial Need

Financial Need

• Why is need important?

• Certain programs are need based• Need based programs are only

available to students with demonstrated need

• Need may not equal financial assistance at all schools

Case Study

Maria is a dependent student from Maine. She is an only child whose parents had an Adjusted Gross Income (AGI) of $52,400 in 2007. Both parents work and most of their income is derived from their wages. Maria earned $4,000 in 2007 working hard at part-time and summer jobs and worries that her earnings will substantially increase the amount her family will be expected to pay for college.

0

52,500

52,500

100

100

0

52,400

50,000

52,400

24,000

26,000

4,684

3,150

1,836

1,989

19,150

8,400

3,300

34,109

52,500

34,109

18,391

15,000

35,000

0

050,000

43,400

792

6600

18,391

1

4,460

19,183

792

4,460

4,010

4,000

4,010

0

0

0

4,010

0

4,010

0

160

306

0

3,546

4,010

3,546

464

232

1,200

0

0

1,200

240

4,460

232

240

4,932

Questions?