SSG_Need_Analysis_final_040416_mj_dk

NSAESFLAAFU-NSIVTERUSITDY Y GUIDES

NEED ANALYSIS: FEDERAL
AND INSTITUTIONAL
METHODOLOGY

AWARD YEAR 2016–17 • ISSUE DATE APRIL 2016

UNANSFAIAVERSITY
CREDENTIALED TRAINING

NASFAA University Self-Study Guide

2016–17 Need Analysis:

Federal and Institutional
Methodology

Table of Contents

Lesson 1: Introduction to Need Analysis ......................................................................................................... 1
Lesson 2: The Regular Formula.................................................................................................................... 23
Lesson 3: Simplified Formulas ...................................................................................................................... 69
Lesson 4: Recalculating the EFC ................................................................................................................ 103
Lesson 5: Institutional Methodology (IM) ..................................................................................................... 127
Feedback Form ............................................................................................................................................. 155

This self-study guide contains pages excerpted from The EFC Formula, 2016–2017, a U.S. Department of
Education publication. You may access the publication in its entirety at the Information for Financial Aid
Professionals (IFAP) website at http://ifap.ed.gov/ifap/index.jsp.

© 2009–2016 by National Association of Student Financial Aid Administrators (NASFAA). All rights reserved.
NASFAA has prepared this document for use only by personnel, licensees, and members. The information contained herein is protected by copyright.
No part of this document may be reproduced, translated, or transmitted in any form or by any means, electronically or mechanically, without prior written
permission from NASFAA.
NASFAA SHALL NOT BE LIABLE FOR TECHNICAL OR EDITORIAL ERRORS OR OMISSIONS CONTAINED HEREIN; NOR FOR INCIDENTAL OR
CONSEQUENTIAL DAMAGES RESULTING FROM THE FURNISHING, PERFORMANCE, OR USE OF THIS MATERIAL.
This publication contains material related to the federal student aid programs under Title IV of the Higher Education Act and/or Title VII or Title VIII of the
Public Health Service Act. While we believe that the information contained herein is accurate and factual, this publication has not been reviewed or
approved by the U.S. Department of Education, the Department of Health and Human Services, or the Department of the Interior.
The Free Application for Federal Student Aid (FAFSA®) is a registered trademark of the U.S. Department of Education.
NASFAA reserves the right to revise this document and/or change product features or specifications without advance notice.
April 2016

i

NASFAA University Self-Study Guide: Need Analysis

Lesson 1: Introduction to Need Analysis

Learning Objectives Introduction

After completing this lesson, Welcome to NASFAA University’s self-study guide on the need analysis
you will: used to determine eligibility for the federal Title IV student aid programs.
Lesson 1 will begin by defining need analysis and end by explaining its
• Understand what is need underlying principles. Along the way will be a look back in time to help you
analysis; understand the history and evolution of need analysis.

• Know a brief history and Need analysis is the system used to allocate limited financial aid
the evolution of need resources to students, and consists of two basic components:
analysis; and
1. A measure of the amount it will cost the student to attend a given
• Understand the school for a year, commonly referred to as the cost of attendance
underlying principles of (COA); and
need analysis.
2. A measure of the family’s ability to contribute to those costs for a
Key Concepts given year, known as the expected family contribution (EFC).

The key concepts you will Expressed in its most simple form, a student’s need for financial aid is the
learn in this lesson: difference between the COA and the family’s ability to pay that cost. The
need analysis equation for determining financial need is:
• Need analysis;
Cost of attendance (COA)
• Cost of attendance; – Expected family contribution (EFC)

• Expected family = Financial need
contribution;
Cost of Attendance
• Student financial aid;
The COA represents a school’s estimate of the costs a student
• College Scholarship is expected to incur during the period of enrollment, usually a full
Service (CSS); academic year. Components of the COA include, but are not
limited to, tuition, fees, room, board, books, supplies,
• National Defense transportation, and miscellaneous personal expenses.
Education Act of 1958
(NDEA); The COA components are outlined in NASFAA’s Overview of the
Financial Aid Programs Self-Study Guide. Details on COA
• Portability; construction may be found in Monograph 24–Developing the
Cost of Attendance, available on the NASFAA website at
• Centralized multiple data http://www.nasfaa.org under the “Tools & Resources” menu.
entry;
Expected Family Contribution
• Higher Education
Amendments of 1986; The other component used to calculate a student’s financial
need is the EFC. The EFC is a measure of a student’s and his
• Congressional family’s ability to pay postsecondary expenses.
Methodology (CM);

• Single application;

• Federal Methodology
(FM);

• Institutional Methodology
(IM) and;

• Underlying principles of
need analysis.

© 2016 NASFAA Need Analysis: Lesson 1 1

NASFAA University Self-Study Guide: Need Analysis

Resources for In general, the method for assessing ability to pay consists of two steps:
This Lesson
1. Measuring the family’s financial strength or wealth; and
• Need Analysis Timeline
• Lesson 1 Glossary 2. Assessing a portion of the family’s financial resources as being
available to contribute toward the costs of the student’s education.
Icons
You will see the following The result of this assessment is called the EFC. It is calculated using data
icons in Lesson 1: provided by the student and family and a formula known as the Federal
Methodology (FM). It is used by all schools to award federal student aid.
• Key concept In addition, some schools use additional data and an institutional
methodology formula to distribute nonfederal student aid.
• Quick quiz
Brief History and Evolution of Need Analysis
• Reflection questions
Concept of Student Financial Aid. The first student financial aid
• Learning activity offered by an American educational institution was private
assistance, in the form of scholarships. These scholarships were
• Helpful hint developed in response to the same basic needs we see today:
the cost of education, and the need for help in meeting that cost. Then, as
now, it cost money to obtain a postsecondary education; and then, as
now, not everyone could afford to pay that cost. From the beginning,
these two concepts—cost of education and financial need—have been at
the foundation of student financial aid.

First Recorded Scholarship—1643

The first recorded scholarship, in 1643, was a grant of 100 English
pounds from Lady Ann Mowlson to Harvard College, to “establish an
endowment for support of some poor scholar.” Similar private donations
followed, and before the Civil War, colleges themselves began to set
aside funds for needy scholars.

Great Depression and World War II

The need for student financial aid became more of a national concern
during the Great Depression when the first modern-day student financial
aid program was created. The National Youth Administration established
a part-time employment program to help students pay for their education.
After World War II, the Serviceman’s Readjustment Act of 1944, popularly

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known as the “GI Bill,” was enacted to provide • Parents’ jobs and/or types of business;
education and training to thousands of returning
servicemen. • Children in public and private school; and

Concept of Need Analysis. While the concept of • Student’s earnings and assets.
student financial aid has early origins, the modern
concept of need analysis didn’t arrive until later—in Under this new formula approach, the income
the early 1950s—when post-GI Bill demands for assessment was based on a family’s maintenance
postsecondary education increased significantly. costs in relation to family size. The family’s income
This brought increased pressure to create an was adjusted for taxes paid, and only a portion of
equitable distribution system for student financial the balance was considered available as the
aid nationally among colleges and universities. family’s income contribution toward college costs.
The equity was combined for all assets owned by
First Need Analysis Formula—Early the family, and that equity was taxed at an
1950s increasing percentage based on the level of equity
in order to reach the family’s contribution from
Dean John Monro, former dean and director of assets. The total income and asset contributions
financial aid at Harvard College, developed a model were then combined to arrive at the total family
for analyzing a family’s financial resources and, contribution. This formula was used by consensus
considering cost of attendance, determining of many (but not all) schools to award financial aid.
eligibility for financial aid. This was the first need
analysis formula for need-based financial aid: This approach became the basis for the need
analysis methodology that eventually was written
Family’s Net Income into law, and subsequently modified, to become the
Federal Methodology used today.
x 15%
During these earlier years of community
= Initial Contribution consensus, financial aid professionals worked
cooperatively to define need analysis standards
– $100 x children in public school and procedures. Application forms, procedures,
and methods of awarding aid varied from school to
– $200 x children in private school school and most aid came from institutional funds.

= Family’s ability to pay for college College Scholarship Service (CSS)—
1954

Subsequent discussions led to further work on The establishment of the College
designing a more accurate formula, as this original Scholarship Service (CSS) in 1954 was a
formula was considered by some to be somewhat turning point and one of the first attempts
arbitrary in its 15 percent assessment of income. It by the financial aid community to
was also a static formula that did not allow for standardize need analysis methods. This led into
adjustments based on individual family an era characterized by:
circumstances.
• Community-developed need analysis standards
This work led to a more comprehensive need and practices;
analysis system of collecting and analyzing the
following additional family income and asset • A rapid increase in the number of financial aid
information: programs, the number of students eligible for
financial aid, and the number of need analysis
• Parents’ income, taxes, business expenses, forms and methods;
and unusual medical expenses;
• The adoption of a common application form and
• Parents’ assets, including home equity (value a single need analysis formula, developed by
minus debt); and agreed upon by the financial aid
community, to award financial aid; and

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NASFAA University Self-Study Guide: Need Analysis

• An emphasis on equity, sensitivity, and In the mid-1960s, as part of President Lyndon
economic principles in developing and Johnson’s “War on Poverty,” Congress passed the
evaluating need analysis methodologies. Economic Opportunity Act of 1964. This legislation
created the College Work-Study Program, which
The CSS focused on the design and distribution of would later become the Federal Work-Study (FWS)
financial aid application forms. Students and Program, designed to expand part-time
families could complete a single form when employment opportunities for students enrolled in
applying for financial aid at multiple institutions. The higher education.
CSS would provide a Financial Transcript of the
family’s information. The CSS also centralized the
previously developed need analysis methodologies
into what would become the CSS methodology.

National Defense Education Act of
1958 (NDEA)

In 1957, the Soviet Union successfully Higher Education Act of 1965 (HEA)
launched its first artificial satellite,
Sputnik. Congress was shocked into In 1965, the Higher Education Act of 1965 (HEA)
action by what the American people dramatically expanded the federal role in financing
perceived as Soviet scientific superiority. In higher education. The HEA, which has been
response, Congress enacted the National Defense amended many times since it was enacted, forms
Education Act of 1958 (NDEA) to stimulate the basis of current law authorizing the federal
education in math, science, and foreign languages. student aid programs. The student aid programs
administered by the U.S. Department of Education
The NDEA affected nearly every level of public and (ED) are contained in Title IV of the Act, which is
private education, and established the National why we refer to them as the “Title IV programs.”
Defense Student Loan (NDSL) Program, which The HEA consolidated the laws authorizing the
offered long-term, low-interest loans to qualified NDSL Program and the College Work-Study
students, first in the targeted fields of mathematics, Program, and created two new programs:
science, and foreign languages, and later in all
academic majors. Today, this program is known as • The Educational Opportunity Grant (EOG)
the Federal Perkins Loan Program. Program, which was later replaced by the
Federal Supplemental Educational Opportunity
College Access. The NDSL was the first national Grant (FSEOG) Program; and
federal program based on the conviction that no
student of ability should be denied an opportunity • The Guaranteed Student Loan (GSL) Program,
for higher education because of financial need. which would later become the Federal Family
Thus, college access became a continuing focus of Education Loan (FFEL) and Federal Direct
the need analysis system. Student Loan (Direct Loan) programs.

All current federal student aid programs Except for unsubsidized loans under the GSL
are defined in the Lesson 1 Glossary. Program, all of these programs contained income
restrictions.
Starting with the 1960–61 award year, the CSS first
implemented its Parents’ Confidential Statement. The EOG Program was the first federal grant
The CSS centrally calculated an EFC and program, providing federal student assistance in
processed forms for colleges displaying this
information. As a result, more and more colleges
adopted the CSS methodology.

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the form of gift aid that, unlike loans, did not have to approach developed collectively by the financial aid
be repaid, and, unlike College-Work Study, did not community and was used by most need analysis
have to be earned through work. EOGs were services and a majority of institutions and state
intended to help the neediest students. student assistance programs.

The CSS methodology was still permitted to “By 1980, federal funds
calculate eligibility for aid under the federal
programs. accounted for over 80 percent

Higher Education Amendments of of all aid awarded
1972
for postsecondary study.”
By the 1970s, the college-age population had
greatly increased, but many needy students were Centralized Multiple Data Entry—
still unable to attend postsecondary institutions 1976
because of limited funds and uneven distribution of
funds among schools. In an attempt to respond to In 1976, both the CSS and ACT became
this problem, the Higher Education Amendments of federal multiple data entry processors of
1972 created the Basic Educational Opportunity application need analysis data. The CSS
Grant (BEOG, or Basic Grant) Program, which is Financial Aid Form and the ACT Family
now known as the Federal Pell Grant Program. Financial Statement were complete financial aid
applications used to collect student and family
Basic Grants were intended to serve as the “floor” demographic and financial data with:
or “foundation” of an undergraduate student’s
financial aid package. Other available financial aid • Core federal questions; and
would be added to the Basic Grant, up to the limit
of the student’s financial need. • Supplemental institutional questions.

Portability. The BEOG Program This data was later used for calculating BEOG
introduced the concept of portability in the eligibility.
federal student financial aid programs.
Portability meant that once a student had By 1980, federal funds accounted for over 80
applied and qualified for a grant, she could receive percent of all aid awarded for postsecondary study.
a Basic Grant at any participating school. So, by As the major stakeholder in the student aid system,
providing portability, BEOG offered students not the federal government began to play a more
only access to postsecondary education, but choice dominant role in decisions about the structure and
among institutions. goals of the need analysis system.

In addition to portability, BEOG had its own federal Federal Control of Need Analysis. The shift toward
method for rationing and awarding funds. However, greater federal control actually began with the
the federal government continued to permit Higher Education Amendments of 1980. The 1980
colleges and universities to use the CSS Amendments directed the creation of a free
methodology and other campus-based common federal aid application. Congress also
methodologies for awarding funds from the other mandated a single need analysis methodology for
federal programs. Colleges were also permitted to federal programs in 1980, but subsequently
use a new form and methodology developed by suspended that mandate before it went into effect.
American College Testing (ACT) to award campus- The 1980 Amendments identified cost of
based funds. attendance components and made changes to the
need analysis parameters used to develop EFCs.
Uniform Methodology. Although many methods
were available for awarding funds, the predominant
methods were the BEOG method and the Uniform
Methodology. The Uniform Methodology was an

© 2016 NASFAA Need Analysis: Lesson 1 5

NASFAA University Self-Study Guide: Need Analysis

Quick Quiz 1

Now it’s time to check what you have learned so far. Answer the following questions and check
your responses using the Answer Key on page 19.

1. In the early 1950s, which of the following elements were included in the first comprehensive system of
need analysis: (check all that apply)

 Parents’ income, taxes, business expenses, and unusual medical expenses
 Professional judgment
 Parents’ assets, including home equity (value and debt)
 Parents’ jobs and/or types of business
 Children in public school
 Children in private school
 Student’s earnings
 Student’s assets

2. Fill in the basic formula for determining financial need below:

–
=

3. Define cost of attendance, including some of the costs it covers:
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

4. Fill in each blank in the following statement using one of the options presented:

• Educational Opportunity Grant (EOG);
• Basic Opportunity Grant (BOG); or
• Federal Pell Grant

The first federal student grant program was called the _______________________created in
_________ under the ______________________.

• 1958; • National Defense Education Act (NDEA);
• 1964; or • Economic Opportunity Act; or
• 1965 • Higher Education Act (HEA)

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Higher Education Amendments of Remember that all current federal student
1986 aid programs are defined in the Lesson 1
Glossary on Page 17.
The shift from a community-developed to
a federally-controlled need analysis Three models under each methodology were
system was fully realized by the Higher defined and linked to the classification of the
Education Amendments of 1986, which student with regard to dependency status. One
signaled the start of a major effort by Congress to model was created for a dependent student. For
standardize and simplify the Title IV programs. the independent student, two models were
differentiated based on whether the student had
For the first time, Congress spelled out in statute: dependents of his own. However, the definition of
dependent differed between the two
• The definition of independent student; methodologies, in that a spouse was considered a
dependent under CM but not a dependent under
• A definition of the COA components; and the Pell Grant methodology.

• Detailed need analysis formulas for determining Congressional Methodology. Under CM,
the EFC. the three models were the:

Because the statute was so specific in its • Dependent student;
definitions of independent student, cost of
attendance, and need analysis, Congress • Independent student with dependents (including
prohibited ED from issuing regulations in these a spouse); and
three areas.
• Independent student without dependents.
The definition of independent student was
consistent between the Pell Grant and the other These three models remain the same three models
Title IV programs; however, the COA and the EFC used today under FM.
formulas used for Pell Grants differed from the
COA and EFC formula used for the other programs. Under CM, a spouse was defined as a dependent,
Thus, two methodologies were defined. so a married student with no other dependents fell
under the same model as a student (single or
They were the: married) with dependents other than a spouse. The
model for independent students without
• Congressional Methodology (CM), used to dependents included only single students with no
determine need for the campus-based and GSL dependents.
programs; and
Each model allowed for calculation of the EFC by
• Pell Grant methodology, used only to determine one of four formulas:
need for Pell Grants.
• Regular formula;

• Simplified Needs Test (SNT);

• Dislocated worker formula; and

• Displaced homemaker formula.

The current need analysis formulas and
their data elements are detailed in
Lessons 2 and 3. Relevant terms are
defined in the Lesson 1 Glossary.

All formulas considered base-year income, which is
the income corresponding to the most recently
completed calendar tax year. An exception was

© 2016 NASFAA Need Analysis: Lesson 1 7

NASFAA University Self-Study Guide: Need Analysis

made for dislocated workers, for whom current-year displaced homemaker formulas were eliminated.
income was used. The regular, dislocated worker, The Automatic Zero EFC formula was created for
and displaced homemaker formulas were full data families whose adjusted gross incomes were less
element formulas, or “long” formulas. The than or equal to the earned income tax credit.
Simplified Needs Test, which used fewer data
elements, was a “short” formula. The simplified, The following elements were also eliminated from
dislocated worker, and displaced homemaker the need analysis:
formulas were also referred to as variant formulas.
• Minimum student contribution; and
There was no Automatic Zero EFC provision under
CM, as there is under the current FM. • Home and family farm equity.

CM codified in statute the use of the following in Institutional Methodology. The CSS then
need analysis: retired the Financial Aid Form and
introduced its CSS/Financial Aid
• Base-year (calendar-year) income; PROFILE application for use by some
schools to collect student and family data beyond
• Calculation tables for allowances for state and the FM need analysis requirements. This additional
other taxes, Social Security taxes, standard need analysis became known as Institutional
maintenance for basic living expenses, Methodology (IM), used to award institutional funds,
employment expenses, medical expenses, and particularly institutional grants and scholarships.
educational expenses for dependent
elementary and secondary tuition; Unlike the FM, the IM continued to use financial
information like home equity and private elementary
• Net value of cash, savings, checking accounts, and secondary school tuition payments in its
businesses (including small family-owned assessment of a family’s EFC. Some schools
businesses), farms, real estate, and home and continue to use different variations beyond this
family farm equity; institutional methodology model.

• Parents in college; Institutional Methodology is detailed in
Lesson 5.
• Veteran’s benefits received;
Higher Education Statutes—2006 to
• Minimum student contribution; and 2008

• Professional judgment. The need analysis formula exists today largely as it
did in the years right after the Higher Education
Higher Education Amendments of Amendments of 1992. Since then, higher education
1992 statutory changes have made relatively minor
changes to need analysis.
A Single Application. To help simplify
program administration, the Higher
Education Amendments of 1992 required
the sole use of a single, free application
for Title IV funds, which would later become the
Free Application for Federal Student Aid (FAFSA).
The 1992 amendments also established a single
set of COA components for all Title IV programs.

Federal Methodology. The 1992
amendments also established a single
need analysis methodology—the FM—for
the campus-based programs, FFEL
Program, and newly renamed Federal Pell Grant
Program. The Simplified Needs Test was expanded
to increase the number of students who qualified
based on income, while the dislocated worker and

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In particular, the Higher Education Reconciliation foundation on which the Federal Methodology for
Act of 2005 (HERA) and the College Cost determining the EFC formulas was developed.
Reduction and Access Act of 2007 (CCRAA)
modified the Simplified Needs Test and Automatic These principles are as follows:
Zero EFC calculations in the FM.
1. Parents and students have the primary
HERA also eliminated family owned and controlled responsibility for meeting postsecondary
small businesses from the calculation of assets in education costs.
the FM. The CCRAA also made the following
changes to need analysis: 2. The distribution of financial aid resources
should be based on the family’s ability to pay,
• Scheduled increases to the Income Protection not willingness to pay.
Allowance (IPA) to account for cost of living
increases based on Bureau of Labor Statistics 3. The assessment of a family’s ability to pay
data; should be independent of the amount of
financial aid available and the cost of attending
• Expansion of the independent student definition postsecondary school.
for consideration of orphans, wards of the court,
emancipated minors, and homeless youth; 4. There should be horizontal equity (also referred
to as equity across the board) in the distribution
• Removal of certain forms of untaxed income of limited financial aid resources. That is,
and benefits, such as welfare benefits, untaxed families in similar circumstances with similar
Social Security benefits, additional child tax resources should be expected to make similar
credit, and earned income credit; and contributions.

• Expansion of the use of professional judgment 5. Families in different circumstances should be
to include loss of employment by independent expected to make contributions appropriate to
students, dislocated worker status, and their financial resources. This is known as
homelessness. vertical equity, and sometimes is referred to as
leveling the playing field.
Lessons 2 and 3 will next provide greater detail of
how these relatively recent need analysis changes 6. The need analysis formula should provide a
impact the current need analysis formulas and EFC “snapshot” of the family’s financial
calculations. circumstances at the time of application.

Underlying Principles of Need 7. The need analysis results are a benchmark. As
Analysis such, the final assessment of the family’s ability
to contribute to the student’s postsecondary
Earlier, we pointed out a number of concepts that education costs is subject to the professional
were reflected in the need analysis of the student judgment of the financial aid administrator.
financial aid programs as they were developed and
enacted into law. The first was providing access to Keep these underlying principles in mind as you
postsecondary education for students of ability who review the need analysis formulas in the following
wish to enroll. A second was providing students lessons.
with choice among institutions, regardless of the
cost of attendance. Financial aid is therefore the An Underlying Principles of Need Analysis
means to provide access and choice by helping chart is included on page 15 for ease of
students meet their unmet costs. reference.

Part F of the HEA contains the statutory
provisions governing need analysis.
Although the law prohibits ED from
regulating need analysis, there are some
long-standing guiding principles which serve as the

© 2016 NASFAA Need Analysis: Lesson 1 9

NASFAA University Self-Study Guide: Need Analysis

Quick Quiz 2

Now it’s time to check what you have learned so far. Answer the following questions and check
your responses using the Answer Key on page 20.

1. The history of need analysis can be divided into two distinct stages: the early years of community
consensus, and the more recent years of federal domination, structure, and control.

 True
 False

2. Describe horizontal equity as it relates to need analysis:
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

3. Describe vertical equity as it relates to need analysis:
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

4. The distribution of financial aid resources should be based on the family’s willingness to pay, not ability
to pay.

 True
 False

5. The need analysis results are a benchmark. As such, the final assessment of the family’s ability to
contribute to the student’s postsecondary education costs is subject to the professional judgment of the
financial aid administrator.

 True
 False

6. Under Congressional Methodology, what were the three need analysis models?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

7. The three need analysis models under Congressional Methodology remain the same three models used
today under Federal Methodology.

 True
 False

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Learning Activity: Interview

Interview colleagues in your office to answer the following questions:

1. Does your institution use Institutional Methodology (IM) in addition to Federal Methodology (FM) to
award institutional funds? Why? Why not?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

2. If yes, list the IM calculation data used in addition the FM calculation. Keep these in mind as you review
Lessons 2 through 5.
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

© 2016 NASFAA Need Analysis: Lesson 1 11

NASFAA University Self-Study Guide: Need Analysis

Learning Activity: Brief Evolution of Need Analysis Timeline

Fill in the Evolution of Need Analysis timeline below. Include the most significant years and time
frames previously discussed, along with the most significant contributions to need analysis with
each of those years/time frames. Check your responses using the Answer Key on page 21.

Great Depression - ____________________ 1643 - _____________________________
____________________________________ __________________________________
____________________________________
____________________________________ __________________________________
__________________________________
____________________________________
____________________________________

Sputnik - ____________________________ __________________________________
____________________________________ __________________________________

____________________________________ __________________________________
____________________________________ __________________________________
____________________________________
____________________________________

____________________________________
____________________________________
2007 - ______________________________
____________________________________

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Reflection Questions

Take a few moments to reflect on the following questions. There are no right or wrong answers.
You can also discuss these questions with a coworker in your office.

1. What should be the federal government’s role in assisting students and their families pay for
postsecondary educational costs?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

2. Assuming you believe that the federal government should play a role in assisting students and their
families pay for postsecondary educational costs, what data elements should be included in the need
analysis assessment of a family’s financial strength and ability to pay for college?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

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Underlying Principles of Need Analysis

Need analysis is the system used to allocate limited financial aid resources. Over the years, the statements
listed below have become the underlying principles for need analysis.

1. Parents and students have the primary responsibility for meeting postsecondary education costs.

2. The distribution of financial aid resources should be based on the family’s ability to pay, not willingness
to pay.

3. The assessment of a family’s ability to pay should be independent of the amount of financial aid
available and the cost of attending postsecondary school.

4. There should be horizontal equity (also referred to as equity across the board) in the distribution of
limited financial aid resources. That is, families in similar circumstances with similar resources should
be expected to make similar contributions.

5. Families in different circumstances should be expected to make contributions appropriate to their
financial resources. This is known as vertical equity, and sometimes is referred to as leveling the
playing field.

6. The need analysis formula should provide a “snapshot” of the family’s financial circumstance at the time
of application.

7. The need analysis results are a benchmark. As such, the final assessment of the family’s ability to
contribute to the student’s postsecondary education costs is subject to the professional judgment of the
financial aid administrator.

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16 Need Analysis: Lesson 1 © 2016 NASFAA

NASFAA University Self-Study Guide: Need Analysis

Lesson 1 Glossary

Campus-based programs: The term commonly applied to federal student aid programs administered directly
by schools. These programs include Federal Supplemental Educational Opportunity Grant (FSEOG), Federal
Work-Study (FWS), and Federal Perkins Loan.

Cost of attendance (COA): Costs the student is expected to incur during the period of enrollment, including
but not limited to tuition, fees, room, board, books, supplies, transportation, and miscellaneous personal
expenses. The COA usually is calculated for a full academic year.

Dislocated worker: A person who:
• Meets all of the following:

 Was terminated or laid off from employment or received a notice of termination or layoff,
 Is eligible for or has exhausted his or her unemployment compensation, or he or she is not eligible

because, even though he or she has been employed long enough to demonstrate attachment to the
workforce, he or she had insufficient earnings or performed services for an employer that were not
covered under a state’s unemployment compensation law, and
 Is unlikely to return to a previous occupation;
• Was terminated or laid off from employment or received a notice of termination or layoff as a result of any
permanent closure of, or any substantial layoff at, a plant, facility, or enterprise;
• Is employed at a facility at which the employer made a general announcement that it will close within 180
days;
• Was self-employed but is now unemployed due to general economic conditions in his community or natural
disaster; or
• Is a displaced homemaker.

Displaced homemaker: A person who:
• Previously provided unpaid services to the family (e.g., a stay-at-home parent);
• Is no longer supported by another family member’s income; and
• Is unemployed or underemployed and is having trouble finding or upgrading employment.

Expected family contribution (EFC): Estimate of a family’s ability to contribute toward postsecondary
educational costs, derived by a formula known as Federal Methodology.

Federal Direct Student Loan (Direct Loan) Program: The collective name for the Direct Subsidized Loan,
Direct Unsubsidized Loan, Direct PLUS, and Direct Consolidation Loan programs. These federal funds are
administered by the Department of Education (ED) and participating schools.

Federal Family Education Loan (FFEL) Program: The collective name for the Federal Stafford Loan
(subsidized and unsubsidized), Federal PLUS, and Federal Consolidation Loan programs. Funds from these
programs were provided by private lenders and guaranteed by the federal government.

Federal Pell Grant Program: A Title IV program for needy postsecondary students who have not yet received
a baccalaureate or for postbaccalaureate students who are enrolled in a teaching certificate or licensing
program at an eligible institution.

Federal Perkins Loan Program: A Title IV campus-based program that provides low-interest loans to
students with financial need.

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Federal Supplemental Educational Opportunity Grant (FSEOG) Program: One of the Title IV campus-
based programs, providing grants to undergraduate students with exceptional financial need and who have not
completed their first baccalaureate or professional degree.

Federal Work-Study (FWS) Program: One of the campus-based programs, providing part-time employment
for undergraduate and graduate students who are in need of such earnings to meet a portion of their
educational expenses.

Financial need: The difference between the institution’s cost of attendance and the family’s ability to pay (i.e.,
EFC). Ability to pay is represented by the EFC for federal need-based aid and for many state and institutional
programs.

Free Application for Federal Student Aid (FAFSA): The application used to apply for all federal Title IV
student financial aid. The FAFSA collects financial and other information used to calculate the EFC and to
confirm a student’s eligibility via various database matches with other federal agencies.

Gift aid: Grant (and scholarship aid at some institutions) that does not usually have to be paid back.

Higher Education Act of 1965, as amended (HEA): The authorizing legislation for most of the federal student
financial assistance programs. Established in 1965 by Congress, Title IV of the HEA authorizes the following
programs: Federal Pell Grant, Iraq and Afghanistan Service Grant (IASG), Teacher Education Assistance for
College and Higher Education (TEACH) Grant, Federal Supplemental Educational Opportunity Grant
(FSEOG), Federal Work-Study (FWS), Federal Perkins Loan, and Federal Direct Student Loan (Direct Loan).
Collectively, these programs are known as the Title IV programs and are administered by ED.

Iraq and Afghanistan Service Grant (IASG) Program: A non-need based federal grant program for students
whose parent or guardian died as the result of military service in Iraq or Afghanistan after September 11, 2001.
If a student is eligible for a Federal Pell Grant, he or she cannot receive IASG.

Professional judgment (PJ): The authority provided under the HEA for financial aid administrators to exercise
discretion and deal with unique circumstances affecting individual students on a case-by-case basis in a
number of specific areas of federal student aid administration.

Teacher Education Assistance for College and Higher Education (TEACH) Grant Program: Grants are
for undergraduate and graduate students, awarded in exchange for specific future teaching service in
designated high-need fields and low-income elementary and secondary schools. If a student does not
complete the required teaching service, the grant becomes a Direct Unsubsidized Loan, which must be repaid.

Underemployed individual: A person who is working part time but wants to work full time, or one who is
working below the demonstrated level of his or her education or job skills.

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NASFAA University Self-Study Guide: Need Analysis

Lesson 1 Answer Keys

Quick Quiz 1

1. In the early 1950s, which of the following elements were included in the first comprehensive system of
need analysis: (check all that apply)

 Parents’ income, taxes, business expenses, and unusual medical expenses
 Professional judgment
 Parents’ assets, including home equity (value and debt)
 Parents’ jobs and/or types of business
 Children in public school
 Children in private school
 Student’s earnings
 Student’s assets

2. Fill in the basic formula for determining financial need below:
Cost of attendance

– Expected family contribution
= Financial need

3. Define cost of attendance, including some of the costs it covers:
The COA is a school’s estimate of the costs a student is expected to incur during the period of
enrollment, usually a full academic year. The COA includes but is not limited to tuition, fees, room,
board, books, supplies, transportation, and miscellaneous personal expenses.

4. Fill in each blank in the following statement using one of the options presented:

• Educational Opportunity Grant (EOG);
• Basic Opportunity Grant (BOG); or
• Federal Pell Grant

The first federal student grant program was called the _Educational Opportunity Grant (EOG) created
in _1965_ under the _Higher Education Act (HEA)_.

• 1958; • National Defense Education Act (NDEA);
• 1964; or • Economic Opportunity Act; or
• 1965 • Higher Education Act (HEA)

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Quick Quiz 2

1. The history of need analysis can be divided into two distinct stages: the early years of community
consensus, and the more recent years of federal domination, structure, and control.

 True
 False

2. Describe horizontal equity as it relates to need analysis:
Horizontal equity is also referred to as equity across the board in the distribution of limited financial aid
resources. Families in similar circumstances with similar resources should be expected to make similar
contributions.

3. Describe vertical equity as it relates to need analysis:
Vertical equity is sometimes referred to as leveling the playing field. Families in different circumstances
should be expected to make contributions appropriate to their financial resources.

4. The distribution of financial aid resources should be based on the family’s willingness to pay, not ability
to pay.

 True
 False

5. The need analysis results are a benchmark. As such, the final assessment of the family’s ability to
contribute to the student’s postsecondary education costs is subject to the professional judgment of the
financial aid administrator.

 True
 False

6. Under Congressional Methodology, what were the three need analysis models?
Under CM, the three models were the dependent student, independent student with dependents
(including a spouse), and independent student without dependents.

7. The three need analysis models under Congressional Methodology remain the same three models used
today under Federal Methodology.

 True
 False

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Learning Activity: Brief Evolution of Need Analysis Timeline

1643 - 1st college scholarship
at Harvard College

Great Depression - National
Youth Administration &

student employment program

1944 - WWII & creation of
GI Bill for returning service members

1954 - College Scholarship Service Early 1950s - John Monro
centralized application form created 1st need analysis
& consensus need analysis
1965 - Higher Education Act created
1957/1958 - Sputnik/National umbrella for Title IV Programs
Defense Education Act created

1st national loan program

1972 - Higher Education Amendments 1986 - Higher Education Amendments
created Basic Educational Opportunity Grants federally controlled need analysis &
created Congressional Methodology
1976 - CSS and ACT became Multiple Data
Entry Processors for federal purposes

1992 - Higher Education Amendments
created single application form
and need analysis formula
(Federal Methodology)

2007 - College Cost Reduction and
Access Act modified need analysis

data elements & formulas

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Lesson 2: The Regular Formula

Learning Objectives The Regular Formula

After completing this lesson Overview
you will:
The Federal Methodology (FM) regular formula is a full data
• Recognize the three element formula used to calculate a student’s expected family
models used to calculate contribution (EFC). The EFC is both a measure of a family’s
the EFC; financial strength and a key element in determinating a student’s
financial need. Schools use the EFC when they award Title IV aid.
• Identify the model which
should be used to The regular formula calculates the EFC using income and asset
calculate a student’s EFC; information provided by a student and his family on the Free Application
and for Federal Student Aid (FAFSA). The FAFSA is the standard form used to
apply for federal financial aid. The regular formula also assumes a student
• Understand the steps will be enrolled for nine months, which is the length of an academic year at
used to calculate the EFC a traditional standard semester, trimester, or quarter based institution.
using the regular formula. Therefore, FM calculates a nine-month EFC as the standard EFC.

Key Concepts The regular formula distinguishes students based on dependency status.
A student’s dependency status determines whether or not parental
The key concepts you will information must be included on the FAFSA and used in the calculation of
learn in this lesson: the EFC. If a student is dependent, the regular formula assumes the
presence of parental support. If a student is independent, the formula does
• Expected family not take into account any parental information.
contribution (EFC);
A student is considered dependent unless she meets the definition of an
• Dependency status; independent student. A student is independent if she:

• Dependent; • Will be 24 by December 31 of the award year;

• Formula models; • Is an orphan, in foster care, or a ward of the court, at any time when
the student was 13 years of age or older;
• Specified year;
• Is an emancipated minor or is in legal guardianship as determined by a
• Additional financial court in the student’s state of legal residence;
information;
• Is an unaccompanied youth who is determined to be homeless, or at
• Total income and risk of homelessness and self-supporting, at any point on or after July
allowances against 1, 2015;
income;
• Is a veteran;
• Available income;
• Is serving on active duty in the U.S. Armed Forces for purposes other
• Assets and allowances than training;
against assets;
• Is married;
• Adjusted available
income; • Is a graduate or professional student;

• Number in college; • Has legal dependents other than a spouse;

• Parents’ contribution; • Has dependent children; or

• Student’s contribution; • Has been determined to be independent by a financial aid
and administrator based on unusual circumstances while exercising
professional judgment.
• Available income
assessment rate.

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Resources for In the context of dependency status, a dependent is a child or
This Lesson other person for whom the student will provide more than half of
her support during the award year covered by the FAFSA and for
• Overview of 2016–17 which the EFC is calculated. Examples of a dependents other
Federal Methodology than children include older relatives such as grandparents, parents, aunts,
Formulas uncles, or younger siblings supported by the student.

• Worksheets and tables For more guidance on dependency status, refer to NASFAA’s
from The EFC Formula, self-study guide, The Application Process. For more on how
2016–2017 professional judgment may be used for dependency status
overrides, refer to NASFAA’s Self-Study Guide, Professional
• Lesson 2 Glossary Judgment, available on the NASFAA website at www.nasfaa.org.

Icons Formula Models
You will see the following
icons in Lesson 2: The regular formula uses three models to classify students and
to calculate the EFC. A model is a description of a complex
• Key concept system.

• Quick quiz Model A is used for dependent students and takes into account the
income and asset information of both the student and his parents. Model B
• Reflection questions is used to calculate the EFC of independent students without dependents
other than a spouse. If the student is married, his spouse’s income and
• Learning activity asset information is included in the calculation. The final model, Model C,
is for independent students with dependents other than a spouse.
• Helpful hint
The three models differ somewhat in terms of treatment of certain types of
income, number and types of income and asset allowances, and rates at
which available income and assets are assessed as being available to
contribute toward postsecondary education costs. For each of the student
models, the regular formula first calculates a contribution from available
income, and then a contribution from assets. In deriving these amounts, a
portion of the family’s income and assets are protected through the
application of various allowances. The protected amount is assumed to be
unavailable for educational expenses. The FM formula also equally
distributes the calculated amount of family resources available for
postsecondary education among all family members, other than the
parents of dependent students, who are attending postsecondary school
on at least a half-time basis during the award year covered by the FAFSA.

As you learn about the different models used in the regular formula, you
will notice similarities in the calculation steps.

Specified Year

Specified-year income, assets, and other household data are
reported on the student’s FAFSA and used to calculate the EFC.
The specified year—sometimes referred to as the “base” year—
is established annually by the U.S. Department of Education
(ED) and can be either of the two calendar years immediately preceding
the first year of the award year. For Federal Methodology purposes, the
specified year for the 2016–17 award year is 2015.

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Learning Activity: Selecting the Correct Regular Formula
Model

Using the information below, select the correct regular formula model to calculate the student’s
EFC. Check your answers using the Answer Key on page 61.

1. Alex
Alex is a 22-year-old senior at Big State University. He works part time and earns enough money to pay
for most of his living expenses. Alex’s parents no longer claim him on their tax return, but still pay for his
health and car insurance.

 Model A  Model B  Model C

2. Leila
At 21, Leila works as the manager of a popular pizza delivery business and supports herself financially.
Her younger brother Nathan had a huge fight with their stepfather last year and now lives with Leila.
Leila will provide more than half of Nathan’s financial support during the award year, and claimed
Nathan on her 2015 tax return. This fall, she plans to enroll at Wood College to pursue a degree in
business.

 Model A  Model B  Model C

3. Carlos
Carlos is enrolled in the astrophysics doctoral program at National Science University. He and his wife
Maria have no children, and they now live with her parents because the stipend from his research
assistantship no longer covers the rent for an apartment close to campus.

 Model A  Model B  Model C

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Regular Formula: Model A— the amount of reported untaxed income and
Dependent Student benefits.

As mentioned earlier, Model A is used for The total of the additional financial
dependent students and takes into information reported on the FAFSA is
account the income and asset information then subtracted from the total of taxable
of both the student and his parents. For a and untaxed income amount. The
dependent student, the EFC is the sum of the: additional financial information reported on the
FAFSA represents income and other items that are
• Parents’ contribution; not factored into the calculation of the EFC (i.e.,
excludable income). Additional financial information
• Student’s contribution from available income; includes:
and
• Education tax credits (i.e., American
• Student’s contribution from assets. Opportunity Tax Credit and Lifetime Learning
Tax Credit);
The calculation of the EFC using Model A consists
of 10 steps, as described below. • Child support paid because of death,
separation, or a legal requirement;
Refer to the EFC worksheet and tables for
Model A starting on page 45 as you • Taxable earnings from need-based employment
review the calculation steps. The programs (e.g., Federal Work-Study and need-
Overview of 2016–17 Federal based employment portions of fellowships and
Methodology Formulas on page 41 is also a helpful assistantships);
reference.
• Taxable student grant and scholarship aid
Step 1: Parents’ Total Income (including AmeriCorps awards, living
allowances, and interest accrual payments)
The first step in Model A of the EFC formula is to reported to the Internal Revenue Service (IRS)
calculate parents’ total income. Dependent in the tax filer’s AGI;
students must include income and other information
from their legal parents (biological or adoptive) if • Taxable portions of combat or special combat
those parents live together, regardless of the pay included in the tax filer’s AGI; and
parents’ marital status. In addition, both parents
report income and other information on the FAFSA • Earnings from work under a cooperative
if the parents were legally married in one of the 50 education program offered by a college or
states, the District of Columbia, a U.S. territory, or a university.
foreign country, without regard to whether the
marriage was between persons of the same sex or The difference between the income
opposite sex, where the couple resides, or where reported on the FAFSA and additional
the student will be attending school. As such, the financial information is known as the
references in the EFC formula worksheets are for parents’ total income. Total income can
“Parent 1” and “Parent 2”, instead of “Mother” and be a negative amount and will be used later in the
“Father”. formula.

If the parents filed or are required to file a federal Step 2: Parents’ Allowances Against
income tax return, the adjusted gross income (AGI) Income
from the appropriate federal tax year is used. If the
AGI is a negative amount, it is set to zero. If the After calculating parents’ total income, the formula
parents are not required to file a federal tax return, determines the parents’ total allowances against
the formula uses income earned from work instead. income. Allowances represent money that is not
AGI or income earned from work is then added to available to pay for educational expenses. The EFC
formula includes the following allowances for
parents:

• U.S income tax paid for tax filers;

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• State and other taxes (calculated using Table • 35 percent of earned income, up to a maximum
A1); of $4,000, if it is a single-parent household.

• Social Security tax allowance for each parent Parents’ total allowances against income is the sum
(calculated using Table A2); of all allowances.

• Income protection allowance (calculated using Step 3: Parents’ Available Income
Table A3); and
Parents’ available income represents the
• Employment expense allowance. income potentially available to cover
educational expenses after allowances for
Some of the allowances, like U.S. income tax paid required expenses are considered. The
and Social Security tax, are self-explanatory. For formula calculates available income by subtracting
example, you can see taxes paid on the tax return. total allowances from total income.
A couple of the allowances require more
explanation. Step 4: Parents’ Contribution from
Assets
State and Other Taxes. The formula builds in a
general allowance for the payment of state and After calculating parents’ available income, the
other taxes. It is calculated using a table (A1) formula determines parents’ contribution from
based on the parents’ state of legal residence and assets.
total income (not AGI). A negative amount is set to
zero in the calculation. Assets. Assets are items of ownership
that either have cash value or which can
Income Protection Allowance (IPA). The IPA is an be converted into cash. Depending on the
allowance which accounts for the family’s basic applicant, the following assets are
living expenses. It is calculated using a table (A3), reported on the FAFSA and included in the
and is based on the size of the family and the calculation of the EFC:
number of family members enrolled at least half-
time in college during the award year. It excludes • Current balance of cash, savings, and checking
the student’s parents who are enrolled in college. accounts;
The IPA also does not consider regional differences
in the cost of living and assumes a low standard of • Net worth of investments, including real estate;
living. and

Employment Expense Allowance. This allowance • Net worth of businesses and investment farms.
factors in expenses parents have because they
work. These expenses include clothing, meals, and The family’s primary residence, family farms, and
transportation costs. The amount of the allowance family–owned and controlled small businesses with
depends on whether there are one or two parents 100 or fewer full-time or full-time equivalent
in the household and whether one or both work. employees are not considered assets for the
The maximum amount of the allowance is capped purposes of the EFC calculation. Any qualified
at 35 percent of the lesser of the earned incomes or education benefits owned by the dependent
$4,000, whichever is less. student, such as an IRS 529 plan or state prepaid
tuition plan, are considered assets of the parents.
The employment expense allowance is: The net worth of an asset is its value minus any
debt owed against it as of the date the FAFSA is
• Zero if there are two parents in the household filed.
(parents’ marital status is “married” or
“unmarried and both parents living together”) Adjusted Net Worth. When calculating the value of
and one parent is working; a business or investment farm to be included in the
calculation of the student’s EFC, the formula looks
• 35 percent of the lesser earned income, up to a at the asset’s adjusted net worth. The adjusted net
maximum of $4,000, if there are two parents in
the household and both parents work; or

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worth of the business or investment farm is support the family, including the parents. It is
calculated using a table (A4) which protects a included in Step 7 below.
percentage of an asset’s value from consideration
in the formula. The parents’ contribution from adjusted available
income is calculated using Table A6. If the number
Net Worth. The parents’ net worth is the total of is negative, it is set to zero.
reported cash, savings, and checking; the net worth
of investments and real estate; and the adjusted Number in College. The number in college includes
net worth of a business or investment farm. the members of the parents’ household, excluding
the parents, who will be enrolled at least half time in
Education Savings and Asset Protection Allowance. a program that leads to a degree or certificate
After calculating net worth, the formula next during the award year.
subtracts an education savings and asset
protection allowance to determine the parents’ Parent’s Contribution. Once the parents’
discretionary net worth. The education savings and contribution from available income is
asset protection allowance is designed to protect a calculated, any number greater than zero
portion of the family’s assets for the parents’ is divided by the number in college to
retirement, emergencies, and personal educational determine the parents’ contribution for the
expenses. It is calculated using Table A5 and individual student.
based on the age of the older parent.
Student’s Contribution. After calculating
Discretionary Net Worth. Parents’ discretionary net the parents’ contribution, the formula next
worth is the value of assets after the application of calculates the student’s contribution. The
the education savings and asset protection student’s contribution is the amount the
allowance. student is expected to contribute towards the cost
of his education from both income and assets.
Asset Conversion Rate. After determining the
parents’ discretionary net worth, the formula Step 6: Student’s Total Income
multiplies the figure by an asset conversion rate to
calculate the parents’ contribution from assets. The As with the calculation of parents’ total income, the
asset conversion rate is the amount of the parents’ formula uses either the student’s AGI or income
assets that are assumed to be available to earned from work depending on whether or not the
contribute towards the student’s educational costs. student is required to file a tax return. If the AGI is
For the 2016–17 award year, the statute sets the negative, it is set to zero. The student’s AGI or
asset conversion rate for parents at 12 percent. If income earned from work is then added to any
application of the asset conversion rate yields a untaxed income and benefits reported on the
negative number, the value is set to zero. FAFSA. The total amount of the student’s additional
financial information from the FAFSA is subtracted
Step 5: Parents’ Contribution from this amount to calculate the student’s total
income, which may be a negative amount.
Adjusted Available Income. After
determining parents’ contribution from Step 7: Student’s Allowances Against
assets, the next step of the formula Income
calculates the parents’ contribution. First,
the value of the parents’ available income is added The formula next subtracts allowances from the
to the value of the parents’ contribution from student’s total income. These allowances are:
assets. The resulting figure is known as the
parents’ adjusted available income. This number • U.S. income tax paid for tax filers;
may be negative. A negative adjusted available
income occurs when the parents’ income is • State and other taxes based on the student’s
insufficient to cover basic living expenses, so some state of legal residence (calculated using Table
of the student’s income may be necessary to A7);

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• Social Security tax allowance (calculated using Step 9: Student’s Contribution from
Table A2); Assets

• Income protection allowance; and Net Worth. The first step in determining a student’s
contribution from assets is to calculate her net
• Allowance for parents’ negative adjusted worth. As with the parents, the dependent student’s
available income. net worth is the sum of the following:

Some of the allowances subtracted from student • Value of cash, savings, and checking;
income are identical to the allowances discussed
earlier when calculating the parents’ contribution. • Net worth of investments, including real estate;
However, some are different. and

Income Protection Allowance (IPA). As you recall, • Net worth of businesses and investment farms.
the IPA for the parents of a dependent student is
calculated using a table which takes into account Remember that the value of a primary
household size and number in college. For the residence, family farm, and family-owned
dependent student, the IPA is a fixed amount. For and controlled small businesses with 100
the 2016–17 award year, the IPA is set at $6,400. or fewer full-time or full-time equivalent
employees are not assets for the purpose of
Allowance for Parents’ Negative Adjusted Available calculating the EFC.
Income. The allowance for parents’ negative
adjusted available income is unique to Model A of Asset Conversion Rate. After calculating the
the regular formula. It recognizes that the student’s net worth, the formula applies an
dependent student’s income may be needed to assessment rate of 20 percent to determine the
help support the family when the parents’ income is student’s contribution from assets.
insufficient to cover basic family living expenses.
Unlike the calculation of parents’ contribution from
The student’s total allowances is the sum of all assets, the formula does not subtract an education
allowances. This figure is subtracted from the savings and asset protection allowance from the
student’s total income. student’s net worth, nor does it adjust the value of
the student’s businesses or investment farms.
Step 8: Student’s Contribution from
Available Income Step 10: Expected Family
Contribution
The student’s available income is the difference
between the student’s total income and total The final step in the formula calculates the
allowances. The formula calculates the student’s student’s EFC. The dependent student’s EFC is the
contribution from available income by multiplying sum of the parents’ contribution (Step 5), the
available income by an assessment rate. student’s contribution from available income (Step
8), and the student’s contribution from assets (Step
Available Income Assessment Rate. The 9). If this number is negative, the student’s EFC is
available income assessment rate is the zero.
percentage of the student’s income which
is available to cover his educational
expenses for the award year. The assessment rate
for calculating the dependent student’s contribution
from available income is 50 percent. If the
application of the assessment rate yields a negative
number, the student’s contribution from available
income is set to zero.

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Quick Quiz 1

Now it’s time to check what you have learned so far. Answer the following questions and check
your responses using the Answer Key on page 62.

1. Which model or models of the regular formula are used to calculate the EFC of independent students?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

2. What allowances are subtracted from parents’ total income to calculate parents’ available income?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

3. What is the purpose of the education savings and asset protection allowance?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

4. What is the purpose of the allowance for negative parents’ adjusted available income?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

5. What assessment rates are used to calculate the dependent student’s contributions from available
income and assets?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

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Learning Activity: Hand Calculation Using Model A

Using the case study below and the worksheet and tables for Model A, beginning on page 45,
calculate the dependent student’s EFC. Check your answer using the Answer Key on page 63.

All calculations should be carried out to three decimal places. The result is rounded to the nearest whole
number:
• .001 through .499 is rounded down; and
• .500 through .999 is rounded up.

Melanie Knox

Melanie will be a second-year, undergraduate student starting in Fall 2016. Her date of birth is June 25,
1997. She lives in Syracuse, New York with her mother, stepfather, and younger stepbrother, Michael, who
is a high school junior.

Melanie’s mother, Ann, and stepfather, David, have been married 10 years. David is an Air Force reservist
who was called for active duty November 2015. Ann’s date of birth is June 3, 1969. David’s date of birth is
August 1, 1968.

Melanie’s mother and stepfather filed an IRS Form 1040 for the 2015 tax year, as required. Ann owns and
operates a small coffee shop with five full-time employees. In 2015, she earned $21,386 in business
income (as reported on Schedule C of the 1040). David works as an electrician and earned $53,000 in
2015. They reported an adjusted gross income (AGI) of $74,386, a $2,500 American Opportunity Tax
Credit, an $800 taxable combat pay, and a tax liability of $6,829. Ann and David claimed Melanie and her
stepbrother as exemptions. David contributed $2,500 to an IRA tax-deferred pension plan. No one in the
family received benefits from a means-tested federal program in 2014 or 2015.

On Melanie’s FAFSA, Ann reported the value of her coffee shop as $500,000 with debt of $436,000,
$12,848 in a joint savings account, $1,563 in her checking account, and $2,367 in David’s checking
account.

Melanie’s parents divorced in 1998. Per the terms of the divorce, Melanie’s father paid Ann $600 a month in
child support for Melanie until she turned 18. Ann received six months’ worth on child support in 2015, in
the amount of $3,600.

Melanie earned $2,340 in 2015 working part time over the summer. She is not required to file a tax return
for 2015, so she did not file one. She used the money in her savings account to pay her tuition for the
2015–16 academic year, so she has no assets.

© 2016 NASFAA Need Analysis: Lesson 2 31

NASFAA University Self-Study Guide: Need Analysis

Regular Formula: Model B— • State and other taxes (calculated using Table
Independent Student Without B1);
Dependents Other Than a
Spouse • Student (and spouse) Social Security tax
(calculated using Table B2);
Now that you have learned the steps to calculating
the EFC of a dependent student, it is time to look at • Income protection allowance; and
how the EFC is calculated for an independent
student. As you will recall from the discussion at the • Employment expense allowance.
beginning of the lesson, the regular formula uses
two models for independent students. Model B is Income Protection Allowance (IPA). Like the IPA of
used for students without dependents other than a the dependent student in Model A, the IPA of
spouse. independent students without dependents other
than a spouse is a standard amount. The amount
Remember, if the student is married, his spouse’s depends on the student’s marital status and, if the
information is included in all steps of the EFC student is married, the enrollment status of her
calculation, if the student was legally married in one spouse. Standard IPA amounts for the 2016–17
of the 50 states, the District of Columbia, a U.S. award year are:
territory, or a foreign country, without regard to
whether the marriage was between persons of the • $9,960 for a single, separated, divorced, or
same sex or opposite sex, where the couple widowed student;
resides, or where the student will be attending
school. • $9,960 for a married student if her spouse is
enrolled at least half time; and
Refer to the EFC worksheet and tables for
Model B starting on page 51 as you review • $15,960 for a married student if her spouse is
the calculation steps. The Overview of not enrolled at least half time.
2016–17 Federal Methodology Formulas,
beginning on page 41, is also a handy reference. “Remember, if the student
Also keep in mind that certain calculation steps are
similar across the models. is married, his spouse’s

Step 1: Student’s Total Income information is included

The first step in Model B is calculating the student’s in all steps of the EFC
total income. The formula will consider either the
student’s AGI or income earned from work, calculation...”
depending on whether or not the student is required
to file a tax return. To this number, the formula Employment Expense Allowance. Unlike dependent
adds any untaxed income and benefits reported on students, independent students qualify for an
the FAFSA. Finally, the formula subtracts the employment expense allowance. However, under
amount of any additional financial information from Model B, the students who qualify for this
the FAFSA to calculate the student’s total income. allowance are limited to married students when
both the student and his spouse work. The
Step 2: Student’s Allowances Against maximum amount of the allowance is capped at 35
Income percent of the lesser of the earned incomes or
$4,000, whichever is less.
Under Model B, independent students are eligible
for the following allowances: The student’s total allowances is the sum of all
allowances.
• U.S. income tax paid (tax filers only);

32 Need Analysis: Lesson 2 © 2016 NASFAA

NASFAA University Self-Study Guide: Need Analysis

Step 3: Student’s Contribution from amount of the asset protection allowance is
Available Income calculated using Table B4 and the student’s age.

To calculate the student’s available income, the Asset Conversion Rate. Finally, the student’s
formula subtracts the student’s total allowances discretionary net worth is multiplied by an asset
from the student’s total income. To determine the conversion rate to determine her contribution from
student’s contribution from available income, assets. The conversion rate is 20 percent.
available income is multiplied by an assessment
rate of 50 percent (the same assessment rate used If the student’s contribution from assets is negative,
to calculate a dependent student’s contribution from the value is set to zero.
available income). The student’s contribution from
available income may be negative; a negative “Remember that a primary
amount can be offset by a positive contribution from residence, family farm,
assets.
and family-owned and controlled
Step 4: Student’s Contribution from small business with
Assets
100 or fewer full-time or
Adjusted Net Worth. Before calculating the full-time equivalent employees
student’s net worth, the formula determines the are not assets for the purpose
adjusted net worth of any reported business or
investment farm. As with the parents of a of calculating the EFC.”
dependent student, this calculation uses a table
(Table B3) which protects some of the asset’s Step 5: Expected Family Contribution
value.
In the final step, the formula totals the student’s
Net Worth. A student’s net worth is the sum of her: (and spouse’s) contribution from available income
(Step 3) and contribution from assets (Step 4).The
• Cash, savings, and checking; resulting figure is divided by the number in college
to determine the EFC for each student in the
• Net worth of investments, including real estate; household. A negative EFC is set to zero.
and

• Adjusted net worth of businesses and
investment farms.

Remember that a primary residence, family farm,
and family-owned and controlled small business
with 100 or fewer full-time or full-time equivalent
employees are not assets for the purpose of
calculating the EFC. The adjusted net worth of a
business or investment farm owned by an
independent student is calculated in the same way
as it is for a parent under Model A (using a table
which protects a portion of the asset’s value).

Asset Protection Allowance and Discretionary Net
Worth. After calculating the student’s net worth, the
formula subtracts an asset protection allowance
from the figure to determine the student’s
discretionary net worth. The asset protection
allowance protects a portion of the student’s assets
for retirement planning and emergencies. The

© 2016 NASFAA Need Analysis: Lesson 2 33

NASFAA University Self-Study Guide: Need Analysis

Reflection Questions

Take a few moments to reflect on the following questions. There are no right or wrong answers.
You can also discuss these questions with a coworker in your office.

1. Why do you think the regular formula has three models?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

2. Is it fair to assess student income and assets at higher rates than for the parents of dependent students?
Why or why not?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

3. Do you believe the IPA is an adequate representation of basic living expenses? Why or why not?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________

34 Need Analysis: Lesson 2 © 2016 NASFAA

NASFAA University Self-Study Guide: Need Analysis

Learning Activity: Hand Calculation Using Model B

Using the case study below and the worksheet and tables for Model B, beginning on page 51,
calculate the independent student’s EFC. Check your answer using the Answer Key on page 66.

All calculations should be carried out to three decimal places. The result is rounded to the nearest whole
number:
• .001 through .499 is rounded down; and
• .500 through .999 is rounded up.

Michael Rogers

Michael will be a fourth-year undergraduate student in Fall 2016. He is married, and his wife, Tasha, also
will enroll half time as a fourth-year undergraduate student. They have no children. Michael’s date of birth is
June 1, 1989. Michael and Tasha live in Philadelphia, Pennsylvania.

Michael and Tasha filed an IRS Form 1040 for the 2015 tax year. Because they itemized deductions, they
could not file a 1040A or 1040EZ. They reported an adjusted gross income (AGI) of $46,159, 2 exemptions,
$159 in interest income, no dividend income, a $600 American Opportunity tax credit, and a tax liability of
$1,750. They have no untaxed income. Michael earned $22,000 in 2015, $4,000 of which was through the
Federal Work-Study (FWS) Program. Tasha earned $24,000 in 2015, $2,500 of which was earned through
FWS. Neither Michael nor Tasha received benefits from a means-tested federal benefit program in 2014 or
2015.

The couple’s only assets are $1,300 in a joint checking account and $4,000 in a joint savings account,
which Michael reported on his FAFSA.

© 2016 NASFAA Need Analysis: Lesson 2 35

NASFAA University Self-Study Guide: Need Analysis

Regular Formula: Model C— • State and other taxes (calculated using Table
Independent Student With C1);
Dependents Other Than a
Spouse • Student (and spouse) Social Security tax
(calculated using Table C2);
The final model used in the regular formula, Model
C, is for independent students with dependents • Income protection allowance; and
other than a spouse. As you review the steps to
calculate a student’s EFC under this model, note • Employment expense allowance.
the similarities to the calculation of the parents’
contribution in Model A. Income Protection Allowance (IPA). For
independent students with dependents other than a
As with Model B, if the student is married, and was spouse, the IPA is calculated using Table C3. The
legally married in one of the 50 states, the District table takes into account family size as well as the
of Columbia, a U.S. territory, or a foreign country, number in college.
without regard to whether the marriage was
between persons of the same sex or opposite sex “The employment expense
or where the couple resides or where the student
will be attending school, his spouse’s information allowance takes into account
must be included in all steps of the EFC calculation.
job-related expenses the working
Refer to the EFC worksheet and tables for
Model C starting on page 55 as you student (and her spouse, if
review the calculation steps. The
Overview of 2016–17 Federal married) may experience.”
Methodology Formulas, beginning on page 41, is
also a handy reference. Employment Expense Allowance. The employment
expense allowance takes into account job-related
Step 1: Student’s Total Income expenses the working student (and her spouse, if
married) may experience. As with Models A and B,
Under Model C, the student’s total income is these expenses include items such as meals,
calculated in the same manner as it is in Model B. clothing, and transportation. To qualify for this
The formula uses either the student’s AGI (which allowance under Model C, both the student and her
may be negative) or income earned from work, spouse (if married) must work, or the student must
depending on whether or not the student was be in a one-parent household. The maximum
required to file a federal tax return. Next, the amount of the allowance is 35 percent of the lesser
amount of any untaxed income and benefits of the earned incomes or $4,000, whichever is less.
reported on the FAFSA is added to the student’s If the student is unmarried, the maximum allowance
AGI or income earned from work. From this figure, is 35 percent of the student’s earned income or
the formula subtracts the amount of any additional $4,000, whichever is less.The student’s total
financial information included on the FAFSA. The allowances is the sum of all allowances.
resulting figure is the student’s total income. This
figure may be negative. Step 3: Student’s Available Income

Step 2: Student’s Allowances Against The student’s available income is calculated by
Income subtracting total allowances from total income. A
student’s available income can be negative; it can
Under Model C, the independent student is eligible be offset by a positive contribution from assets.
for the following allowances:

• U.S. income tax paid (for tax filers only);

36 Need Analysis: Lesson 2 © 2016 NASFAA

NASFAA University Self-Study Guide: Need Analysis

Step 4: Student’s Contribution from Asset Conversion Rate. Finally, the student’s
Assets discretionary net worth is multiplied by an asset
conversion rate to determine his contribution from
Net Worth. The following assets are included in the assets. The conversion rate is seven percent. If
EFC calculation for the independent student under application of the asset conversion rate yields a
Model C: negative number, the student’s contribution from
assets is set to zero.
• Cash, savings, and checking;
Step 5: Expected Family Contribution
• Net worth of investments, including real estate;
and To calculate the student’s EFC, the formula totals
the student’s (and spouse’s) contribution from
• Adjusted net worth of businesses and available income and contribution from assets.
investments farms.
Adjusted Available Income. The resulting figure is
Remember that a primary residence, the student’s adjusted available income. The
family farm, and family-owned and student’s total contribution from adjusted available
controlled small businesses with 100 or income is calculated using Table C6. If the
fewer full-time or full-time equivalent student’s contribution from adjusted available
employees, are not assets for the purpose of income is negative, the formula sets the value to
calculating the EFC. zero.

The adjusted net worth of a business or investment The student’s total contribution from adjusted
farm owned by an independent student is available income is divided by the number in
calculated in the same way as it is for a parent college to determine the EFC of each student
under Model A (using Table C4, which protects a enrolled in college. A negative EFC defaults to
portion of the asset’s value). zero.

“If application of the asset
conversion rate yields
a negative number,

the student’s contribution
from assets is set to zero.”

Asset Protection Allowance and Discretionary Net
Worth. The student’s net worth is the combined
value of the three asset types listed above. From
this figure, the formula subtracts an asset
protection allowance to calculate the student’s
discretionary net worth. The asset protection
allowance is calculated using Table C5 and the
student’s age. As with the asset protection
allowance used in Model B, the allowance protects
a portion of the student’s assets for retirement
planning and emergencies.

© 2016 NASFAA Need Analysis: Lesson 2 37

NASFAA University Self-Study Guide: Need Analysis

Quick Quiz 2

Now it’s time to check what you have learned so far. Answer the following questions and check
your responses using the Answer Key on page 68.

1. Which model of the regular formula is used to calculate the EFC of an independent student without
dependents other than a spouse?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

2. Under Model C, which students qualify for the employment expense allowance?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

3. What is the IPA of a student under Model B?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

4. What is the asset conversion rate for Model C?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

5. Which independent student model uses adjusted available income?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

38 Need Analysis: Lesson 2 © 2016 NASFAA

NASFAA University Self-Study Guide: Need Analysis

Reflection Questions

Take a few moments to reflect on the following questions. There are no right or wrong answers.
You can also discuss these questions with a coworker in your office.

1. Why do you think two models are used to calculate the EFC of independent students?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

2. Why do you think the asset conversion rate for independent students under Model C is lower than the
asset conversion rate for the parents of dependent students under Model A?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

3. Do you think it is fair to calculate the IPA of independent students under Models B and C differently?
Why or why not?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________

© 2016 NASFAA Need Analysis: Lesson 2 39

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40 Need Analysis: Lesson 2 © 2016 NASFAA

© 2016 NASFAA Overview of 2016–17 Federal Methodology Formulas NASFAA University Self-Study Guide: Need Analysis

DEPENDENT INDEPENDENT WITHOUT DEPENDENTS INDEPENDENT WITH DEPENDENTS
OTHER THAN A SPOUSE OTHER THAN A SPOUSE

Model A – Automatic Zero EFC Model B – Automatic Zero EFC Model C – Automatic Zero EFC

Expected family contribution (EFC) Automatic Zero EFC is not applicable. EFC automatically set to zero if student
(and spouse, if married) meets certain
automatically set to zero if student’s parents status and income criteria.

meet certain status and income criteria. Model C – Simplified Needs Test

Model A – Simplified Needs Test Model B – Simplified Needs Test EFC calculation excludes student’s and, if
married, spouse’s assets if student (and
EFC calculation excludes student’s and EFC calculation excludes student’s and, if spouse) meet certain status and income
parents’ assets if student’s parents meet married, spouse’s assets if student (and criteria.
certain status and income criteria. spouse) meet certain status and income
criteria. Model C – Regular Formula

Need Analysis: Lesson 2 Model A – Regular Formula Model B – Regular Formula EFC calculated using student’s and, if
married, spouse’s income and assets.
EFC calculated using student’s and parents’ EFC calculated using student’s and, if
Expected Family Contribution (EFC)
income and assets. married, spouse’s income and assets. (Total contribution from adjusted available
income) ÷ Number in college
Expected Family Contribution (EFC) Expected Family Contribution (EFC)
Total Contribution from Adjusted
Parents’ contribution (Contribution from available income + Available Income
+ Student’s contribution from available Contribution from assets) ÷ Number in
college Application of Table C6 to (Available
income income + Contribution from assets)
+ Student’s contribution from assets Adjusted Available Income
(Total income – Total allowances)
Student’s Contribution from Available Contribution from Available Income + Contribution from assets
Income (Total income – Total allowances) x .50
(Total income – Total allowances) x .50 Total Income
Taxable income
Total Income (Student) Total Income
Taxable income + Untaxed income and benefits
Taxable income – Total additional financial information
+ Untaxed income and benefits + Untaxed income and benefits
– Total additional financial information – Total additional financial information (excluded income)

(excluded income) (excluded income)

41

4424 NASFAA University Self-Study Guide: Need Analysis

NNeeeedd AAnnaallyyssiiss:: LLeessssoonn 22 DEPENDENT INDEPENDENT WITHOUT DEPENDENTS INDEPENDENT WITH DEPENDENTS
OTHER THAN A SPOUSE OTHER THAN A SPOUSE
Model A – Regular Formula
Model B – Regular Formula Model C – Regular Formula
Total Allowances (Student)
U.S. income tax paid Total Allowances Total Allowances
U.S. income tax paid U.S. income tax paid
+ State and other tax allowance
+ Social Security tax allowance + State and other tax allowance + State and other tax allowance
+ Income protection allowance + Student’s Social Security tax + Student’s Social Security tax
+ Allowance for parents’ negative adjusted + Spouse’s Social Security tax + Spouse’s Social Security tax
+ Income protection allowance + Income protection allowance
available income + Employment expense allowance + Employment expense allowance

Student’s Contribution from Assets Contribution from Assets Contribution from Assets
Net worth x .20 Discretionary net worth x .20 Discretionary net worth x .07

Net Worth (Student) Discretionary Net Worth Discretionary Net Worth
Cash, savings, and checking Cash, savings, and checking Cash, savings, and checking

+ Net worth of investments and real estate + Net worth of investments and real estate + Net worth of investments and real estate
+ Net worth of business and/or investment + Net worth of business and/or investment + Net worth of business and/or investment

farm farm farm
– Asset protection allowance – Asset protection allowance

Parents’ Contribution Parents’ Contribution—Not applicable Parents’ Contribution—Not applicable
Total parents’ contribution from adjusted
available income ÷ Number in college

Available Income (Parents)
Total income – Total allowances

Adjusted Available Income (Parents)
Available income + Contribution from assets

Total Contribution from Adjusted
Available Income (Parents)
Application of Table A6 to (Available
income + Contribution from assets)

©©22001165NNAASSFFAAAA

© 20156 NASFAA DEPENDENT INDEPENDENT WITHOUT DEPENDENTS INDEPENDENT WITH DEPENDENTS NASFAA University Self-Study Guide: Need Analysis
OTHER THAN A SPOUSE OTHER THAN A SPOUSE
Model A – Regular Formula
Model B – Regular Formula Model C – Regular Formula
Total Income (Parents)
Need Analysis: Lesson 2 Taxable income

+ Untaxed income and benefits
– Total additional financial information

(excluded income)

Total Allowances (Parents)
U.S. income tax paid

+ State and other tax allowance
+ Parent 1 Social Security tax allowance
+ Parent 2 Social Security tax allowance
+ Income protection allowance
+ Employment expense allowance

Contribution from Assets (Parents)
Discretionary net worth x .12

Discretionary Net Worth (Parents)
Cash, savings, and checking

+ Net worth of investments and real estate
+ Net worth of business and/or investment

farm
– Education savings and asset protection

allowance

435

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44 Need Analysis: Lesson 2 © 2016 NASFAA

NASFAA University Self-Study Guide: Need Analysis

2016–2017 EFC FORMULA A : DEPENDENT STUDENT AREGULAR

PARENTS’ INCOME IN 2015 AVAILABLE INCOME WORKSHEET
Page 1

1. Parents’ Adjusted Gross Income (FAFSA/SAR #85) Total income (from line 7)
If negative, enter zero.

2. a. Parent 1 (father/mother/stepparent) income Total allowances (from line 14) −
earned from work (FAFSA/SAR #88) __________ =
15. AVAILABLE INCOME (AI)
2. b. Parent 2 (father/mother/stepparent) income May be a negative number.
earned from work (FAFSA/SAR #89) + __________

Total parents’ income earned from work = PARENTS’ CONTRIBUTION FROM ASSETS

3. Parents’ Taxable Income + 16. Cash, savings & checking (FAFSA/SAR #90)
(If tax filers, enter the amount from line 1 above. =
If non-tax filers, enter the amount from line 2.)* 17. Net worth of investments** (FAFSA/SAR #91) +
If negative, enter zero.
4. Total untaxed income and benefits:
(Total of FAFSA/SAR #94a. through 94i.) 18. Net worth of business and/or investment farm +
(FAFSA/SAR #92)
5. Taxable and untaxed income
(sum of line 3 and line 4) If negative, enter zero.

6. Total additional financial information − 19. Adjusted net worth of business/farm +
(Total of FAFSA/SAR #93a. through 93f.) = (Calculate using Table A4.) =
−
7. TOTAL INCOME 20. Net worth (sum of lines 16, 17, and 19)
(line 5 minus line 6) May be a negative number. =
21. Education savings and asset × .12
ALLOWANCES AGAINST PARENTS’ INCOME protection allowance (Table A5)
=
8. 2015 U.S. income tax paid (FAFSA/SAR #86) 22. Discretionary net worth
(tax filers only) If negative, enter zero. (line 20 minus line 21)

9. State and other tax allowance + 23. Asset conversion rate
(Table A1) If negative, enter zero.
24. CONTRIBUTION FROM ASSETS
10. Parent 1 (father/mother/stepparent) Social If negative, enter zero.
Security tax allowance (Table A2)
+

11. Parent 2 (father/mother/stepparent) Social + PARENTS’ CONTRIBUTION
Security tax allowance (Table A2) + AVAILABLE INCOME (AI) (from line 15)
CONTRIBUTION FROM ASSETS (from line 24) +
12. Income protection allowance (Table A3)
25. Adjusted Available Income (AAI)
13. Employment expense allowance: May be a negative number.

• Two working parents (Parents’ Marital Status =
is “married” or “unmarried and both parents
living together”): 35% of the lesser of the 26. Total parents’ contribution from AAI
earned incomes, or $4,000, whichever is less (Calculate using Table A6.) If negative, enter zero.

• One-parent families: 35% of earned income, 27. Number in college in 2016–2017 ÷
or $4,000, whichever is less (Exclude parents) (FAFSA/SAR #74)

• Two-parent families, one working parent: +

enter zero 28. PARENTS’ CONTRIBUTION (standard
contribution for nine-month enrollment)***
14. TOTAL ALLOWANCES = =
If negative, enter zero.

*STOP HERE if the following are true: **Do not include the family’s home.
Line 3 is $25,000 or less and
***To calculate the parents’ contribution for other than nine-month
• The parents are eligible to file a 2015 IRS Form 1040A or 1040EZ (they enrollment, see page 11.
are not required to file a 2015 Form 1040) or they are not required to file
any income tax return or continued on the next page

• Anyone included in the parents’ household size (as defined on the FAFSA)
received benefits during 2014 or 2015 from any of the designated means-
tested federal benefit programs or

• Either of the parents is a dislocated worker.
If these circumstances are true, the Expected Family Contribution is
automatically zero.

Reprinted from The EFC Formula, 2016-17 Need Analysis: Lesson 2 45

NASFAA University Self-Study Guide: Need Analysis

REGULAR A
WORKSHEET
Page 2

STUDENT’S INCOME IN 2015 STUDENT’S CONTRIBUTION FROM ASSETS

29. Adjusted Gross Income (FAFSA/SAR #36) 45. Cash, savings & checking (FAFSA/SAR #41)
If negative, enter zero.
46. Net worth of investments*
30. Income earned from work (FAFSA/SAR #39) (FAFSA/SAR #42)

31. Taxable Income If negative, enter zero +
(If tax filer, enter the amount from line 29 above. +
If non-tax filer, enter the amount from line 30.) 47. Net worth of business and/or investment farm
(FAFSA/SAR #43)
32. Total untaxed income and benefits
(Total of FAFSA/SAR #45a. through 45j.) If negative, enter zero.

+ 48. Net worth (sum of lines 45 through 47) =

33. Taxable and untaxed income = 49. Assessment rate × .20
(sum of line 31 and line 32)

34. Total additional financial information 50. STUDENT’S CONTRIBUTION FROM ASSETS =
(Total of FAFSA/SAR #44a. through 44f.)
− EXPECTED FAMILY CONTRIBUTION
35. TOTAL INCOME =
(line 33 minus line 34) PARENTS’ CONTRIBUTION
May be a negative number. (from line 28)

ALLOWANCES AGAINST STUDENT INCOME STUDENT’S CONTRIBUTION FROM AI +
(from line 44)
36. 2015 U.S. income tax paid (FAFSA/SAR #37)
(tax filers only) If negative, enter zero. STUDENT’S CONTRIBUTION FROM ASSETS +

(from line 50)

37. State and other tax allowance + 51. EXPECTED FAMILY CONTRIBUTION
(Table A7) If negative, enter zero. (standard contribution for nine-month
enrollment)** If negative, enter zero.
38. Social Security tax allowance (Table A2) + =

39. Income protection allowance + 6,400

40. Allowance for parents’ negative Adjusted *Do not include the student’s home.

Available Income (If line 25 is negative, enter **To calculate the EFC for other than nine-month enrollment, see the
next page.
line 25 as a positive number in line 40.

If line 25 is zero or positive, enter zero in +

line 40.)

41. TOTAL ALLOWANCES =

STUDENT’S CONTRIBUTION FROM INCOME
Total income (from line 35)

Total allowances (from line 41) −

42. Available income (AI) =

43. Assessment of AI × .50

44. STUDENT’S CONTRIBUTION FROM AI =
If negative, enter zero.

46 Need Analysis: Lesson 2 Reprinted from The EFC Formula, 2016-17

NASFAA University Self-Study Guide: Need Analysis

Table A1: State and Other Tax Allowance

for EFC Formula A Worksheet (parents only)

State Percent of Total Income State Percent of Total Income
$0 - $14,999 $15,000 or more $0 - $14,999 $15,000 or more
Alabama Montana
Alaska 3% 2% Nebraska 4% 3%
American Samoa 2% 1% Nevada 5% 4%
Arizona 2% 1% New Hampshire 2% 1%
Arkansas 4% 3% New Jersey 5% 4%
California 4% 3% New Mexico 9% 8%
Canada and 7% 6% 3% 2%
Canadian Provinces
Colorado 2% 1% New York 9% 8%
Connecticut
4% 3% North Carolina 5% 4%
Delaware
8% 7% North Dakota 2% 1%
District of Columbia
Federated States of 5% 4% Northern Mariana 2% 1%
Micronesia Islands
Florida
Georgia 7% 6% Ohio 5% 4%
Guam
Hawaii 2% 1% Oklahoma 3% 2%
Idaho
Illinois 3% 2% Oregon 7% 6%
Indiana
Iowa 5% 4% Palau 2% 1%
Kansas
Kentucky 2% 1% Pennsylvania 5% 4%
Louisiana
Maine 5% 4% Puerto Rico 2% 1%
Marshall Islands
Maryland 5% 4% Rhode Island 7% 6%
Massachusetts
Mexico 6% 5% South Carolina 4% 3%
Michigan
Minnesota 4% 3% South Dakota 2% 1%
Mississippi
Missouri 5% 4% Tennessee 2% 1%

5% 4% Texas 3% 2%

5% 4% Utah 5% 4%

3% 2% Vermont 6% 5%

6% 5% Virgin Islands 2% 1%

2% 1% Virginia 6% 5%

8% 7% Washington 3% 2%

6% 5% West Virginia 3% 2%

2% 1% Wisconsin 7% 6%

4% 3% Wyoming 1% 0%

6% 5% Blank or Invalid State 2% 1%

3% 2% Other 2% 1%

4% 3%

To calculate the state and other tax allowance, multiply the Parents’ Total Income (EFC Formula A Worksheet,
line 7) by the appropriate rate from the table above to get the “State and Other Tax Allowance” (EFC Formula A
Worksheet, line 9). Use the parents’ State of Legal Residence (FAFSA/SAR #70). If this item is blank or invalid,
use the student’s State of Legal Residence (FAFSA/SAR #18). If both items are blank or invalid, use the State in
the Student’s Mailing Address (FAFSA/SAR #6). If all three items are blank or invalid, use the rate for a blank or
invalid state above.

Reprinted from The EFC Formula, 2016-17 Need Analysis: Lesson 2 47

NASFAA University Self-Study Guide: Need Analysis

Table A2: Social Security Tax

Income Earned from Work* Social Security Tax

$0 – $118,500 7.65% of income

$118,501 or greater $9,065.25 + 1.45% of amount over $118,500

Calculate separately the Social Security tax of parent 1, parent 2, and the student.

*Parent 1 (father/mother/stepparent) 2015 income earned from work is FAFSA/SAR #88
Parent 2 (father/mother/stepparent) 2015 income earned from work is FAFSA/SAR #89
Student’s 2015 income earned from work is FAFSA/SAR#39
Social Security Tax will never be less than zero.

Table A3: Income Protection Allowance

Number in parents’ Number of college students in the household (FAFSA/SAR #74)
household, including 12345
student
(FAFSA/SAR #73)

2 $17,840 $14,790 not applicable not applicable not applicable

3 $22,220 $19,180 $16,130 not applicable not applicable

4 $27,440 $24,390 $21,350 $18,300 not applicable

5 $32,380 $29,320 $26,290 $23,240 $20,200

6 $37,870 $34,820 $31,780 $28,730 $25,690

Note: For each additional family member, add $4,270.
For each additional college student (except parents), subtract $3,040.

Table A4: Business/Farm Net Worth Adjustment

for EFC Formula A Worksheet (parents only)

If the net worth of a business or farm is— Then the adjusted network is—

Less than $1 $0

$1 to $125,000 40% of net worth of business/farm

$125,001 to $380,000 $50,000 + 50% of net worth over $125,000

$380,001 to $635,000 $177,500 + 60% of net worth over $380,000

$635,000 or more $330,500 + 100% of net worth over $635,000

48 Need Analysis: Lesson 2 Reprinted from The EFC Formula, 2016-17