NASFAA University Self-Study Guide: Need Analysis
Learning Activity Answer Key: SNT Hand Calculation Using Model A
See the worksheet results beginning on page 100.
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2016–2017 EFC FORMULA A : DEPENDENT STUDENT SIMPLIFIED A
WORKSHEET
Page 1
PARENTS’ INCOME IN 2015 44,600 AVAILABLE INCOME 43,800
1. Parents’ Adjusted Gross Income (FAFSA/SAR #85) Total income (from line 7) − 40,027
If negative, enter zero. Total allowances (from line 14) = 3,773
15. AVAILABLE INCOME (AI)
2. a. Parent 1 (father/mother/stepparent) income
May be a negative number.
45,000earned from work (FAFSA/SAR #88) __________
2. b. Parent 2 (father/mother/stepparent) income
0earned from work (FAFSA/SAR #89) + __________
Total parents’ income earned from work = 45,000 PPAARREENNTTSS’’CCOONNTTRRIIBBUUTTIION FROMM ASSSEETTSS
3. Parents’ Taxable Income
44,600 16. Cash, savings & checking (FAFSA/SAR #90)
(If tax filers, enter the amount from line 1 above. + 400
If non-tax filers, enter the amount from line 2.)* = 45,000 17. Net worth of investments** +
− 1,200 (FAFSA/SAR #91)
4. Total untaxed income and benefits: If negative, enter zero.
(Total of FAFSA/SAR #94a. through 94i.)
18. Net worth of business and/or investment farm +
5. Taxable and untaxed income (FAFSA/SAR #92)
(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) =
−
43,800(line 5 minus line 6) May be a negative number. = 21. Education savings and asset =
protection allowance (Table A5) ×
ALLOWANCES AGAINST PARENTS’ INCOME
22. Discretionary net worth =
8. 2015 U.S. income tax paid (FAFSA/SAR #86) 2,954 (line 20 minus line 21)
(tax filers only) If negative, enter zero.
23. Asset conversion rate
9. State and other tax allowance + 2,190
(Table A1) If negative, enter zero. 24. CONTRIBUTION FROM ASSETS
If negative, enter zero.
10. Parent 1 (father/mother/stepparent) Social
Security tax allowance (Table A2) + 3,443
11. Parent 2 (father/mother/stepparent) Social + 0 PARENTS’ CONTRIBUTION
Security tax allowance (Table A2) AVAILABLE INCOME (AI) (from line 15)
12. Income protection allowance (Table A3) + 27,440 CONTRIBUTION FROM ASSETS (from line 24) + 3,773
13. Employment expense allowance:
3,773
• Two working parents (Parents’ Marital Status 25. Adjusted Available Income (AAI) = 830
is “married” or “unmarried and both parents May be a negative number. 1
living together”): 35% of the lesser of the 830
earned incomes, or $4,000, whichever is less 26. Total parents’ contribution from AAI
(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 + 4,000 28. PARENTS’ CONTRIBUTION (standard
14. TOTAL ALLOWANCES = 40,027 contribution for nine-month enrollment)*** =
If negative, enter zero.
*STOP HERE if the following are true:
Line 3 is $25,000 or less and **Do not include the family’s home.
• The parents are eligible to file a 2015 IRS Form 1040A or 1040EZ (they ***To calculate the parents’ contribution for other than nine-month
are not required to file a 2015 Form 1040) or they are not required to file enrollment, see page 15.
any income tax return or
Note: Do not complete the shaded areas; asset
• Anyone included in the parents’ household size (as defined on the information is not required in the simplified
FAFSA) received benefits during 2014 or 2015 from any of the formula.
designated means-tested federal benefit programs or
continued on the next page
• Either of the parents is a dislocated worker.
If these circumstances are true, the Expected Family Contribution is
automatically zero.
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SIMPLIFIED A
WORKSHEET
Page 2
STUDENT’S INCOME IN 2015 STUDENT’S CONTRIBUTION FROM ASSETS
29. Adjusted Gross Income (FAFSA/SAR #36) 2,500 45. Cash, savings & checking (FAFSA/SAR #41)
If negative, enter zero. 2,500
46. Net worth of investments*
30. Income earned from work (FAFSA/SAR #39) 2,500 (FAFSA/SAR #42)
0
31. Taxable Income If negative, enter zero +
(If tax filer, enter the amount from line 29 above. 2,500 +
If non-tax filer, enter the amount from line 30.) 47. Net worth of business and/or investment farm
0 (FAFSA/SAR #43)
32. Total untaxed income and benefits 2,500
(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)
50. STUDENT’S CONTRIBUTION FROM ASSETS =
34. Total additional financial information −
(Total of FAFSA/SAR #44a. through 44f.)
35. TOTAL INCOME = EXPECTED FAMILY CONTRIBUTION
(line 33 minus line 34) PARENTS’ CONTRIBUTION 830
May be a negative number. (from line 28) 0
ALLOWANCES AGAINST STUDENT INCOME 0 STUDENT’S CONTRIBUTION FROM AI + 830
(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 + 75 51. EXPECTED FAMILY CONTRIBUTION
(Table A7) If negative, enter zero.
(standard contribution for nine-month
38. Social Security tax allowance (Table A2) + 191 enrollment)** If negative, enter zero. =
39. Income protection allowance
+ 6,400
40. Allowance for parents’ negative Adjusted + 0 *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
line 25 as a positive number in line 40. next page.
If line 25 is zero or positive, enter zero in Note: Do not complete the shaded areas;
line 40.) asset information is not required in the
simplified formula.
41. TOTAL ALLOWANCES = 6,666
STUDENT’S CONTRIBUTION FROM INCOME
Total income (from line 35) 2,500
Total allowances (from line 41) − 6,666
42. Available income (AI) = -4,166
43. Assessment of AI × .50
44. STUDENT’S CONTRIBUTION FROM AI = 0
If negative, enter zero.
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Lesson 4: Recalculating the EFC
Learning Objectives Quick Review
After completing this lesson
you will understand: During Lessons 2 and 3, you were introduced to the three models of the
• How to recalculate the formula used to calculate the expected family contribution (EFC) and
identified which model (Model A, B, or C) should be used. Income, asset,
EFC for enrollment and other family information collected on the Free Application for Federal
periods other than nine Student Aid (FAFSA) form the basis of the EFC calculation.
months; and
• Approaches for The EFC formula uses dependency status as a distinguishing
calculating the EFC for characteristic. If a student is dependent, the formula assumes
summer periods of the student will receive parental support. Therefore, information
enrollment. is collected from both the parents and the student, and the EFC
is comprised of both the parents’ contribution (PC) and the student’s
Key Concepts contribution (SC). If a student is independent, income and asset
The key concepts you will information is only evaluated for the student and spouse (if married), and
learn in this lesson: the EFC includes only a SC. The EFC calculation is based upon nine
• Dependency status; months of enrollment.
• Simplified formulas; Regular Formula
• Proration;
Under the regular, formula, a student’s EFC is calculated using both
• Alternate EFC; income and asset information.
• Double counting; and
Simplified Formulas
• Rounding.
Federal Methodology (FM) recognizes that the circumstances of certain
Resources for applicants do not warrant the use of the regular formula. These students
This Lesson have their EFCs calculated using a simplified formula.
• Worksheets and tables Key Aspects to Remember
from The EFC Formula,
2016–2017 The simplified formulas consist of an Automatic Zero EFC and
Simplified Needs Test (SNT). Neither formula considers assets
• Calculating Summer in the calculation of a student’s EFC. Applicants who meet
Expected Family certain criteria will receive an automatic zero EFC instead of
Contributions handout having the formula calculate an EFC. Students who come from a family
with a moderate income level have their EFC calculated using the SNT,
• Lesson 4 Glossary which excludes the value of assets that otherwise would have been
included in the calculation.
Icons
You will see the following Recalculating and Prorating the EFC
icons in Lesson 4:
What is proration? Proration is literally the dividing, assessing,
• Key concept or distribution of something proportionately. In this case, the
EFC is being divided, assessed, or distributed proportionately to
• Quick quiz a student’s actual enrollment.
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• Learning activity For more information, refer to excerpts from The 2016–2017
• Helpful hint EFC Formula Guide included on pages 115 to 117, as well as
the full version on the Information for Financial Aid Professionals
(IFAP) website at www.ifap.ed.gov.
“Proration is literally the dividing,
assessing, or distribution of
something proportionately.”
Criteria for Prorating the EFC
Both the regular and simplified formulas result in an EFC that is based
upon a standard nine-month period of enrollment. However, sometimes
students enroll for a period other than nine months. A student’s EFC is
prorated when he is enrolled for less than nine months or more than nine
months. Some students enter school during the spring semester, others
graduate during the fall semester, and still others make the decision to
attend school year round.
Why is it necessary that the EFC be prorated if a student is attending less
than or more than nine months? The basic formula for determining
financial need is:
Cost of attendance (COA)
– Expected family contribution (EFC)
= Financial need
Usually, cost of attendance (COA) and EFC are based upon a nine-month
period of enrollment. As a result, so is financial need. Adjustments to all
three components—COA, EFC, and financial need—are necessary to
ensure the most accurate financial picture possible for students.
This adjustment is required for all Title IV programs other than
the Federal Pell Grant and the Iraq and Afghanistan Service
Grant (IASG) programs. Schools always use a nine-month EFC
to determine a student’s Scheduled Award for the Federal Pell
Grant and the IASG programs. The EFC is never prorated for purposes of
determining eligibility for these grants, even if a student is enrolled for a
period other than nine months. For other programs, such as the campus-
based and Federal Direct Student Loan (Direct Loan) programs, the EFC
needs to be prorated to reflect the number of months a student will
actually be enrolled.
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Alternate EFC Addressing Double Counting. The student’s
contribution for dependent and independent
When it processes a FAFSA, the Central students remains the same for periods of
Processing System (CPS) calculates enrollment more than nine months. The parents’
alternate EFCs for the number of months contribution must be adjusted for periods of
a student could be enrolled during an enrollment less than or more than nine months.
award year—that is, 1 through 12 months. Alternate This speaks to the necessity of prorating correctly.
EFCs covering periods of enrollment other than
nine months appear in the “Only for Use by Refer to the Calculating Summer Expected
Financial Aid Office” section of the Student Aid Family Contributions handout included in
Report (SAR) and the “FAA Information” section of this lesson on page 115 for more
the Institutional Student Information Report (ISIR). information on avoiding double counting.
Although a school has the option to use the
alternate EFC from the student’s ISIR or SAR Rounding
corresponding to the number of months the student
will be enrolled, the use of an alternate EFC for a Rounding when calculating the EFC is
summer enrollment period may result in double very different from when you use rounding
counting the student contribution portion of the for the return of Title IV funds, as an
EFC. example. An EFC is calculated only for
periods of enrollment expressed as full months. In
“The student’s contribution for some cases, a student’s period of enrollment may
not correspond neatly to a monthly format. For
dependent and independent example, a student may be enrolled for 10 weeks
during the summer. Per verbal guidance from the
students remains the same U.S. Department of Education (ED), schools can
round the number of months of enrollment either up
for periods of more than nine or down, so long as schools do not exceed the 12-
month EFC in a 12-month period. So, in this case,
months. The parents’ contribution a school may treat a 10-week summer session as
either two or three months in length.
must be adjusted for periods
of enrollment less than or
more than nine months.”
Double Counting of the EFC
Double counting of the student’s
contribution to the EFC can occur when
the EFC is not properly adjusted for her
period of enrollment, such as for 3
months, 4 months, or 12 months.
Occurrence of Double Counting. Double counting is
likely to occur when an alternate EFC is used in
addition to the nine-month EFC. When this is done,
a student’s contribution is counted twice. The result
is an inflated EFC.
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Quick Quiz
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 123.
1. _________________ is the dividing, assessing, and distribution of the expected family contribution. (fill
in the blank)
2. The EFC must be prorated if a student is enrolled for periods less than or greater than
_________________ months. (fill in the blank)
3. The student contribution remains unchanged for periods of enrollment of more than nine months.
True
False
4. For periods of enrollment that do not fit evenly into a monthly format, ED guidance states that a school
can round the number of months in the enrollment period up or down.
True
False
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Learning Activity: Evaluating When Proration is Needed
In the following scenarios, indicate if you believe proration of the EFC is necessary and why.
Check your answers using the key on page 124.
1. Miracle finishes high school in December and decides she would like to start college immediately, during
the spring semester. Miracle was already accepted for admission, but everything was set for the
following fall. She spoke with an admissions counselor and she can begin attending as a regular student
early.
Yes, proration is necessary.
No, proration is not necessary.
Why?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
2. Philip is a senior in college and realizes he needs two more classes to graduate. Those courses are only
offered during the summer term. He already has a full fall and spring schedule. He has notified the Office
of the Registrar and updated his application for graduation. He also contacts the Office of Financial Aid to
inquire about additional funding.
Yes, proration is necessary.
No, proration is not necessary.
Why?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
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Enrollment Periods Less than Add the Contributions. In this final step, add the
Nine Months prorated PC and the prorated SC from available
income, and then add the student’s contribution
As mentioned earlier, the EFC for a student must from assets (which is not prorated). This will
be prorated for periods of enrollment less than or provide the new EFC for the student’s period of
more than nine months. This is to prevent double enrollment that is less than nine months.
counting of the student’s contribution and to ensure
an EFC is not inflated for an enrollment period. The Simplified Formula. The proration of the EFC for
steps taken to recalculate the EFC vary based students evaluated using the simplified formula is
upon the dependency status of the student as well nearly identical to prorating the EFC for students
as the formula (regular or simplified) used. We will using the regular formula. What is the difference?
begin our discussion with dependent students. Assets are not included in the EFC calculation
using the simplified formula, therefore, once the
Dependent Students prorated PC and the prorated SC from available
income are added, you stop.
Prorating the EFC for a dependent student whose
EFC was initially calculated using the regular “As mentioned earlier, the EFC
formula (income and assets included) involves:
for a student must be prorated for
• Recalculation of the parents’ contribution;
periods of enrollment less than or
• Recalculation of the student’s contribution from
available income; and then more than nine months. This is to
• Adding the results to the student’s contribution prevent double counting of the
from assets to obtain the EFC.
student’s contribution and to
Refer to The EFC Formula, 2016–2017
excerpt on pages 115 and 116. ensure an EFC is not inflated
Recalculating the Parents’ Contribution. The first for an enrollment period.”
step in the process involves dividing the nine-month
PC by nine. This provides the PC for one month of Independent Students
enrollment. Next, multiply the PC for one month by
the number of months the student will be enrolled. Prorating the EFC for independent students whose
For example, if a student’s enrollment period EFC was initially calculated based upon a nine-
begins on September 1, and the student anticipates month period of enrollment involves fewer steps.
graduating in December, the PC for one month Income and assets are treated equally when
would be multiplied by four. Completing these steps prorating the EFC for independent students
will provide the parents’ contribution for the enrolled less than nine months, so you simply
student’s period of enrollment. prorate the student’s total EFC. The steps are the
same whether or not the EFC was initially
Recalculating the Student’s Contribution from calculated using the regular or simplified formula.
Available Income. Begin this step with dividing the
nine-month SC from available income by nine. This Recalculating the Student’s EFC. Begin this step
provides the SC from available income for one with dividing the student’s nine-month EFC by nine.
month of enrollment. Next, multiply the SC from This provides the EFC for one month of enrollment.
available income for one month by the number of Next, multiply the EFC for one month by the
months of enrollment. Completing these steps will number of months of enrollment. Completing these
provide the student’s contribution from available steps will provide the student’s EFC for the period
income for the period of enrollment. of enrollment.
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Learning Activity: Calculating the EFC for Periods Less Than
Nine Months
In the following scenario, use the information provided to calculate the expected family
contribution for Lydia, who will be enrolled for six months. She does not qualify for the use of a
simplified formula. Use the appropriate tables from The EFC Guide, 2016–2017 on page 115.
Standard rounding rules apply. Check your answers using the key on page 125.
1. Lydia, a dependent student, has decided to enroll for the summer term. The institution treats the
summer term as a “header”. The summer term lasts nine weeks. The institution equates nine weeks
to two months. In addition to attending summer, Lydia will enroll during the fall term, which begins in
early September, and plans to graduate in December. Lydia’s EFC must be recalculated based on her
early graduation date. Some information is prepopulated in the table below to assist in the calculation.
Calculation of Parents’ Contribution for a Student Enrolled LESS than Nine Months
A1. Parent’s contribution 9,595
(standard contribution for nine-month enrollment, from line 28)
A2. Divide by 9 ÷9
A3. Parents’ contribution per month =
A4. Multiply by number of months of enrollment ×
A5. Parents’ contribution for LESS than nine-month enrollment =
Calculation of Student’s Contribution from Available Income (AI) 938
for a Student Enrolled LESS than Nine Months
C1. Student’s contribution from AI
(standard contribution for nine-month enrollment, from line 44)
C2. Divide by 9 ÷9
C3. Student’s contribution from AI per month =
C4. Multiply by number of months of enrollment ×
C5. Student’s contribution from AI for LESS than nine-month enrollment =
Calculation of Total Expected Family Contribution
for a Student Enrolled LESS than Nine Months
Parents’ contribution for LESS than nine-month enrollment (from A5) =
Student’s contribution from AI for LESS than nine-month enrollment (from C5) +
Student’s contribution from assets (from line 50) + 527
Total EFC for LESS than Nine-Month Enrollment =
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Enrollment Periods Greater Next, subtract the standard PC for nine-month
than Nine Months enrollment from the alternate parents’ contribution
calculated above. Divide the result by 12 months to
It is important to note that the student’s contribution get the one-month parents’ contribution. Multiply
to the EFC does not change for enrollment periods this number by the months of enrollment that
of more than nine months. This means, no exceed nine to get the adjustment to the PC for
adjustment is needed for independent students enrollment periods greater than nine months.
enrolled for a period longer than nine months.
Add the adjustment amount to the standard
Dependent Students parents’ contribution for nine-month enrollment.
This provides the total parents’ contribution for a
Recalculating the Parents’ Contribution. The first period of enrollment more than nine months. Add
step in calculating the parents’ contribution for a the total PC for more than nine months to the total
student enrolled more than nine months is to start student’s contribution from available income for a
with the parent’s adjusted available income (AAI) standard nine-month period of enrollment. When
from line 25 of the Model A worksheet. This is using the regular formula for dependent students,
derived from calculating the EFC. also add the student’s contribution from assets to
get the EFC.
The next step is to add 4,940 (this is the difference
between the income protection allowance for a Complete the learning activity on the following page
family of four and a family of five, with one in for practice in applying these steps to calculate the
college) to the AAI. This provides the alternate AAI parents’ contribution and EFC for enrollment
for the parents. periods longer than nine months.
“It is important to note
that the student contribution
to the EFC does not change
for enrollment periods
of more than nine months.
This means, no adjustment is
needed for independent students
enrolled for a period
longer than nine months.”
Then, calculate the total PC from alternate AAI
using Table A6 from The EFC Formula, 2016–
2017. Divide the result by the number of students in
college, which you can find on the student’s ISIR.
The result is the alternate parents’ contribution for
the student.
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Learning Activity: Calculating the EFC for Periods More Than
Nine Months
In the following dependent student scenario, use the information provided to calculate the
expected family contribution for Franco, who will be enrolled for 11 months. Use Table A6 from
The EFC Formula, 2016–2017 on page 117. Standard rounding rules apply. Check your answers
using the key on page 126.
2. Franco has decided to enroll for the summer term, which lasts nine weeks. Franco’s institution equates
the nine weeks to two months. His EFC is calculated using the regular formula, so assets are included.
Franco’s older sister Linda is also enrolled in college. The total household size is four, including
Franco’s parents. Some information is prepopulated in the table below to assist in the calculation.
Calculation of Parents’ Contribution for a Student Enrolled MORE than Nine Months
B1. Parents’ Adjusted Available Income (AAI) (from line 25) + 53,395
= 4,940
B2. Difference between the income protection allowance for a
family of four and a family of five, with one in college
B3. Alternate parents’ AAI for more than 9-month enrollment (B1 + B2)
B4. Total parents’ contribution from alternate AAI (calculate using Table A6)
B5. Number in college ÷
B6. Alternate parents’ contribution for student (B4 ÷ B5) =
B7. Standard parents’ contribution for the student for 9-month enrollment – 9,595
(from line 28) =
B8. Difference (B6 ̶ B7)
B9. Divide line B8 by 12 months ÷ 12
B10. Parents’ contribution per month =
B11. Number of months student will be enrolled that exceed 9 ×
B12. Adjustment to parents’ contribution for months that exceed 9 (B10 x B11) =
B13. Standard parents’ contribution for 9-month enrollment + 9,595
B14. Parents’ contribution for MORE than 9-month enrollment =
Student’s contribution from available income for 9-month enrollment + 333
(from line 44)
Student’s contribution from assets for 9-month enrollment (from line 50) + 17
Total EFC for MORE than Nine-Month Enrollment =
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Calculating EFCs for Summer Additional Approaches to Calculating
Periods of Enrollment the Summer EFC
Many schools offer classes during a summer term As we pointed out earlier, the student contribution
in which students can enroll. This is often an for both dependent and independent students is not
optional term for students and as such, it is not adjusted for enrollment periods more than nine
anticipated when looking at a student’s EFC for the months. The nine-month student contribution is
year, nor is it considered when initially packaging used for any enrollment period that is nine to 12
the student. months long. For a student enrolled during the
regular academic year and the summer, this can
Summer Packaging General Rules result in a portion of the student’s contribution being
double counted if the school packages summer
When awarding aid for the summer, the first separately from the regular academic year and
consideration is the award year from which the uses an alternate EFC in addition to the nine-month
student will be awarded. Once the school decides EFC.
this, it can prorate the EFC for the summer period
of enrollment. “When awarding aid for the
Since an institution always uses a nine-month EFC summer, the first consideration
to determine a student’s Scheduled Award for the
Federal Pell Grant and IASG programs, a student’s is the award year from which
EFC is not prorated to determine his Federal Pell
Grant or IASG award. For the other programs, such the student will be awarded.
as the campus-based and Federal Direct Student
Loan (Direct Loan) programs, the EFC may need to Once the school decides this,
be prorated to reflect the number of months a
student will actually be enrolled. it can prorate the EFC for the
As discussed earlier, the ISIR lists alternate EFCs summer period of enrollment.”
by corresponding months of enrollment, which can
be helpful in some situations. Unfortunately, the For example, suppose Ralph decides in April to
length of a summer term may not be equivalent to attend the upcoming three-month summer term,
the weeks in a specific number of months. As and the school’s policy for packaging summer is to
mentioned earlier, there are numerous formats use the prior award year’s EFC. Ralph’s nine-
institutions can use to define a term. Some of these month student contribution is $900 and his
fit neatly into a monthly format, others do not. alternate three-month EFC is $300. In this example,
had the school used the 12-month alternate EFC
If the only term in which a student will enroll during and packaged the summer period together with the
the award year is the summer term, it is appropriate regular academic year, Ralph’s correct student
to use the alternate EFC from the ISIR that contribution for the 12-month period would be $900.
matches the number of months in the summer However, if the school packaged the summer
term. If a student will be enrolled in all or part of the period separately from the regular academic year,
regular academic year in addition to the summer, Ralph’s student contribution for the 12-month
schools may either offer aid for the entire award period would be $1,200. That is, the nine-month
year at one time using the appropriate alternate student contribution of $900 plus the three-month
EFC, or package the summer and the academic student contribution of $300 equals $1,200. This
year separately. Each packaging approach has would double count a portion of the student’s
different impacts on the proration of the EFC. contribution, since only a nine-month student
contribution is supposed to be used.
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To avoid double counting the student’s contribution during the award year. The result is the summer
when summer is packaged separately from the EFC.
regular academic year, there are two other
approaches schools may use as standard For example, Bobbi is enrolled for summer. Her
packaging policy for both dependent and total enrollment is 12 months. Her alternate EFC for
independent students. These are the Alternate EFC a 12-month enrollment is 10,542. The EFC that
Approach and the Monthly EFC Share Approach. corresponds to her total fall through spring
enrollment is 10,230. If you subtract 10,230 from
Refer to page 119, Calculating Summer 10,542, Bobbi’s summer EFC is 312. Remember,
Expected Family Contributions, for the this does not make Bobbi eligible for any additional
following discussion of the two Federal Pell Grant because Pell eligibility is
approaches to calculating the EFC for a calculated based upon the full-time, nine-month
summer term. COA.
Alternate EFC Approach. This approach begins by Now, let’s look at the process if summer is the first
determining the total number of months a student term in the award year—that is, a header. The
will be enrolled during the award year. The process school packages for summer using the alternate
differs slightly depending upon if summer is EFC corresponding to the number of months in the
considered the last term in your school’s award summer period. Later, when packaging the student
year or the first term in your school’s award year. for the regular academic year, the school calculates
These are sometimes referred to as a “trailer” or a the EFC for the regular academic year period by
“header,” respectively. Let’s start with the process if subtracting the alternate EFC used for the summer
summer is the last term in the award year. from the alternate EFC that corresponds to the total
number of months the student will be enrolled
“If the only term in which during the regular academic year. This will provide
the regular academic year EFC.
a student will enroll during the
For example, Troy is enrolled in the summer period,
award year is the summer term, which is one-month long. It is the first term in his
school’s academic year. The regular academic year
it is appropriate to use the consists of the fall, winter, and spring quarters, and
it is nine months in length. The alternate EFC that
alternate EFC from the ISIR corresponds to his total period of enrollment, 10
months, is 7,543. The alternate EFC that
that matches the number of corresponds to the total months in summer is 326
for one month. Subtract 326 from 7,543 to get the
months in the summer term.” fall through spring EFC of 7,217.
If you recall, an ISIR not only provides the nine- Monthly EFC Share Approach. The purpose of the
month EFC, but it also provides alternate EFCs for monthly EFC share approach is to calculate the
different periods of enrollment. In this case, since monthly share of the student’s EFC applicable to
summer is the last term in the award year, refer to the student’s period of enrollment. It can be used
the alternate EFC that corresponds with the regardless of whether the summer is the first or the
student’s total enrollment. For example, this may be last term of the award year.
10, 11, or 12 months, depending on the length of
the summer term. Subtract the EFC that Under this approach, the alternate EFC that
corresponds to the total months in fall and spring corresponds to the total period of enrollment is
from the alternate EFC that corresponds to the divided by the total number of months a student is
number of months the student will be enrolled enrolled in an award year.
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Monthly = Alternate EFC
Share Total months enrolled
The summer EFC is calculated by taking the
monthly share of the EFC and multiplying it by the
number of months a student is enrolled in the
summer term.
Number of
Monthly X months = Summer
Share enrolled in EFC
summer
Likewise, the fall through spring EFC equals the
monthly share multiplied by the number of months
a student is enrolled in the fall through spring
terms.
Fall- = Monthly X Number of
Spring Share months
EFC enrolled fall
through
spring
You may find that the two approaches give you
different answers. The guidance from ED is that
schools can pick which approach to use. Of course,
many schools have software that can assist in the
calculations and adjustments covered in this
lesson. However, it is important to understand the
components of need analysis and the formulas to
see how all the pieces fit together.
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Note: Use this additional page to prorate the EFC only if the student will be enrolled for other than nine months and only to determine
the student’s need for Campus-Based aid or a Federal Direct Subsidized Loan. Do not use this page to prorate the EFC for a Federal
Pell Grant or TEACH Grant. The EFC for the Federal Pell Grant Program is the nine-month EFC used in conjunction with the cost
of attendance to determine a Federal Pell Grant award from the Payment or Disbursement Schedule.
AREGULAR
WORKSHEET
Page 3
Calculation of Parents’ Contribution for a Student Enrolled LESS than Nine Months
A1. Parents’ contribution
(standard contribution for nine-month enrollment, from line 28)
A2. Divide by 9 ÷9
A3. Parents’ contribution per month =
A4. Multiply by number of months of enrollment ×
A5. Parents’ contribution for LESS than nine-month enrollment =
Calculation of Parents’ Contribution for a Student Enrolled MORE than Nine Months
B1. Parents’ Adjusted Available Income (AAI) (from line 25—may be a negative number)
B2. Difference between the income protection allowance for a family of four and a family of five, + 4,940
with one in college = 12
B3. Alternate parents’ AAI for more than nine-month enrollment (line B1 + line B2)
B4. Total parents’ contribution from alternate AAI (calculate using Table A6)
B5. Number in college (FAFSA/SAR #74) ÷
B6. Alternate parents’ contribution for student (line B4 divided by line B5) =
B7. Standard parents’ contribution for the student for nine-month enrollment (from line 28) −
B8. Difference (line B6 minus line B7) =
B9. Divide line B8 by 12 months ÷
B10. Parents’ contribution per month =
B11. Number of months student will be enrolled that exceed 9 ×
B12. Adjustment to parents’ contribution =
for months that exceed nine (multiply line B10 by line B11)
B13. Standard parents’ contribution +
for nine-month enrollment (from line 28)
B14. Parents’ contribution for MORE than nine-month enrollment =
Calculation of Student’s Contribution from Available Income (AI) for a Student Enrolled LESS than Nine Months*
C1. Student’s contribution from AI
(standard contribution for nine-month enrollment, from line 44)
C2. Divide by 9 ÷9
C3. Student’s contribution from AI per month =
C4. Multiply by number of months of enrollment ×
C5. Student’s contribution from AI for LESS than nine-month enrollment =
*For students enrolled more than nine months, the standard contribution from AI is used (the amount from line 44).
Use next page to calculate total EFC for enrollment periods other than nine months
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AREGULAR
WORKSHEET
Page 4
Calculation of Total Expected Family Contribution for Periods of Enrollment Other than Nine Months
Parents’ Contribution—use ONE appropriate amount from previous page:
• Enter amount from line A5 for enrollment periods less than nine months OR
• Enter amount from line B14 for enrollment periods greater than nine months
Student’s Contribution from Available Income—use ONE appropriate amount from previous page: +
• Enter amount from line C5 for enrollment periods less than nine months OR
• Enter amount from line 44 for enrollment periods greater than nine months
Student’s Contribution from Assets +
• Enter amount from line 50
Expected Family Contribution for periods of enrollment other than nine months =
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Table A5: Parents’ Education Savings and
Asset Protection Allowance
for EFC Formula A Worksheet (parents only)
Age of older Allowance if Allowance if Age of older Allowance if Allowance if
parent as of there are two there is only parent as of there are two there is only
12/31/2016* one parent 12/31/2016* one parent
parents** parents**
25 or less $0 46 $9,000
26 $0 500 47 $17,800 9,200
27 1,000 1,100 48 18,300 9,400
28 2,100 1,600 49 18,700 9,700
29 3,100 2,100 50 19,200 9,900
30 4,100 2,600 51 19,700 10,100
31 5,200 3,200 52 20,200 10,400
32 6,200 3,700 53 20,700 10,600
33 7,200 4,200 54 21,300 10,900
34 8,300 4,700 55 21,800 11,100
35 9,300 5,300 56 22,400 11,400
36 10,300 5,800 57 23,000 11,700
37 11,400 6,300 58 23,700 12,000
38 12,400 6,800 59 24,300 12,300
39 13,400 7,400 60 25,000 12,600
40 14,500 7,900 61 25,700 12,900
41 15,500 8,100 62 26,400 13,200
42 15,900 8,300 63 27,200 13,600
43 16,300 8,500 64 27,900 13,900
44 16,600 8,600 65 or older 28,800 14,300
45 17,000 8,800 empty 29,600 empty
17,400 empty
Determine the age of the older parent listed in FAFSA/SAR #64 and #68 as of 12/31/2016.
If no parent date of birth is provide, use age 45.
** Use the two parent allowance when the Parents’ Marital Status listed in FAFSA/SAR #59 is
“married or remarried” or “unmarried and both parents are living together.”
Table A6: Parents’ Contribution from AAI
If the parents’ AAI— Then the parents’ contribution from AAI is—
Less than -$3,409 -$750
$-3,409 to $15,900 22% of AAI
$15,901 to $20,000 $3,498 + 25% of AAI over $15,900
$20,001 to $24,100 $4,523 + 29% of AAI over $20,000
$24,101 to $28,200 $5,712 + 34% of AAI over $24,100
$28,201 to $32,200 $7,106 + 40% of AAI over $28,200
$32,201 or more $8,706 + 47% of AAI over $32,200
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Calculating Summer Expected Family Contributions (EFCs)
Summer Packaging General Rules
• The institution decides the award year from which the student will be awarded for the summer.
• The EFC used to award campus-based and Federal Direct Student Loans (Direct Loans) must reflect the
number of months the student actually will be enrolled.
• If summer is the only period the student is attending, use the appropriate alternate EFC value from the
student’s Institutional Student Information Record (ISIR) that corresponds to number of months in the
summer term.
• If packaging for entire award year, use the appropriate alternate EFC that corresponds to total number of
months in student’s enrollment period.
• If packaging for the summer separately from the regular academic year (e.g., fall through spring), use of
the alternate EFC in addition to the nine-month EFC could result in double counting the student’s
contribution.
Additional Approaches to Calculating the Summer EFC
To avoid double counting the student’s contribution when summer is packaged separately from the regular
academic year, there are two other approaches schools may use as standard packaging policies for both
dependent and independent students.
Alternate EFC Approach
• Determine total number of months student will be enrolled during award year.
• If summer is last term in award year:
Alternate EFC corresponding to total months enrolled
– 9-month EFC corresponding to total months in fall through spring
= Summer EFC
• If summer is first term in award year:
Alternate EFC corresponding to total months enrolled
– Alternate EFC corresponding to total months in summer
= Regular academic year EFC
Monthly EFC Share Approach
• Calculate monthly share of EFC:
Monthly share = Alternate EFC corresponding to total months enrolled in award year
Total months enrolled in award year
Summer EFC = Monthly share X Number of months enrolled in summer.
Fall through spring EFC = Monthly share X Number of months enrolled fall through spring.
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Lesson 4 Glossary
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.
Dependent: A student who does not meet the definition of an independent student as prescribed under section
480(d) of the Higher Education Act of 1965 (HEA), as amended. Also an individual for whom an independent
student will provide more than 50 percent support during the award year.
Double counting: Counting a portion of the student contribution to the EFC more than once. It can occur
when a student’s EFC is not properly adjusted for the period of enrollment.
Enrollment status: A measure of the amount of coursework a student is attempting, usually expressed in
credit or clock hours. Common enrollment statuses include full time, three-quarter time, half time, and less than
half time.
Expected family contribution (EFC): Estimate of a family’s ability to contribute toward postsecondary
educational costs, derived by a formula known as Federal Methodology.
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.
Institutional Student Information Record (ISIR): The electronic record the school receives as the result of
the student listing that school on the FAFSA. If sufficient data is provided to the Central Processing System
(CPS), when the school receives the ISIR, it should contain information about the student’s EFC, verification
selection, database matches, and financial aid history.
Parents’ contribution (PC): The amount the parent(s) of a dependent student are expected to contribute
towards the student’s educational costs for an award year.
Period of enrollment: Except for nonterm programs, the period of time coinciding with an academic term
established by the school for which institutional charges are generally assessed (e.g., semester, trimester,
quarter, length of the student’s program, or academic year).
Proration: The dividing, assessing, and distribution of the EFC to reflect periods of enrollment other than nine
months.
Rounding: The process of adjusting a number up or down, as applicable, to the next whole number or to a
specified number of decimal places. For periods of enrollment that do not equate to whole months, U.S.
Department of Education (ED) guidance allows rounding to calculate an EFC. For example, 2.5 months
becomes either 2 months or 3 months.
Student’s contribution (SC): The amount the student is expected to contribute towards his or her educational
costs for an award year.
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Lesson 4 Answer Keys
Quick Quiz
1. Proration is the dividing, assessing, and distribution of the expected family contribution proportionally.
(fill in the blank)
2. The EFC must be prorated if a student is enrolled for periods less than or greater than nine months.
(fill in the blank)
3. The student contribution remains unchanged for periods of enrollment of more than nine months.
True
False
4. For periods of enrollment that do not fit evenly into a monthly format, ED guidance states that a school
can round the number of months in the enrollment period up or down.
True
False
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Learning Activity: Evaluating When Proration is Needed
1. Miracle finished high school in December and decides she would like to start college immediately,
during the spring semester. Miracle was already accepted for admission, but everything was set for the
following fall. She spoke with an Admissions Counselor and she can begin attending as a regular
student early.
Yes, proration is necessary.
No, proration is not necessary.
Why?
Proration is needed for Miracle because she will only be attending college for the spring and possibly
the summer terms, so her expected family contribution would need to be adjusted to reflect her
enrollment period.
2. Philip is a senior in college and realizes he needs two more classes to graduate. Those courses are
only offered during the summer term. He already has a full fall and spring schedule. He has notified the
Office of the Registrar and updated his application for graduation. He also contacts the Office of
Financial Aid to inquire about additional funding.
Yes, proration is necessary.
No, proration is not necessary.
Why?
Proration is also needed for Philip. He will be enrolled for more than nine months.
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Learning Activity: Calculating the EFC for Periods Less Than Nine Months
Calculation of Parents’ Contribution for a Student Enrolled LESS than Nine Months
A1. Parent’s contribution 9,595
(standard contribution for nine-month enrollment, from line 28)
A2. Divide by 9 ÷9
A3. Parents’ contribution per month = 1,066
A4. Multiply by number of months of enrollment ×6
A5. Parents’ contribution for LESS than nine-month enrollment = 6,396
Calculation of Student’s Contribution from Available Income (AI)
for a Student Enrolled LESS than Nine Months
C1. Student’s contribution from AI (standard contribution for nine-month enrollment) 938
C2. Divide by 9 ÷9
C3. Student’s contribution from AI per month = 104
C4. Multiply by number of months of enrollment ×6
C5. Student’s contribution from AI for LESS than nine-month enrollment = 624
Calculation of Total Expected Family Contribution = 6,396
for a Student Enrolled LESS than Nine Months + 624
Parents’ Contribution for LESS than nine-month enrollment (from A5)
Student’s Contribution from AI for LESS than nine-month enrollment (from C5)
Student’s Contribution from assets (from line 50) + 527
Total EFC for LESS than Nine-Month Enrollment = 7,547
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Learning Activity: Calculating the EFC for Periods More Than Nine Months
Calculation of Parents’ Contribution for a Student Enrolled MORE than Nine Months
B1. Parents’ Adjusted Available Income (AAI) (from line 25) 53,395
B2. Difference between the income protection allowance for a + 4,940
family of four and a family of five, with one in college
B3. Alternate parents’ AAI for more than 9-month enrollment (B1 + B2) = 58,335
B4. Total parents’ contribution from alternate AAI (calculate using Table A6). 20,989
B5. Number in college ÷2
B6. Alternate parents’ contribution for student (B4 ÷ B5) = 10,495
B7. Standard parents’ contribution for the student for 9-month enrollment – 9,595
(from line 28)
B8. Difference (B6 ̶ B7) = 900
B9. Divide line B8 by 12 months ÷ 12
B10. Parents’ contribution per month = 75
B11. Number of months student will be enrolled that exceed 9 ×2
B12. Adjustment to parents’ contribution for months that exceed 9 (B10 x B11) = 150
B13. Standard parents’ contribution for 9-month enrollment + 9,595
B14. Parents’ contribution for MORE than 9-month enrollment = 9,745
Student’s contribution from available income for 9-month enrollment + 333
(from line 44)
Student’s contribution from assets for 9-month enrollment (from line 50) + 17
Total EFC for MORE than Nine-Month Enrollment = 10,095
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Lesson 5: Institutional Methodology
(IM)
Learning Objectives Introduction
After completing this lesson, Lessons 2 and 3 discussed the regular and simplified formulas of the
you will: Federal Methodology (FM) used to calculate a student’s expected family
contribution (EFC) for purposes of making awards from the federal
• Identify the principles of student aid programs. Lesson 4 also reviewed recalculations involving
IM and why schools use the various FM formulas.
it;
This lesson will move the discussion beyond the federal need analysis
• Understand the various calculations and into the area of institutional methodology (IM) used by
IM data elements and many schools to calculate eligibility for nonfederal, institutional student
how schools might use financial aid funds. We will review the IM calculation developed by the
them; and College Board, as well as discuss other IM variations that may also be
used for awarding nonfederal institutional financial aid funds.
• Recognize the differences
between the FM and IM Principles of IM
calculations of the EFC.
In Lesson 1, we pointed out a number of principles that are
Key Concepts reflected in the need analysis for the federal student financial
aid programs. Those same principles, which apply to the FM,
The key concepts you will also apply to the IM. As a reminder, those principles are:
learn in this lesson:
1. Parents and students have the primary responsibility for meeting
• Principles of IM; postsecondary education costs.
• Financial need; 2. The distribution of financial aid resources should be based on the
family’s ability to pay, not willingness to pay.
• Parents’ total income;
3. The assessment of a family’s ability to pay should be independent of
• Parents’ standard the amount of financial aid available and the cost of attending
allowances against postsecondary school.
income;
4. There should be horizontal equity (also referred to as equity across
• Total parent contribution the board) in the distribution of limited financial aid resources. That is,
from income; families in similar circumstances with similar resources should be
expected to make similar contributions.
• Parents’ total net worth;
5. Families in different circumstances should be expected to make
• Parents’ asset contributions appropriate to their financial resources. This is known
allowances; as vertical equity, and sometimes is referred to as leveling the playing
field.
• Parent contribution from
assets; 6. The need analysis formula should provide a “snapshot” of the family’s
financial circumstance at the time of application.
• Total parent contribution;
7. The need analysis results are a benchmark. As such, the final
• Family members in assessment of the family’s ability to contribute to the student’s
college; postsecondary education costs is subject to the professional
judgment of the financial aid administrator.
• Dependent student’s total
income;
• Dependent student’s
income allowances;
© 2016 NASFAA Need Analysis: Lesson 5 127
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• Dependent student’s The chart, Underlying Principles of Need Analysis, is included in
contribution from income; Lesson 1 for ease of reference.
• Dependent student So, if the principles are the same, why have two different methodologies
contribution from assets; for need analysis? Why is IM necessary?
• Total dependent student The primary reason is that many financial aid administrators believe the
contribution; IM is a more thorough and accurate assessment of a family’s ability to
contribute toward educational costs and, therefore, a better way to
• Dependent student’s total distribute institutional resources (i.e., grants, scholarships, and loans)
family contribution; among eligible students. This is because IM considers a more robust set
of data than is considered under FM, which allows IM to explore more
• Independent student’s fully the family’s financial strength and capabilities.
total income;
Factors that may be considered in using IM include, but are not limited to,
• Independent student’s the following:
allowances against
income; • The institution’s mission and enrollment goals;
• The desire to distribute institutional resources more accurately;
• Independent student’s
total net worth; • The impact of student financial aid on student access, enrollments,
and retention;
• Total independent student
contribution; and • Competition among peer institutions and resources available to
recruit qualified students; and
• Institutional IM choices.
• Limited institutional resources available to assist in meeting students’
Resources for financial need.
This Lesson
Under IM, the basic need analysis formula for determining
• Formula Differences: financial need remains the same:
Federal Methodology vs.
Institutional Methodology Cost of attendance (COA)
– Expected family contribution (EFC)
• Lesson 5 Glossary
= Financial need
Icons
You will see the following The COA components are outlined in the Overview of the
icons in Lesson 5: Financial Aid Programs Self-Study Guide. Details on COA
construction may be found in NASFAA Monograph 24—
• Key concept Developing the Cost of Attendance—under Tools & Resources
at http://www.nasfaa.org.
• Quick quiz
The difference between the FM and the IM is in the calculation of the
• Reflection questions EFC. Those data elements, which represent differences between FM and
IM, are highlighted in yellow throughout the following discussions.
• Learning activity
• Helpful hint
A complete FM versus IM side-by-side comparison is included
on page 145.
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Like the EFC calculated under the FM, the EFC rental, and other taxable income values are
under the IM calculation uses an assessment of positive.
available student and parent income and assets.
Unlike the FM, the IM does not use either the Additionally, a set of income exclusions similar to
Simplified Needs Test or the Automatic Zero EFC those considered under FM, such as prior-year
calculations, which were described in Lesson 3. student Federal Work-Study earnings and taxable
combat pay, are also allowed under the IM
Dependent Student Family calculation of total income.
Contribution under IM
Parents’ Standard Allowances Against
Parent Contribution from Income Income. Under IM, the allowances against
income include the following
Parent’s Total Income. Like the FM nondiscretionary expenses incurred by
formula, the IM formula for a dependent the parents:
student’s parents includes a calculation of
total income, which heavily relies on the • U.S income tax paid;
parents’ adjusted gross income (AGI) and taxable
income. That IM calculation is: • State and local taxes (income, sales, and
property);
Adjusted gross income (AGI)/
taxable income • Social Security taxes (FICA);
+ Untaxed income • Income Protection Allowance (IPA);
+ Business, rental, and other taxable
• An employment expense allowance;
losses
– Income exclusions • Annual Education Savings Allowance (AESA);
= Total parents’ income • A medical and dental expense allowance;
IM collects all the same types of untaxed income • A secondary and/or elementary tuition paid
that FM does (e.g., child support received, tax- allowance, at the option of the institution; and
deferred payments to pension and savings plans,
tax exempt interest) plus additional untaxed income • Education tax credits, at the option of the
items such as untaxed Social Security benefits, institution.
foreign income exclusion, flexible spending
benefits, etc. State and Local Tax Allowance. The IM state and
local tax rates (including income, sales, and
Unlike the FM formula, IM does not allow certain property taxes) vary by income and are therefore
business, rental, and other taxable losses, which somewhat more generous than the FM rates. The
are otherwise allowed under the U.S. tax code. FM rates, which are based on Schedule A of the
Many types of business, rental, or other taxable federal tax return, do not include sales taxes and
losses are considered to be “paper” losses and not include only two income bands (less than $15,000
actual losses of income. As such, they do not and $15,000 or more). In an example provided by
impact a family’s ability to contribute toward the College Board for New York state residents, the
educational costs. Such business, rental, and other 2016-17 IM rates ranged between 9 and 11.5
taxable losses are added back into the calculation percent (across 16 income bands); the same rates
of the parent’s total income under IM. These losses were only between 8 and 9 percent under FM.
are added back in at their absolute values—that is,
negative values are not subtracted from positive Income Protection Allowance (IPA). Like FM, under
values. Nothing is added back in if the business, IM, there is a standard income protection
allowance. The IPA represents the point of zero
contribution, below which the family has no
discretionary income left to cover postsecondary
educational expenses. The IPA does not represent
the exact amount of money required by most
© 2016 NASFAA Need Analysis: Lesson 5 129
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families to cover their living expenses; it is simply Medical and Dental Expense Allowance. Under FM,
an assessment of a base level of living expenses the financial aid administrator must exercise
based on the family’s size and number in college. professional judgment (PJ) to include unusually
Under FM, these living expense allowances are high medical and dental expenses. Under IM, there
based on 1967 Bureau of Labor Statistics (BLS) is a medical and dental expense allowance to
data which is updated annually to account for account for exceptionally high medical and dental
inflation. Under IM, on the other hand, these expenses reported by the family.
allowances are updated annually and averaged
over the preceding three years of federal Consumer Education Tax Credits Allowance. The federal tax
Expenditure Survey (CES) data to control for out of calculation reduces the individual’s tax liability by
the ordinary fluctuations in living costs. This way, subtracting the amount of education tax credits
the IM figures may prove a more accurate and from the taxes due. At the discretion of the
timely representation of current standard living institution, under IM this amount is added back to
expenses and spending patterns. the amount of taxes paid, thereby acting as an
allowance against income. This means that the
“Unlike FM, the IM also includes education tax credit is handled at the tax level and
does not directly reduce the income. This also
an Annual Education Savings means that the state tax allowance is properly
applied against the total income in IM and not
Allowance. The AESA is an against a reduced amount as in FM, which means
the family does not realize the full benefit of the
allowance which protects a set education tax credits in the FM allowance.
amount of the parents’ income in Total Parent Contribution from Income.
The total contribution from parental
recognition that the family must income under the IM formula is calculated
as:
save for the educational expenses
Total income
of younger children while sending
– Total allowances
older children to college.”
= Parents’ available income (AI)
Annual Education Savings Allowance (AESA).
Unlike FM, the IM also includes an Annual x Specified progressive % rate
Education Savings Allowance. The AESA is an
allowance which protects a set amount of the = Total parent contribution from
parents’ income in recognition that the family must income
save for the educational expenses of younger
children while sending older children to college. It The parents’ available income is then assessed at
assumes families who have saved a specified a specified percentage rate, which gets
amount of their annual income (approximately 1.5 progressively higher depending on the dollar
percent annually) will have accumulated amounts of discretionary income. The assessment
approximately one-third of the parent contribution rate starts at 22 percent on the first dollars of
for a private four-year college education by the time discretionary income and progressively increases
the student enrolls. It also assumes the expected up to 46 percent for those families with the highest
parent contribution for children will come from amounts of available discretionary income. FM
income, savings, and borrowing against future uses a similar progressive scale for this available
earnings. income assessment, but does not allow for as
many income bands as does IM.
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Parent Contribution from Assets Remember: A complete FM versus IM
side-by-side comparison is included on
Parents’ Total Net Worth. Like the FM page 145.
formula, the IM formula for a dependent
student’s parents includes a calculation of IM includes the equity in a family farm and the
parental net worth by evaluating the family’s home, as well as the value of family owned
parents’ assets and liabilities against those assets. small businesses, in the need analysis calculation
That IM asset calculation is: because these too are indicators of a family’s
financial strength. Families with such assets are in
Cash, checking, and savings a stronger financial position and may be better able
to afford college costs than those families without
+ Real estate and investment equity such assets.
+ Business equity (including small Home ownership, in particular, carries with it certain
businesses < 101 employees) advantages in the tax system. For example,
homeowners receive a substantial tax deduction for
+ Farm equity (including family farm as the amount of interest paid on a home mortgage
principal place of residence) loan. Homeowners accrue home equity against
which they may borrow; renters do not. Additionally,
+ Home equity according to the College Board, homeowners
spend a little less than 20 percent of their income
+ Parent assets in student siblings’ on housing costs, while renters spend
names approximately 33 percent of their income on rent—
a substantial economic advantage for homeowners.
= Total parents’ net worth
It is not unusual for parents to save a portion of
Those assets included above should seem familiar. their assets in the names of younger siblings to
As indicated in Lesson 2, the FM calculation also receive the benefit of a lower tax rate. IM includes
includes the values of cash, savings, and checking the net worth of these assets, as these are also an
accounts. The FM also includes real estate and indication of a family’s financial strength and are
investment equity, and may include business and accessible to the parents if needed.
farm equity.
Parents’ Asset Allowances. As discussed
The differences in the FM and IM calculations of in Lesson 2, the FM calculation contains
asset net worth include the following: an education savings and asset protection
allowance based on the age of the older
• IM includes all business and farm equity, while parent, in order to protect a portion of the parents’
FM excludes family farm equity if it is the assets for education savings and for low-income
family’s principal place of residence and the families to draw from to cover basic living
family owns and materially participates in its expenses. Likewise, the IM calculation also
operation; contains several allowances for the student’s
parents’ assets. They include the:
• FM also excludes the net worth of any family-
owned and controlled small businesses of 100 • Emergency Reserve Allowance;
or fewer full-time or full-time equivalent
employees, while IM includes them; • Cumulative Education Savings Allowance; and
• FM does not include home equity, but IM does; • Low income asset allowance.
and
Emergency Reserve Allowance (ERA): The ERA is
• FM does not include the value of parental intended to protect a set amount of the parental
assets that are in the names of the student’s assets, holding them in reserve for such possible
siblings, but IM does. occasions as medical emergencies, illness, or
© 2016 NASFAA Need Analysis: Lesson 5 131
NASFAA University Self-Study Guide: Need Analysis
unemployment the family may experience. The Total Parent Contribution
ERA amount protects six months of average family
expenses based on the number of family members, Finally, in the same basic formula as the
in accordance with the CES. FM, the IM formula yields a parent
contribution from income and a parent
Cumulative Education Savings Allowance (CESA): contribution from assets that are added
The CESA is an allowance that recognizes a together to derive the dependent student’s total
family’s need to save towards postsecondary parent contribution:
educational costs for all children in the family. The
allowance protects an amount of assets equal to Parent contribution from income
the amount the family would have accumulated if
they had saved the amount of the annual savings + Parent contribution from assets
goal each year for each child. In doing so, it
protects parental savings for the college expenses = Total IM parent contribution (PC)
of all children in the family while still assuming that
family savings are available for financing an Family Members in College
education. This allowance is calculated on a per
child basis in relation to the average cost of college. While the FM formula equally distributes
the calculated parent contribution among
Low Income Asset Allowance: IM has a low income all dependent students who are attending
asset allowance, which provides for the additional postsecondary school on at least a half-
protection of assets for low income families. It takes time basis at the same time, the IM formula
into account that low income families may need to recognizes the greater responsibility of parents with
rely on their assets in order to cover basic living more than one child in college. With more children
expenses—something less likely for higher income in college, more is expected to pay for college. If
families. more than one child is enrolled in college at the
same time, IM reduces the expected contribution
Parent Contribution from Assets. Thus, the for each child. If two children are in college, IM
parent contribution from assets is reflected expects the family to pay 60 percent of the parent
as: contribution for each child. If three children are
enrolled at the same time, IM expects the family to
Net worth pay 45 percent of the parent contribution for each
child.
– Asset allowances
Dependent Student Contribution
= Discretionary net worth from Income
x Asset conversion rate Dependent Student’s Total Income. Like
the FM formula, the IM formula for a
= Total parent contribution from assets dependent student includes a calculation
of total income. That IM calculation is:
IM assesses assets at a rate of between three and
five percent. FM initially assesses the parents’ AGI/Taxable income
assets at 12 percent; however, calculation of the
parents’ Adjusted Available Income, effectively + Untaxed income
reduces the assessment rate to about 5.64 percent.
The 5.64 percent comes from multiplying 47 – Income exclusions
percent (the highest marginal rate in the FM
Adjusted Available Income table) by this 12 percent = Total income
asset assessment rate (47 x 12 percent = 5.64
percent).
132 Need Analysis: Lesson 5 © 2016 NASFAA
NASFAA University Self-Study Guide: Need Analysis
Dependent Student’s Income Allowances. Dependent Student Contribution
Also like FM, the IM provides certain from Assets
allowances against income. That IM
calculation includes: The IM formula includes primarily the
same categories of assets as for parents.
U.S. Income tax paid Once the dependent student’s net worth
is determined, it is assessed at 25 percent
+ State and local taxes paid to obtain the student’s total contribution from
assets. The FM formula assesses the student’s net
+ Social Security taxes (FICA) worth at 20 percent.
= Total allowances The IM calculation of the dependent student’s
contribution from assets is:
Dependent Student’s Contribution from
Income. The student’s contribution from Cash, checking, and savings
income in the IM calculation is: + Real estate and investment equity
+ Business equity (including small
Total income
businesses < 101 employees)
– Total allowances + Farm equity (including family farm as
= Total available income principal place of residence)
+ Home equity
x Parents’ assessment rate up to + Other student assets and trusts
maximum of 46% (IM only)
= Student net worth
x 50% (FM only)
x 25%
= Total student contribution from
income (or minimum student = Student contribution from assets
contribution if higher)
Total Dependent Student
This result cannot be greater than 50% Contribution
of the parents’ total contribution
The IM formula then adds the total
Like the FM formula, the IM formula assesses the student contribution from income and the
student’s available income because financing his total contribution from assets in the
college expenses is the student’s primary resulting formula:
responsibility while enrolled. However, unlike FM,
for low income families, a student’s earnings may Student contribution from income
go toward supporting the family and be on par with + Student contribution from assets
the parent’s earnings. In these situations, the
student’s earnings are assessed at the lower = Total student contribution (SC)
parental assessment rate and are capped at 50
percent of the parents’ total contribution. IM does
allow colleges to continue to define a minimum
contribution from each student. This contribution is
based on the prevailing minimum wage times the
number of weeks the student will work during his
summer period.
© 2016 NASFAA Need Analysis: Lesson 5 133
NASFAA University Self-Study Guide: Need Analysis
Dependent Student’s Total Family
Contribution
Finally, as with FM, the IM formula for the
dependent student’s total family
contribution is:
Total Parent Contribution
+ Total Student Contribution
= Total IM Family Contribution
Take a few moments to review the FM
versus IM Calculation Scenario
Comparison at the end of this lesson.
Note the highlighted differences in data
elements used by the two formulas, as well as the
difference between the bottom-line EFCs under
both formula calculations.
134 Need Analysis: Lesson 5 © 2016 NASFAA
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 151.
1. What is the primary reason that institutions use IM in addition to FM?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
2. Fill in the IM formula for determining a dependent student’s parents’ total income below:
+
+
–
= Total parents’ income
3. What are some of the advantages of home ownership, indicating why home equity is included in the IM
calculation? (check all that apply)
Mortgage interest deductions
Home equity loans
Lower total percentage of income spent on housing
All of the above
4. If two children are enrolled in college, the IM formula expects the family to pay what percentage of the
parent contribution for each child?
10%
25%
50%
60%
© 2016 NASFAA Need Analysis: Lesson 5 135
NASFAA University Self-Study Guide: Need Analysis
Quick Quiz 1 (cont’d)
5. For the dependent student’s contribution in the IM calculation, what percentage of the student’s net worth
is used to arrive at the student’s total contribution from assets?
10%
20%
25%
50%
75%
6. What is the Cumulative Education Savings Allowance and what does it recognize?
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
___________________________________________________________________________________
7. Under the IM formula, an institution may choose to expect a minimum student contribution.
True
False
8. Under IM, the standard income protection allowances are updated annually and averaged over the
preceding three years based on data from the:
Bureau of Labor Statistics
Consumer Expenditure Survey
136 Need Analysis: Lesson 5 © 2016 NASFAA
NASFAA University Self-Study Guide: Need Analysis
Independent Student Family • For the student’s child, a 3-month MMA amount
Contribution under IM when enrolled and a 12-month MMA when not
enrolled.
Remember: A complete FM versus IM
side-by-side comparison is on page 145 This approach recognizes that the cost of
of the lesson. attendance provides for a student’s living expenses
during while enrolled in college. By using the MMA
Independent Student Contribution approach, the student’s income is protected for the
from Income periods that the student and the student’s family
members are not enrolled.
Independent Student’s Total Income. Like
the FM formula, the IM formula for an Independent Student Contribution
independent student includes a calculation from Assets
of total income. That IM calculation is:
Independent Student’s Total Net Worth.
AGI/Taxable income Like the FM formula, and the IM formula
+ Untaxed income for a dependent student’s parents, the IM
– Income exclusions for an independent student includes a
calculation of net worth by evaluating the student’s
= Total student income (and spouse’s) assets and liabilities against those
assets. That IM asset calculation is:
Independent Student's Allowances
Against Income. Like FM and the Cash, checking, and savings
dependent student’s parents under IM,
the IM allowances against income include + Real estate and investment equity
the following nondiscretionary expenses incurred (including trust fund principal)
by the student and her spouse (if any):
+ Business equity (including small
• U.S income tax paid; businesses < 101 employees)
• State and local taxes; + Farm equity (including family farm as
principal place of residence)
• Social Security taxes (FICA);
+ Home equity
• An employment expense allowance;
= Total student net worth
• A medical and dental expense allowance; and
x 25% conversion rate
• An AESA for younger children.
= Total student contribution from
Other Standard Allowances Against Income. While assets
FM calculates an income protection allowance, the
IM has a different approach for calculating a similar Those assets included above should seem familiar.
allowance for the independent student. IM uses a As indicated in Lesson 2, the FM calculation
monthly maintenance allowance (MMA) which is includes the values of cash, savings, and checking
based on maintaining family members when not accounts. The FM also includes real estate and
enrolled in college as follows: investment equity (including trust funds), as well as
business and farm equity.
• For the student, a 3-month MMA amount;
The calculation of the independent student’s net
• For the student’s spouse, a 3-month MMA worth reflects differing treatment of some assets,
amount when enrolled and a 12-month MMA specifically:
when not enrolled; and
• Home equity;
© 2016 NASFAA Need Analysis: Lesson 5 137
NASFAA University Self-Study Guide: Need Analysis
• Family farm equity if it is the family’s principal higher costs of private school attendance at any
place of residence; and level—particularly private elementary or secondary
schools versus free public schools.
• Family owned and controlled small businesses Furthermore, different private colleges might decide
of 100 or fewer employees. to implement this tuition allowance differently.
Some may use an allowance offsetting for actual
Total Independent Student tuition payment amounts; others may use average
Contribution tuition ranges on a per-child basis (e.g., $5,000 per
year for one child; $10,000 per year for two
The IM formula then adds the total student children, and so forth up to a maximum of $20,000).
(and spouse) contribution from income
and the total contribution from assets in Noncustodial Parent Contribution
the resulting formula:
Under the FM formula in divorced or separated
Student/spouse contribution from parent situations, the parent with whom the student
income lived more than half of the year (usually the
“custodial” parent) and that parent’s spouse (the
+ Student/spouse contribution from stepparent) are considered responsible for
assets educational costs. Therefore, the parent’s and
stepparent’s household, income, and asset
= Total student contribution (SC) information are used in the calculation of the
dependent student’s EFC. The income and asset
Additional Institutional Choices information of the biological parent with whom the
Involving IM student does not live (usually the “noncustodial”
parent) are excluded from the FM calculation.
Schools have choice in the use of There is no FM flexibility in this regard, except
institutional methodologies. In addition to under professional judgment (PJ).
the College Board’s IM, schools have the
option to develop their own methodology Conversely, the IM philosophy is that both
options and may adapt their own IM calculation to biological parents are responsible for the education
include certain, but not all, of the data elements of the student, regardless of the parents’ marital
used in the College Board IM calculation. Some status. Institutions using IM may collect income,
schools may add other data elements to their own asset, and household information on both the
IM calculations. custodial parent (and stepparent/domestic partner,
if present) and on the noncustodial parent (and
Private Elementary and Secondary stepparent/domestic partner, if present) and may
School Tuition opt to use the information on only the biological
parents or on one of the biological parents and the
As previously mentioned, the College Board’s IM stepparent.
allows the school the option of providing an
allowance against income for the payment of Typically, the information on only two parents is
private elementary and secondary school tuition for used in the IM calculation of the parent contribution;
the student’s siblings. Under IM, this would be a however, in IM, schools have discretion about
direct offset of the lower of actual tuition paid or an which parents’ contributions to include.
allowance for tuition paid for the student’s siblings.
Student and Parent Assets
On the other hand, a high cost private university
choosing not to use the College Board’s IM Some schools implement an IM calculation, which
formula, might instead opt to adopt and/or adapt either imputes asset values or uses higher asset
just this particular allowance in recognition of the conversion rates.
138 Need Analysis: Lesson 5 © 2016 NASFAA
NASFAA University Self-Study Guide: Need Analysis
Implied Assets. Institutional Methodology offers an Sample Alternative IM Calculation
option to look at reported dividend and interest for Top Drawer University
income and compare these values to reported
assets. If the reported assets are insufficient to Some schools may choose to implement other IM
yield the reported interest and dividend amounts, variations with different IM data elements. For
the school might divide the total interest and example, Top Drawer University (TDU) might
dividend income by the current average investment implement an IM calculation using some elements
earnings rate in order to calculate the amount of of the College Board’s Institutional Methodology,
assets necessary to yield this amount. some variations on that methodology, or its own
methodology. TDU’s IM calculation includes only
In this example, such a calculation might look like the following elements:
this:
• Home equity, as included in the College Board
$1,500 Total student interest & IM calculation;
dividend income from tax
return • Private elementary and secondary school
tuition payments of up to $5,000 per year per
÷ 5% Current investment child up to a maximum of $20,000 annually;
earnings rate (estimated)
• Parent business, real estate, and other
= $30,000 Implied asset value investment losses, adding back into the
calculation losses and write-offs for
$3,000 = Cash/checking/savings depreciation, travel, and entertainment
reported expenses from the tax return and respective tax
schedules;
This imputed asset value would then be used in the
calculation of the IM contribution from assets. • Student asset conversion rate of 60 percent
for independent students without dependents
Asset Conversion Rates. Other schools may adopt other than a spouse (higher than the 50 percent
an IM calculation which includes a higher asset FM rate);
conversion rate for either the parents’ or the
student’s assets. For example, instead of using a 7 • Minimum student contribution of $1,200 for
percent asset conversion rate for an independent all dependent and independent students,
student with dependents other than a spouse (in regardless of grade level; and
FM), the school may choose to use a higher rate of
25 percent for these students. • Imputed asset values based on an average
current market return on investment rate of 4
Income Calculations percent, aligning asset values with the yield on
reported interest and/or dividends.
Minimum Student Contributions. While the College
Board’s IM suggests a minimum student As you can see from the discussion in this lesson,
contribution, some schools may opt to impose a multiple IM options are possible. It is the school’s
higher or lower minimum student contribution option to use an IM calculation to award its
amount. This amount might also be implemented institutional, nonfederal student financial aid funds.
on a graduated scale—higher for incoming
freshmen and lower for juniors and seniors, who Obviously, schools with little or no institutional
might embark on academic endeavors or summer financial aid funds may indeed have no need for the
classes during their summer periods. extra institutional methodology calculation. On the
other hand, schools with substantial institutional
funds may use IM to target these funds to the
students who have the most financial need.
As a reminder, IM may be used to calculate need
for institutional funds only and not to award federal
Title IV student financial aid funds.
© 2016 NASFAA Need Analysis: Lesson 5 139
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 153.
1. Draw an arrow to match each of the following monthly maintenance allowances (MMAs) in the left-hand
column to each applicable individual in the independent student’s family from the right-hand column:
MMA Student’s Family Member
12-Month MMA Student
3-Month MMA Student’s enrolled spouse
3-Month MMA
3-Month MMA Student’s enrolled child
Younger nonenrolled child
2. Under IM, the independent student allowances against income might also include any other allowances
stipulated by the institution.
True
False
3. Fill in the IM formula for determining an independent student’s total net worth below:
+
+
+
+
= Total student’s net worth
140 Need Analysis: Lesson 5 © 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. Does your institution use Institutional Methodology? Why? Why not?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
2. If yes, list the IM calculation data elements used by your school in addition the FM calculation. For each
of these data elements, make a determination as to whether you would keep that data element for the
purpose of the IM calculation of an EFC.
IM Data Element Would you keep or add it? Why?
3. If your school does not currently use IM, should it? Why? Why not?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
© 2016 NASFAA Need Analysis: Lesson 5 141
NASFAA University Self-Study Guide: Need Analysis
Reflection Questions (cont’d)
4. If your school does not currently use IM, and you think it should, what IM data elements would you
include in your IM calculation of an EFC? Why?
IM Data Element Why would you include it?
142 Need Analysis: Lesson 5 © 2016 NASFAA
NASFAA University Self-Study Guide: Need Analysis
Learning Activity: FM or IM or Both?
Referring to Lessons 2 and 5, fill in the table below with the letter of each expected family
contribution data element which is included in the FM calculation and in the IM calculation.
Duplicate each letter as necessary to reflect those data elements that are included in both the FM
and IM calculations. Check your responses using the Answer Key on page 154.
Expected family contribution data elements: IM Calculation
a. Taxable income
b. Untaxed income
c. Home equity
d. Income protection allowance
e. Investment farm equity
f. Family farm which is family’s principal place of residence
g. Cash/savings/checking accounts
h. Elementary/secondary school tuition allowance
i. Real estate and rental properties
j. Minimum student contribution
k. Annual Education Savings Allowance
l. Cumulative Education Savings Allowance
m. Emergency Reserve Allowance
n. Low Income Asset Allowance
o. Education Savings and Asset Protection Allowance (combined)
p. Monthly maintenance allowance (MMA)
q. Noncustodial parent contribution
FM Calculation
© 2016 NASFAA Need Analysis: Lesson 5 143
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144 Need Analysis: Lesson 5 © 2016 NASFAA
© 2016 NASFAA FORMULA DIFFERENCES: FEDERAL METHODOLOGY vs. INSTITUTIONAL METHODOLOGY NASFAA University Self-Study Guide: Need Analysis
DIFFERENCES FEDERAL METHODOLOGY (FM) INSTITUTIONAL METHODOLOGY (IM)
Formula
Only approved need analysis system used to Nonfederal need analysis formula used by some
Usage determine expected family contribution (EFC) schools and private scholarship agencies to
for federal student aid programs determine need for private, nonfederal student
Simplified Formulas aid
Under certain conditions and income levels,
Calculation Tables uses simplified formulas to exclude assets or Includes all income and assets for all families in
set Automatic Zero EFC calculation
Income
Sales Tax Uses 1967 Bureau of Labor Statistics (BLS) Uses Consumer Expenditure Survey (CES) data
data, updated annually for inflation updated annually and averaged over preceding 3
Medical expenses years to control for out of ordinary fluctuations
Need Analysis: Lesson 5
Annual Education Ignores state sales tax and recognizes only Accounts for state sales tax and recognizes
Savings Allowance limited number of income levels differences in income level differences
(AESA)
Medical expenses are included in the income Includes offset for actual medical and dental
Monthly Maintenance protection allowance (IPA) expenses
Allowance (MMA)
Does not include an income allowance in Includes AESA to protect set amount of annual
Adjustments and recognition of family’s need to save for income for savings toward postsecondary
Losses postsecondary educational expenses of children educational expenses of younger children while
sending older children to college
Private Elementary & Only includes IPA, no MMA
Secondary Tuition Includes 3-month MMA for student, spouse
Minimum student Allows for income adjustments and losses (e.g., enrolled in college, and child enrolled in college;
contribution business losses and write-offs) permitted under 12-month MMA for non-enrolled child or spouse
U.S. tax code
Does not allow for income adjustments and
Does not include allowance for elementary and losses permitted under U.S. tax code; adds them
secondary school tuition paid back as untaxed income
Includes no minimum student contribution Allows for elementary and secondary school
tuition paid, at institution’s option
Suggests minimum student contribution
145
146 DIFFERENCES FEDERAL METHODOLOGY (FM) INSTITUTIONAL METHODOLOGY (IM) NASFAA University Self-Study Guide: Need Analysis
Assets
Need Analysis: Lesson 5 Excludes home equity Includes home equity
Home Equity Excludes equity of family farm if it is family’s Includes family farm equity
Family Farm
Small Business principal place of residence Includes business equity
Excludes value of family owned and controlled
Asset Conversion Dependent student’s parents’ asset net worth
Rates small business with 100 or fewer full-time assessed at between 3% - 5%
employees
Asset Protection Dependent student’s parents’ asset net worth Dependent student’s asset net worth assessed
Allowances assessed at 12% at 25% for all students
Dependent student’s and independent student’s
Parent Assets in (without dependents other than a spouse) asset Independent student’s asset net worth assessed
Student’s Siblings’ net worth assessed at 20% at 25%
Name Independent student’s (with dependents other
Number in College than a spouse) asset net worth assessed at 7% Includes Cumulative Education Savings
Includes education savings and asset protection Allowance (CESA) protection allowance to
Divorced/Separated allowance to progressively preserve portion of encourage college savings for younger siblings
Parents family’s assets based on age of older parent
Includes Emergency Reserve Allowance (ERA)
Does not include parent assets in student’s to protect family assets for unexpected
sibling’s name emergency expenses
Includes Low Income Asset Allowance for
protection of assets for low income families
Includes parent assets in dependent student’s
sibling’s name
© 2015 NASFAA Uses 100% of parent contribution (PC) if one in Prorates EFC based on concurrent enrollment of
college; divides PC equally among number of in children in college (e.g., 60% if 2 in college; 45%
college, if more than one in college if 3 in college)
Custodial parent and spouse/domestic partner Allows institutional option to collect information
are considered responsible for educational on both biological parents and stepparents/
costs; excludes noncustodial parent’s income domestic partners, if applicable, to calculate
and assets contribution that best reflects family’s resources
NASFAA University Self-Study Guide: Need Analysis
FM versus IM Calculation Scenario Comparison
Earlie Byrd is an 18-year-old dependent student beginning college in the fall of the 2016–17 academic
year. She lives with her parents, Mary and David, in Virginia. They are both 49 years old and happily
married. She has one younger sister, Hazel, who is 13 years old. Her family’s income and asset
information are provided below for purposes of demonstrating a side-by-side comparison of the FM
versus the IM calculation data elements and bottom-line expected family contributions.
Note all bolded key differences.
Family Financial Data FM IM
Household size 44
Number in college 11
Parents:
Parents’ adjusted gross income (AGI) $114,650 $114,650
Parent 1 earnings from work $75,000 $75,000
Parent 2 earnings from work $50,000 $50,000
Parents’ interest and dividend income --- $1,650
Untaxed income (IRA and pension contributions) $12,000 $12,000
U.S. tax paid jointly $12,088 $12,088
Cash/Savings/Checking $15,000 $15,000
Home equity --- $150,000
Business equity (family-owned; fewer than 100 --- $75,000
employees)
Total value of sibling’s assets --- $5,000
Student (Earlie):
Wages $4,500 $4,500
U.S. tax paid $0 $0
Cash/Savings/Checking $5,300 $5,300
Parent Contribution $25,168 $22,832
Student Contribution $1,060 $3,225
TOTAL Expected Family Contribution (EFC) $26,228 $26,057
© 2016 NASFAA Need Analysis: Lesson 5 147
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148 Need Analysis: Lesson 5 © 2016 NASFAA
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