Harvard Summer Institute on College Admissions Financial Aid 102 Harvard Summer Institute on College Admissions

F. Duane Quinn Financial Aid Specialist duane201@charter.net

Sally Donahue Director of Financial Aid Senior Admissions Officer Harvard University sdonahue@fas.harvard.edu

Agenda Brief Review of 101 Calculation of the Family Contribution Institutional Vs. Federal

Theory Parents and students are responsible for financing education costs......… Up to their ability.

Theory The student and her family will benefit the most from higher education and should pay for it...... Borrowing Saving Working Financial Aid should offer students Access and Choice to higher education

Eligibility Cost less Family contribution = Eligibility for aid

Determining the Family Contribution The Eligibility Index (EFC) Theoretical Approach Contrast the Federal Methodology to the “Institutional Methodology”

1. Determining the Eligibility Index (EFC) Total Parent Income Taxable and Non-taxable minus Taxes Paid (Fed. State and Local) minus Employment Allowance minus Income Protection Allowance minus Title IV Exclusion equals “Available Income”

2. Total Parental Assets Cash, Savings and Checking plus Other Real Estate / Investments (home?) plus Business Value (100 or more employees / adjusted) plus Farm Value = “Total Net Worth” less “Education Savings / Asset Protection Allowance (Age 50 = $48,800) times 12% Asset Conversion Rate = “Income Supplement”

3. Determining Parent Share of EFC “Available Income” plus “Income Supplement” = “Adjusted Available Income” times Conversion Percentage divided Number Attending College = Eligibility Index from Parent(s)

4. Determining Student Share of Index Total Student Income less Taxes and FICA paid less $6000.00 Protection Allowance times 50% = Index Available From Income Total Student Assets X 20% = Index Available from Student Assets

5. Final Step add “Eligibility Index from Parent’s Income and Assets” plus “Eligibility Index- Student Income” plus “Eligibility Index- Student Assets* equal “ELIGIBILITY INDEX” (EFC)

Asset Impact – Family Size: 4 Parent income remains level, assets increase Family A Family B Family C Income $60,000 Assets $0 $75,000 $150,000 EFC $3,930 $5,117 $8,348 Difference $1,187 $4,418 MESSAGE: There is a generous parent asset protection allowance factored into the EFC formula. While assets (current value of savings, checking accounts, investments and reportable businesses and farms) are considered in the financial aid formula, assets have minimal impact to the EFC, as it is primarily an income-driven formula Having saved for college or having other assets that you can use to help pay for college is a good thing; it gives families options for paying the balance due In this example: An additional 75K in savings only increases the EFC by $1,187 An additional 150K in savings only increases the EFC by $4,418 Remember this is parental assets (up to 6%) while student assets would be assessed at a higher rate (20%) This example is an estimate only. Based on 2013-14 Federal Methodology (one child in college) Slide from Mass. Educational Financing Authority (MEFA).

Income Impact – Family Size: 4 Parent assets remain level, income increases Family A Family B Family C Income $60,000 $100,000 $150,000 Assets $50,000 EFC $4,260 $12,832 $27,147 Difference $8,572 $22,887 MESSAGE: The EFC formula can be heavily income-driven Income (all income, from taxable and non-taxable earnings and other sources) is assessed at a higher rate in the financial aid formula than assets In this example: An additional 40K in income increases the EFC by $8,572 An additional 90K in income (from $60,000) increases the EFC by $22,887 Colleges don’t tell families how to meet their EFC. For example, with family B, the college wouldn’t require the family to use any of their reported assets for education expenses. This is an option the family may choose Reminder, the EFC is determining how much the family can absorb in educational expenses over time. In many cases, families using multiple resources, which we will discuss later Families should not use these charts to calculate their own EFC; instead they should utilize the EFC calculator link available on mefa.org/seniors This example is an estimate only. Based on 2013-14 Federal Methodology (one child in college). Slide from Mass. Educational Financing Authority (MEFA)

Federal Vs. Institutional Methodology Income = AGI from tax return Medical, dental, tuition costs upon appeal Institutional Not recognize losses in taxable income Expenses collected on PROFILE

FM Vs. Institutional Methodology Federal No credit for educational savings Income and Assets combined to calculate EFC Institutional Credit (per child) for future higher ed. expenses EFC from Income and EFC from Assets

FM Vs. Institutional Methodology Federal Exclude home equity No incentive to save for higher education (Some in recent act) Institutional Include home equity Incentive in (CESA) Cumulative Education Savings Allowance

FM Vs. Institutional Methodology Federal 20% of student assets EFC divided by # in college Based upon BLS Institutional 25% of student assets 60% for 2 45% for 3 Based upon CES

Eligibility Cost less Family contribution = Eligibility for aid

Example of “Packaging” COLLEGE “A” cost $40,000 - F.C $ 8,000 = need $32,000

The Financial Aid Package

The Financial Aid Package cost $40,000 $ 8,000. F. C.

The Financial Aid Package cost $40,000 need = $32,000 $ 8,000. F. C.

The Financial Aid Package cost $40,000 grant = $25,000 meet full need $ 3,000 work $4,000 loan $ 8,000. F. C.

The Financial Aid Package cost $40,000 unmet need “GAP” $5,000 grant = $20,000 $3,000 work $4,000 loan $ 8,000. F. C.