1. Adventures in Needs Analysis Jim Eddy Office of Financial Aid University of Michigan – Ann Arbor jimeddy@umich.edu

2. In this session we will: Do FM needs analysis together, then talk about it Review/revisit the EFC Formula Guide Discuss how knowing the mechanics of the EFC calculation makes one a better FAA Sneak a peek at Institutional Methodology (IM)

3. Dependent Student Case Study: Let’s dive in!

4. The Case: Narrative Bran Stark is currently a senior at Winterfell High School, and will graduate in June of 2016. He is the applicant for financial aid for this case study. Financial aid is important to his educational plans, he has some expensive mobility issues due to an unfortunate climbing accident.

5. The Case: Narrative, con’t. His family lives in Arizona, and includes his eldest sister Sansa, who attended college in 2015-16, but is now taking two years off from her studies to travel in Westeros, and his younger sister Arya, a rising high school junior. Arya will be taking 6 community college credits at the local community college as part of her high school science curriculum in 2016-17.

6. The Case: Narrative, con’t. Ned Stark, 42, is his father, a former politician who was known to lose his head on occasion during heated negotiations. He earned $22,512 in IRS Form 1040 Line 12 positive business income as the sole proprietor of Direwolf Enterprises, a dog walking service. Bran’s mother, Catelyn Stark, 41, earned $33,411 in 2015 wage income from her job as a military strategy consultant. The Stark parents showed various paper losses on Line 17 of their 2015 tax return due to a number of creative tax shelters, most of which were offset by their modest gambling winnings. The parent AGI for 2015 was $61,436, with a federal tax paid of $4,219.

7. The Case: Narrative, con’t. The Stark parents took a 2015 IRA deduction in the amount of $1,500. They also showed this same amount as a Hope Education tax credit on their 2015 federal tax return. Something of a sore spot in the Stark marriage is the fact that Ned again paid out exactly $6,000 in 2015 child support due to an unfortunate dalliance about 14 years ago.

8. The Case: Narrative, con’t. Ned and Catelyn reported $675 in cash and savings on the FAFSA, and as investments they reported $17,850 in combined 529 savings for their children. Bran did not file a 2015 federal tax return, he reported on his FAFSA $2,895 in wage earnings, and a total of $5 in his savings account on the day he submitted his application.

9. Arriving at Total Parent Income 1.Parent’s 2015 AGI: 61436 2.a. Parent 1 work income 22512 2.b. Plus Parent 2 work income 33411 Equals total Parent work inc. 55923 3. Parent’s taxable income 61436 4. Untaxed income: 1500 5. Taxable and Untaxed 62936 6. Less offsets to income 7. Equals Total Parent Income 55436

10. Getting Parent Available Income (AI) 8.2015 U.S. tax paid 4219 9.State/other tax (TableA1) 1663 10.Parent 1 FICA (Table A2) 1722 11. Parent 2 FICA (Table A2) 2556 12. Income Protection Allow (T. A3) 32380 13. Employment Expense Allowance 4000 14. Total Allowances: 46540 Total Income (from line 7) 55436 Minus Total Allowances 15. Equals Available Income (AI) 8896

11. Parent Asset Contribution (exposing the mythology) 16.Cash & Savings 675 17. Net Worth of Investments 17850 18. Net Worth Business/Inv. Farm 0 19.Adjust. Net. W. Business/Farm (A4) 0 20. Net Worth (sum 16, 17, 19) 18525 21.Edu. Savings/asset protect. (A5) 16300 22.Discretionary Net Worth (20-21) 2225 23. Asset Conversion rate (multiply by.12) 24. Contribution from assets 267

12. Finally…Parent Contribution Parent’s Available Income (line 15) 8896 Plus Asset Contribution (line 24) 267 25. Equals Adjusted Available Income 9163 26. Total contrib. from AAI (Table A6) 2016 27. # in college (exclude parents) 1 28. Equals Parent Contribution 2016

13. Student Contribution: Total income 29.Student AGI 0 30.Student’s work income 2895 31.Taxable income 2895 32.Untaxed income: 0 33.Total, taxed/untaxed 2895 34.Less offsets to income 0 35.Equals Total Income 2895

14. Student Contribution: Allowances 36.Student tax paid 0 37.State/other tax (Table A7) 58 38.Student FICA (Table A2) 221 39.Income Protection Allow. 6400 40.Allow. for Parent Neg. AAI 0 41.Total allowances 6679 Total Income (line 35) 2895 Less Total Allow. (line 41) 6679 42. Equals Available Inc. (AI) 43. Assessed at.50 0 44. Equals Student Cont. from AI 0

15. Student Contribution: Assets and Overall EFC 45.Student cash, etc. 5 46.Student investments 0 47.Student bus./farm 0 48.New Worth (sum 45-47) 5 49.Assessed at 20 percent 1 50.Contribution from assets: 1 Parent Contribution (line 28) 2016 Plus Student AI Contrib. (line 44) 0 Plus Student Cont. from assets 1 51.Equals Overall EFC 2017

16. How many different EFC formulas/worksheets are there, anyway?

17. Seven 1. Dependent Student, Regular 2. Dependent Student, Simplified 3. Independent, without Dependents other than a Spouse, Regular 4. Independent, without Dependents other than a Spouse, Simplified 5. Independent, with Dependents other than a Spouse, Regular 6. Independent, with Dependents other than a Spouse, Simplified 7. Auto Zero

18. Dealing with the “What If’s?” If you know how the FM EFC formula works, you can efficiently respond to “what if” questions and offer appropriate guidance/customer service

19. Some "What if?" examples Medical/Dental costs: 11% is already in the IPA “I saved a lot, so I won’t get financial aid” “I lost my job, so I will get more aid…right?” “We now have 2 in college, so our aid will double, right?” “We took money out of our IRA…please help us, this is not our real income from work!” “We are saving for our grandchild…should we put the money into an UGMA?” My parent passed away…will I get more aid?”

20. Where you can find all the FM info you might ever want http://ifap.ed.gov/efcformulaguide/attachments/100615EFC FormulaGuide1617Attach.pdf This is updated annually, the worksheets and tables you used today are directly out of the guide Lots of definitions (i.e. Dependency, Simple Needs, Auto Zero, needs-tested benefits) are in there All the different hand calculation worksheets are there for different FM formulas

21. Institutional Methodology “IM”: Who uses it? Many privates, some publics, often using the CSS Profile There is a cost involved for filers, with some waiver exceptions Non Custodial Parent (NCP) data can also be requested Home equity is considered; significant number of formulaic differences relative to FM

22. IM: Why would a school use it? When “compelling budgetary concerns” make overall higher EFC’s desirable When your institution believes all students are best served by a more realistic assessment of family financial strength When another filter is helpful to sort out families who by any reasonable definition are likely not grant eligible As an avenue to simply get Non Custodial Parent (NCP) data To assess financial need for international students

23. Q&A

24. GO FORTH AND PROSPER!