Author: moneyman

Determining the Parent Contribution from Income

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So it’s been a few weeks since my last blog post. I apologize for the delay, but I have been busy with Spring Break, conferences, travel, and other meetings. Now that I’m back, though, let’s dive in to the calculation.

Let’s calculate… Full speed ahead!

Now it’s time to begin part one of the breakdown of the individual formulas to determine your EFC, and we begin with parent contribution from income. Parental income is really the single largest source of your expected contribution, and serves as the foundation for our analysis of your families circumstances. What I will try to do here is address the core way in which the Federal Methodology treats parents’ income, and you can feel free to ask any questions which I will then answer for you about the methodology.

The contribution from parent income is broken into three different pieces:

  1. Determining the parents’ total income,
  2. Figuring out allowances against the income, and
  3. Subtracting the allowances from the total income to determine the available income.

I’ll tackle these one step at a time.

For the starting income figure, we take the parents’ adjusted gross income figure as reported on the bottom on the first page of the tax return (for simplicity, I will assume that we are talking about a family with two parents; at the end of this process I will do another post explaining the differences for divorced / separated families). Also keep in mind that tax returns have changed dramatically in 2018, but for the sake of this analysis, we are using 2017 returns (for the 2019-20 application year).

To the AGI, we add non-taxable income (which can include a wide variety of income sources – some are child support received, tax-deferred contributions to retirement programs, tax-exempt interest, etc). [For a more complete list, you may want to look at questions 94a to 94i on the FAFSA application for the appropriate sources].

Next we remove from parent income any items listed as income exclusions on questions 93a to 93f of the FAFSA (child support paid, combat pay, education tax credits, etc).

We add the AGI plus the non-taxable income and subtract the income exclusions to come up with the total income.

Now on to allowances against income. There are five main areas:

  1. US Income Tax Paid – we use the actual income tax paid by your parents as reported on the FAFSA, and as documented by the copy of your tax return,
  2. State Taxes Paid – for this calculation, we use a table to determine how much of your Total Income should be protected to cover state and local taxes,
  3. FICA or Social Security Taxes – again, for this line we allow a deduction based on a formula against wages earned from any employment to cover taxes paid to the Social Security system,
  4. Employment allowance – for families where both parents are working (or, in a single parent household, where the parent is working) a deduction to allow for the cost of having no one at home (based on a formula and capped at a very low value), and
  5. Income Protection Allowance (IPA) – this is meant to be an offset to protect families with particularly low income to protect the entirety of their income before any contribution is expected (even in part) from them.

The difference between total income and total allowances is set aside as Available Income (we will come back to this number later).

So, lots of information, and I’m sure this will generate many questions, so ask away!

Singing in Four Part Harmony — Or What Makes Up Your EFC

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I love to sing.

It helps that I sing fairly well (or at least I like to think I do), but I do love to sing.

As for what I sing, it varies from Broadway show-tunes to Abba to Air to Eminem (I have a pretty eclectic taste in music).

And I belong to a choir. My group practices every Wednesday night.

Last Wednesday night in rehearsal, I was thinking about what to put on this blog as we were working on harmonies for one particularly difficult song, and it hit me! The perfect image! Singing in 4 part harmony.

So why is it the perfect metaphor? Well, just like in music you need 4 parts to make up the whole (S, A, T, B), in financial aid, you need four parts to make up the whole as well (PC-I, PC-A, SC-I, SC-A).

So, enough with the metaphor (I feel like I have beat it to death) and on to what I mean.

A rainbow of harmony…

The Expected Family Contribution is made up of four components:

  1. Parent Contribution from Income
  2. Parent Contribution from Assets
  3. Student Contribution from Income
  4. Student Contribution from Assets

(Do note that if you are from a divorced or separated family, there may also be a Non-custodial contribution from income and assets — see my last post for more information on who is considered to be your parent).

What I thought I would do in the coming days is spend a little bit of time on each of these 4 components and answer some questions about each one, providing some information that will help you understand how we conduct our business.

But for today, I need to tackle one issue before we can even get started, and that is the question of who is considered to be an independent student, therefore not requiring a parental contribution of any variety.

There are different rules for FAFSA vs. CSS Proile, so let me tackle the Federal rules first. If you meet any of the following 10 criteria, then you are considered to be an independent student (for Federal purposes only) and do not need to fill out parental information on the FAFSA (although some colleges may ask you to):

  1. You will be 24 by January 1, 2020 (if you are applying for financial aid in the 2020-21 year; each year this moves forward one year).
  2. You are married.
  3. You are a graduate student.
  4. You are currently on active duty in the U.S. armed forces.
  5. You are a veteran of the United States armed forces.
  6. You have children who will receive more than half of their financial support from you.
  7. You have a legal dependent of your own (other than a child or spouse) who lives with you, and for whom you provide more than 1/2 of their support.
  8. Since you were 13 years old, you were either in foster care, both of your parents were deceased, or you were a dependent or ward of the court.
  9. You are an emancipated minor (as determined by a court in your state of legal residence), or someone other than your parent or step-parent has legal guardianship of you.
  10. You are an unaccompanied youth who is homeless, or you are self-supporting and at risk of being homeless as determined by your high school, the director of an emergency shelter, or the director of a runaway or homeless youth basic center.

If any of these are true, then you are an Independent student for Federal aid purposes.

For institutional aid, the rules may be different. You should ask your college if they have different rules for their own financial aid (for example, some may not waive parental information for their own grants or scholarships for students who are over 24).

Also, it is important to remember that the financial aid process measures a family’s ability to pay, not willingness to pay, so whether a parent is or is not willing to make a contribution has no bearing to whether they need to complete the applications.

That is not to say that there are never situations where colleges would waive parental contributions (how is that for a double negative?), but they are rare and handled on a case-by-case basis. The issues would need to be egregious for us to consider them. You should talk to your financial aid counselor if you feel your situation might qualify to be considered this way. In these cases, the financial aid officer will likely require a letter from you and some kind of third-party documentation to explain your situation and may, if they decide, make you independent.

Look next time for more information on the parent contribution from income.

It’s not apparent who is a parent…

moneyman

So, in good faith, you’ve started the financial aid application process, you’ve gathered paperwork, gotten your pencils sharpened (or more probably, your fingers ready for some furious typing) and you come upon the first challenge to your logic. Who is your parent? Now of course, by “you” I am referring to you, the student. You may think it is fairly easy and straightforward to define who your parents are. Boy, would you be wrong.

In all cases, the main financial aid applications (namely the FAFSA and CSS Financial Aid Profile) should be completed by the custodial family. If your birth parents are married to each other, this is pretty easy: Parent 1 is mom and Parent 2 is dad. If your parents are of the same gender and married, same thing; Parents 1 and 2 are easy to define.

If your birth parents are divorced, separated, or were never married, then you only fill out information about the parent(s) with whom you live (and, here is a tricky part, his or her new spouse, your “stepparent”). When it asks for mom’s information, you will leave it blank if you live only with your dad, and conversely if it asks for dad’s information, you should leave it blank if you only live with your mom. If your parent is remarried, you should put the stepparent’s information under the appropriate heading).

Confused yet? No? Well, “lay on, MacDuff”…

Shakespeare’s custodial family

Well, what if your parents are divorced and you lived with both of them equally during the last twelve months (in other words, the custody arrangement is something like, stay at mom’s from Sunday – Tuesday and every other Saturday, and with dad the rest of the time)? Then you would complete the form based on the parent who provides most of your financial support during the last year.

Does this absolve your other parent from completing any information? NO, A SOLID AND RESOUNDING NO. Colleges may request (and many colleges who use the CSS Profile do request) a Non-custodial parent Profile for students who do not live with both of their birth parents. This form should be completed by the non-custodial parent online. Once you (the student) registers for the CSS Profile and indicate that your birth parents are not married, you will be sent an email with instructions, a temporary password, and a link which you should forward to your non-custodial parent for him or her to complete.

To be clear, most schools who use the FAFSA alone won’t care about the information from your non-custodial parent, but some of the private colleges will. If you are curious whether your college wants your non-custodial parent’s information or not you can take a look at their financial aid website or take a look at the list of colleges who use the CSS Profile (if they want information from your non-custodial parent, there will be a “Yes” under the column entitled “CSS Profile – Noncustodial Parents”).

Does it end yet? Well, sort of…

What about situations where you really don’t live with either parent, or if you are otherwise independent? Well looks like that is a topic for our next blog post!

All the math you need to know

moneyman

Yeah, I admit it. I like math. I am one of those people who actually enjoyed math classes; something about the logical rules of math appealed to me. But I recognize math isn’t for everyone.

If you are one of the 42% of Americans who doesn’t love math, though, no worries. Because I am about to introduce you to the only math you really need to know when it comes to financial aid.

So the basic formula for financial aid is this: COA – EFC = Need. That’s it. That’s all you need to know. Just some simple subtraction. Oh, and an explanation of the variables. So let’s dive in!

The COA. COA stands for Cost of Attendance. This is an estimate of the costs to attend the college or university where you are planning on attending. It is a number which is calculated for you and based on your estimated expenses, including the obvious costs like tuition and fees as well as books and supplies. But it also includes the not-so-obvious ones like room and board, transportation, and personal / miscellaneous expenses. The COA is personalized based on your profile so it takes into account factors like whether you will live on campus in a dorm, at home, or independently in an apartment, or whether you are in in-state resident or out-of-state resident (for colleges that offer in-state tuition discounts).

The COA isn’t exactly what you are going to be charged because there are both direct and indirect costs included. For example, you might pay room and board directly to the school, or you might be buying groceries and paying rent to a landlord. In either case, your estimated costs are factored into your COA. Keep in mind that your college or university will determine an estimated COA, and the costs are supposed to be reflective of a reasonable (but not luxurious) estimate, so you might find that your costs and actually slightly more (or less) than their estimate. No worries. You can ask for an evaluation of your COA if you have unusual expenses (for example if you are paying for child care so you can go to school or if you need to buy a computer for your educational use) and the college may make an adjustment for you based on your documented expenses. We will talk more about these kinds of adjustments in another post later!

So what’s the EFC? Your Expected Family Contribution (or EFC) is a measure of how much you (and your family) can contribute towards your educational expenses. It is supposed to be an estimate of your ability to contribute but isn’t necessarily the amount you will need to write on a check. If you are a dependent student (and we will talk more about that soon too) this is based on you and your parents’ income and assets. If you are an independent student, then the EFC is only based on your income and assets. We will talk more about the calculation of the EFC (yes, more math) but for now know that the information you put on the FAFSA and the CSS Profile will help colleges and universities determine the amount of your EFC.

The difference between the COA and the EFC is your Financial Need. This is the amount of need-based financial aid for which you can qualify. This means that the college or university will try to put together a financial aid package to meet this need. It also means that colleges who say that they meet full-need will provide this amount in total aid, and that colleges who do not provide merit-based aid (and only give need-based aid) will not exceed this number with their total financial aid.

So now you know some basic financial aid math. Where should we go next? How about we explore why it’s not apparent who is a parent?

Free Money (but it does take some work)!

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Can anyone really go to college for free? Is such a thing even possible? We’ve all heard the story of students who have gotten a “free ride” at X, Y or Z college or university, but is that really the case? Can you get a free ride anywhere?

The scholarship search begins…

I’ve been reading Ben Kaplan’s How to go to college almost for free: the secrets of winning scholarship money (for those few of you who are not amazon fans, my apologies for the sales link). Ben does a fairly good job of describing the aid system, although most of the information is available for free on-line. What I find interesting about Ben’s story is how much money and how many different awards he received from other sources to attend school. Ben does a very good job of describing his scholarship discovery, targeting and application process in his book, and explains how others can benefit from his methods. Let me be very clear: Ben won many talent competitions and other scholarship awards and he invested a great deal of time in the process. But it paid off for him.

Can it pay off for you? Well, first of all realize that the last thing that a scholarship from another source will impact is your family’s contribution toward your college expenses. We will talk about this in another post later on the blog, but keep in mind that if you receive a scholarship or grant from another source, most colleges will start by reducing your unmet financial need, then they will reduce loan and work before they touch any grant or scholarship awards (although each institution may do something different).

But given this, any money you bring in from outside scholarship or grant programs can certainly help.

So when do you need to start the application process? NOW!!! I would advise that anyone who is interested in looking to other sources for scholarship or grant should be looking on-line now to see if there are any programs with which you match. You can do this for free by creating an account at FastWeb, as well as some other scholarship sites. By entering some basic biographical information, these search engines will try to match you with scholarship programs you may be able to apply for, and provide deadlines and application processes for them. NOW is absolutely the right time to do this. Many of these programs have early deadlines, so time is of the essence.

Now, will you be able to go to school for free? For most of you, even if you are awarded one, two, three or no scholarships from other sources, the answer to this question will be no. I will say that if you are from a low-income family, your Financial Aid Officer will do everything she can to make the cost of college affordable for you, even if that means no contribution from you or your parents, but the reality is that most of you will have to contribute something to make your dream of a college education a reality.

But even so, that doesn’t mean you shouldn’t try; how’s that for a double negative?

Good luck in your search process and look here for more updates!

Applying Yourself Part 4: College 101 – Where the Money I$

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Most college courses have a number as part of the course title. The course number is a shortcut to telling you how complicated the course is; the higher the number, the more complicated. Courses with a 101 (or 1001) number are, therefore, the most basic.

So far we have stayed at the 101 level. Has the information been helpful? Are you ready to dive into the next level of information about financial aid?

Before we do, though, we need to finish our application series. There is one more type of financial aid application and that is the college or unversity’s financial aid (or scholarship) application.

Do you need money for college? Ask the college!

Many of you may not realize this, but colleges and universities are the largest source of grants and scholarships for undergraduate students in the United States. According to the College Board’s publication Trends in Student Aid, the more than 26% of the money available to students in total financial aid (including loans, grants and work awards) comes from colleges and universities. This compares to 15% from the Federal Pell Grant, and 6% (each) from State Grants and Veterans Benefits. Private scholarships provide only 7% of the total aid to students each year. Do the math and you will see that you need to think about colleges and universities as a source for financial aid.

So how do you apply for financial aid from colleges and universities? The answer, sadly, is “it depends”. But your friend moneyman is here to explain how to work with the system.

Some colleges use the FAFSA to determine their own institutional financial aid while some colleges use the College Board’s CSS Financial Aid Profile. If you have been following along (and if not, quick read the old posts), you have covered these colleges. But some others may have their own financial aid application forms.

For example, my current employer suggests that students complete an institutional scholarship application. While you can qualify for Federal or State financial aid without completing this form, there are many institutional grants and scholarships which rely upon this application (and if you do not complete the application, you will not qualify).

Some other colleges who do not use the CSS Profile may ask every student to complete a financial aid application form available for download at their institutional web site. In this case, the form often is used to match students to prospective scholarships (or to collect information in a free format which is then used to award institutional funds).

And still other colleges may need no application form from you at all other than your admissions application, but will use the information from your academic record to award you an institutional merit-based scholarship. In these cases while there is no formal “institutional financial aid application,” your admissions application serves this purpose.

So, in short, you need to ask your college or university if they have a financial aid application, and if they do, complete it.

So in summary you can see that a complete financial aid application includes four types of forms:

  • the FAFSA
  • the CSS Financial Aid Profile
  • your state’s financial aid application
  • your college’s financial aid application

Only be completing all of these applications will you have a completed financial aid application. Well… sort of.

I guess it’s time to talk about private (or outside) scholarships. Look for that in my next post.

Applying Yourself Part 3: The Revenge of the State

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I know, I know, I love sequels. Be it Star Wars, Lord of the Rings, Harry Potter, or even Toy Story, once you get me hooked on a story, I am all in. The action gets even better as you dive deeper into the story.

While this may not be exactly the case when it comes to financial aid, it is true that your application process is definitely a 4-parter. Tonight we come to the next part of your financial aid process: the State application.

In Florida, which is where I am based, we have the Florida Financial Aid Application (FFAA).

Money in Florida – We have Some!

Florida’s largest financial aid program offered by the State is the Bright Futures program, but it is a merit-based program and is limited to students who meet the SAT, GPA and community service hours. For those who qualify, it can be a fantastic program — paying the full cost of tuition and fees at any state college or university in Florida, and a similar amount for students attending a private college. But if you don’t qualify, many students make the mistake of assuming that Bright Futures is the only program that Florida offers.

This couldn’t be further from the truth. Florida offers 12 scholarship and grant programs and 1 work program and most of them are not based on GPA or SAT.

But the most important thing to note is that you have to apply for these programs using the FFAA. The application MUST be completed during the student’s senior year of high school and can be done online.

Lots of great information on the eligibility rules and requirements can be found on the Florida OSFA webpage. We’ll also spend some time in future posts talking about these programs in greater detail. But for now, trust Moneyman. Get your Florida Financial Aid Application done.

And if you don’t live in Florida, make sure to look at your state’s requirements for its financial aid programs. Each state does things a little differently (some even let you take your scholarship money out of state with you).

And no matter what you do, stay tuned for the sequel. One more chapter is coming and it is sure to be a moneymaker!

Applying Yourself Part 2!

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So yesterday we talked about the FAFSA, the main Federal financial aid application that you need to compete annually, once for each student planning on applying for financial aid.

Today we are going to take a quick look at the second financial aid form many of you may need to complete, the CSS Financial Aid Profile.

It ain’t just the FAFSA!

The CSS Financial Aid Profile is an application form used by a number of private not-for-profit colleges as a supplement to the FAFSA. The information on the Profile (which is what I will call it for the rest of this post) is used to determine how much institutional financial aid (translation: grant or scholarship) will be awarded by the college that uses it to the student applying. That means that if your college wants you to complete the Profile, you should complete the Profile!

Unlike the FAFSA, there is a (small) cost to you to use the Profile. As of right now, the cost is $25 for the first college and $16 for each additional college you list. For first-time college applicants who come from families with lower-incomes, the College Board does offer fee waivers; simply fill out the CSS Profile online and you will be told if you qualify for a fee waiver.

Like the FAFSA, the Profile goes live October 1 for the following school year (so October 1, 2018 for the 2019-2020 year). Also like the FAFSA, you can list multiple colleges on your initial application (and that is recommended). Since there is a cost per college, though, you do want to make sure your college really wants the Profile. To confirm this, you should either visit your college’s financial aid web page or take a look at the list of participating colleges on the CSS Profile web page. Like the FAFSA as well, the Profile is entirely online so be prepared to answer questions using your web browser. As of now there is no mobile app for it.

In future posts we’ll talk more about why it is important to apply for financial aid from your college directly, but for now you should know that colleges and universities provide more money every year in grant and scholarship funds to students than the Federal government does, so completing the Profile is a “must do” if you plan on asking for every kind of financial aid for which you might qualify. Keep in mind that most public schools (both universities and community colleges) generally don’t use the Profile. We’ll talk more about what forms they use in our next post!

Applying Yourself

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So how do you apply for financial aid? Maybe you’ve heard of this thing called the FAFSA or maybe you know something about some college scholarship application, but what’s the real deal? What do you really need to complete, and when should you complete them?

Moneyman is here to help you!

Don’t Worry, Keep Filing Forms!!

So when you apply for financial aid, there are several forms you might need to complete. Let’s review them one at a time! In today’s post we will tackle the FAFSA.

The first form you need to know is the FAFSA (the Free Application for Federal Student Aid). This application is a Federal application and is indeed free to use (never pay anyone to complete your FAFSA). The application needs to be completed every year you plan to be in school, and if you have other members of your family who plan to be in school, they need to complete a FAFSA each year as well. The application goes live on October 1 on the year prior to your school year (in other words, the 2019-20 FAFSA went live on October 1, 2018) and while you want to complete the FAFSA as soon as possible, as long as the school year is still is session (and you are attending) it is never too late to do the FAFSA.

To complete your FAFSA you will need to get an FSA ID (Federal Student Aid ID). The FSA ID is your electronic signature which you will use to sign the FAFSA. Both the student and (for dependent students) at least one parent will need to get their own FSA ID which they will use each year to sign the FAFSA. The FSA ID will also be used by students to sign other financial aid related forms and to sign into other webpages (some examples include student loan paperwork and financial aid history).

On the FAFSA you will list ALL of the colleges to which you are applying for admission (whether or not you have already been accepted). Since there is no cost for applying using the FAFSA, you should list any college you are considering. Each college has a specialized school code that they should list on their web page (or you can just look it up inside the FAFSA application itself).

You can complete the FAFSA by visiting the FAFSA webpage and completing the form online, or you can download the myStudentAid mobile app and complete the FAFSA on your mobile phone (available for both Apple ioS in the iTunes Store and for Android phones in Google Play).

So that explains the application for Federal Financial Aid. More to come soon about the other forms required for financial aid, including the CSS Profile and the Florida Financial Aid Application!

Taking Stock

moneyman

Every January many of us pause to reflect on the year that has been and to make resolutions which will keep us focused on the year to come.  We “take stock” and reflect upon who we have been and set goals for who we intend to be.  This annual process for many of us is a chance to set an agenda, to establish ourselves anew, and to chart a course for our future.

While this blog has been established to be a place to learn about financial aid for all who might be interested, it also has been specifically established for those of you taking stock – Take Stock in Children, that is.

Take Stock in Children Florida

Take Stock in Children is an amazing program based in Florida which was established in 1995. From their web page, their stated purpose is to provide “…a unique opportunity for deserving low-income youth/students, many from minority families, to escape the cycle of poverty through education [by offering] college scholarships, caring volunteer mentors and hope for a better life.”

As I launch this blog, I want to welcome those of you who have found this place because of Take Stock in Children. I hope you will find the posts and information I share here very informative and helpful as you continue your way on your college search. As we each reflect on who we are and what we can become in the year ahead, I hope you too see a bright future ahead for you, and I hope that in some small way, what you learn here can help you on your way to future growth!