So, much earlier, I began a post about how we determine your family contribution. I started the conversation by describing the four parts of the contribution and discussed how there are really two methodologies used, one for Federal funds, and one for colleges who use the CSS Profile to determine eligibility for their funds.
Next, in two separate posts, I described how the two methodologies handle Parent Income, and Parent Assets.
This post will attempt to address the last two components, the Student Contribution from Income and the Student Contribution from Assets. (Note: this information applies to dependent students only and does not apply either to independent students with or without dependents. If you are unsure as to your dependency status, check out the first post above for some definitions).
When examining student income, we begin at the same place we began on the parent side – with the Adjusted Gross Income from the the base tax year (in the case of students attending in 2019-20, that would be 2017). We add to this any nontaxable income (such as tax-exempt interest, IRA contributions for the current year, tax-deferred contributions, etc). We also subtract out from the income any taxable financial aid which is included in the AGI (this might include Federal Work Study earnings from the previous year or scholarships that were taxable in the previous year).
As with the parent income calculation, there are several items which are removed from the student income as allowances against the income:
- US Income Taxes paid — Again, this comes directly from the tax return.
- State and other taxes — Again, a percentage of the total income (as determined above). This percentage is determined from two sets of tables, one for the Federal Methodology and one for the Institutional Methodology. As with the parent tables, the IM values are more generous than the FM ones.
- FICA Taxes — Based on wages earned, a 7.65% allowance representing Social Security taxes.
- Income Protection Allowance (for FM only) — An allowance used in the FM formula against the income representing student costs of living (for FM in 2018-19 the number was $6,570).
Student available income is determined by subtracting the total of the allowances from the total income. In both the IM and the FM formula, this value is then multiplied by 50% to indicate that there are other expenses that students have (but note that this percentage is much higher than the parent conversion rate).
Some institutions (mostly private high-cost colleges) have minimum student contribution levels that they set which reflect the expectation that students will earn money during the summer before the school year begins. Different colleges have different minimum levels and different policies about excess earnings, so you really need to talk to each of them to find out their policies.
An important note about the student IPA though is the high level (relatively) of the standard deduction. Having a $6,570 IPA means that a student has to have earned more than $6,570 after Federal, State and FICA taxes before any of their income would be counted in the contribution. This is a higher than many students would normally earn.
Now on to student assets. Here it is actually fairly simple.
We take into account the same assets for students as we did for parents. Namely:
- Cash, savings and checking accounts.
- Non-retirement based investments (including trusts).
- Real estate owned by the student (don’t laugh).
- Home owned by the student (don’t laugh harder — and by the way, home is only considered in IM, not FM).
- Business or farm equity (and remember this is also adjusted like the parent one was, somewhere between 40 to 60% of the equity depending upon the amount of the equity).
Once the total asset value is determined, the FM formula says to take 35% of the value and include that in the Student Contribution. The standard IM formula says to take 20%. As you can see, this is a MUCH different treatment than parent assets (which have a much lower assessment rate).
The 568 schools use a different approach. We combine student and parent assets as family assets and subject them all to the parent analysis. This hopefully alleviates the concern that students saving in their own name are penalized for this. For these schools, they believe savings should be treated uniformly. They try to address this in our approach.
So, now I have addressed all of the components of the Family Contribution and how we determine them. Next up, information preparing you for your award notification!