FINANCIAL AID POLICIES HANDBOOK 2013-2014
Calculation of Financial Aid Eligibility:
Need Analysis — Determining Family Contribution
The financial affordability plan reflects the difference between the cost of attendance and our estimate of resources available from the student, the family, and other sources. The estimated resources are made up of parent and student contributions (see below) and are based on need analysis procedures specified in the Federal Higher Education Act and by the Institutional Methodology as calculated by the College Board/CSS, and amended in some cases by college policy.
To help parents and students understand how the college makes its decisions and to acquaint families with the principles and ground rules of need analysis the financial aid office uses, we offer the following explanation of the major factors used to determine the CC affordability plan. We hope this will help students and parents understand what we have done and anticipate any questions.
There are basically two aid formulas in effect today. The Federal Methodology (FM) is used to determine a student’s eligibility for all federal aid, including Federal Stafford and Perkins Loans, Pell Grants, federal and state work-study, and most state grant aid. A family contribution is determined from the data a family provides on the Free Application for Federal Student Aid (FAFSA). The Expected Family Contribution (EFC) reported on the federal Student Aid Report (SAR) is based on this Federal Methodology. Because the Federal Methodology ignores some forms of income and expenses and eliminates some assets from consideration, Colorado College and many similar colleges use a second formula, the Institutional Methodology (IM), to determine a family’s eligibility for college aid. The Institutional Methodology determines more accurately and more equitably a family’s ability to pay for education from family income and assets.
We determine federal aid eligibility by using the Federal Methodology. Eligibility for CC aid is determined solely on the basis of the Institutional Methodology. The factors most critical in determining what parents are expected to pay, the Parent Contribution (PC), include income, assets, the number of family members, and the number of children currently enrolled in an undergraduate college. Student earnings plus student assets are considered to determine a Student Contribution (SC). Financial need is then calculated by deducting both parent and student contribution from the total cost of attendance. An award package composed of grants, loans, and student employment may be provided to meet any need that results. The following factors are central to the Institutional Methodology need analysis formula that we use at Colorado College:
1) Parent Income — In most cases, the single most important factor in determining Parent Contribution is the income used in the need analysis formula. For institutional aid, income is a reflection of a family’s cash flow. How a family spends its money is not a consideration; only the amount available for spending is counted, as determined by the Institutional Methodology. We use a modified Adjusted Gross Income (AGI). We add back most forms of depreciation. We do not subtract most losses including those from business and rental ventures, capital losses, and losses carried forward from prior years. Untaxed income is also included if appropriate. This includes untaxed Social Security benefits, veterans’ benefits, welfare or child support, voluntary annual contributions to tax deferred savings or retirement plans, housing and living allowances, untaxed portions of pensions or annuities, workers’ compensation, and any other form of untaxed income or benefits.
The Institutional Methodology deducts from total income certain non-discretionary expenses such as federal taxes, state and local taxes, medical/ dental expenses not covered by insurance above a basic level, and an employment allowance in single-parent households or when both parents work. Also deducted are a basic income protection allowance that is based on family size and an annual education savings allowance for younger children. After these allowances are deducted, the Institutional Methodology assumes a portion of any remaining income can be used for educational expenses. That portion increases up to a point as the remaining income gets larger.
2) Parent Assets — Because assets contribute to a family’s financial strength, they play a part in determining the Parent Contribution along with income. Assets included in the formula are equity in real estate including the family home, savings, investments of all kinds, a portion of business/farm net value, trusts, annuities, etc. Rarely will we accept real estate assets at a value lower than the purchase price, and we often use national real estate appreciation multipliers to project market value. We do not include automobiles and consumer goods as assets, and we generally exclude the value of the parents’ primary retirement fund. In some cases, we will impute asset values based on the information reported on the tax forms.
We subtract debts from asset values to determine net worth, but the only debts that count are those against the assets themselves or those over which the family has no control, such as medical expenses. Consumer debt and debt of choice does not apply. The formula also protects assets with an emergency reserve allowance and a cumulative education savings allowance. A low income asset allowance is also provided. The remaining assets are assessed using a graduated rate structure from three to five percent, and this amount is added to the parent contribution.
3) Family Size — In general, this is the number of family members who are part of the same household, including those who attend undergraduate college. Other relatives living outside the home, even when supported by the family, are not included. Adult offspring who are 24 years or older are not included in most cases.
4) Family Members in Undergraduate College — For families with multiple children in undergraduate college at the same time, we divide the parent contribution among the students. We may adjust the parent contribution in relation to the costs of the other college so that a lesser allowance may be made for other children at schools with significantly lower costs than CC’s. There is no adjustment of the parental contribution when parents are in an undergraduate or graduate program or for children in graduate school. To calculate eligibility for the initial four-year award, we have modified the need analysis. If a student has older siblings in college during the 2012-13 school year, we have factored the number of years the CC student and sibling will overlap in college enrollment into the financial aid offer and the four-year grant commitment. If the family has younger children who may attend college during any of the last three years of the CC student’s career, the family may submit this new information in subsequent years for possible adjustment to the financial affordability plan. We may require a sibling enrollment verification form from those students who report that a sibling attends another college. A college official at the sibling’s college would need to verify enrollment and return the form to the CC financial aid office. We reserve the right to make adjustments to awards based upon the results of the enrollment verification process.
5) Divorce/Separation — In cases of separation or divorce, the parent (and any stepparent) with whom the student resides is responsible for completing the aid application. We require that the other natural parent complete a Noncustodial Parent’s Statement. While divorce or separation may affect the extent to which one or both parents can contribute, it does not absolve either parent of this obligation. We evaluate information from both households to arrive at a two-parent contribution.
6) Student Contribution — We expect each student aid recipient to contribute toward educational expenses from non-work study earnings and from any assets. The vacation-time earnings expectations for students is $1,800 for all students entering in the fall of 2012, or up to 50 percent of a student’s AGI, whichever is greater. If students have assets of their own in the form of savings, investments, trusts, real estate, etc., we will include 20 percent of their value in the student contribution.
We may lower the expected student contribution because of summer school attendance, participation in voluntary social service projects, or lack of employment opportunities. The shortfall may be shifted to need-based loans or student employment in the affordability plan, based on available funding.
Colorado College’s need analysis is based on principles of equity: those with the same financial strength are expected to contribute the same amount from income and assets; when financial strength is different, the expected contribution is different, with the contribution increasing as financial strength becomes greater. The principles of equity also require that we define income and assets, and allowances against assets, the same way for everyone.