Getting Started with IM and Options Andrea Mravlja Director, Financial Aid Services The College Board
Introductions
Building a Solid Foundation
Get the Full Picture with Institutional Methodology (IM) • Adjust for Institutional Goals • Adapt for Family Circumstances Options
Base Calculation with Current Economic Data
Economic & Need Analysis Principles
• Maintained by financial aid professionals • Annually updated allowances and assessment rates • Equity • Financial Strength
Differences from Federal Methodology (FM) •
Based upon annually-updated economic indicators
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Maintained by Financial Aid professionals, with insight and guidance from economists
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Income and assets reviewed for all (no simple needs or auto-zero calculations)
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All assets included (home, business, farm)
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Options allow for flexibility at institutional level
Base Behavior •
IM need analysis strives to determine the extent to which both the student and parents are able to contribute towards educational expenses
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Income and assets analyzed separately for both student and parents, then combined for a total contribution
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Methodology updated annually to ensure that the allowances and rates used accurately reflect current conditions families face
Base Behavior – Parent Contribution Parent Contribution from Income (PCI) • All sources of parent income, minus exclusions and allowances •
This remaining amount is assessed at marginal percentages
Parent Contribution from Assets (PCA) • Total net worth, minus allowances •
This remaining amount is assessed at a maximum rate of 5%
The PCI and PCA are summed, then adjusted for the number in college to get the PC for the student
Base Behavior – Student Contribution Student Contribution from Income (SCI) • All sources of student income, minus exclusions and allowances •
This remaining amount is assessed at the parents’ marginal rate
Student Contribution from Assets (SCA) • Total net worth (including trusts), minus allowances •
This remaining amount is assessed at a fixed rate
The SCI and SCA are summed to get the total student contribution
Base Behavior – Common Questions •
Is IM always higher than FM?
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What about divorced parents? Are they both factored in?
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Why does the work study exclusion stop working sometimes?
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Why is so much family demographic information needed for IM?
Base Behavior Misconceptions Myth: There is no asset protection allowance in IM
Fact: •
FM has an asset protection allowance based upon the age of the oldest parent
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IM does not have this allowance based on parent age, but it does have 3 other asset protection allowances: •
Emergency Reserve Allowance
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Cumulative Education Savings Allowance
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Low-income Allowance
Base Behavior Misconceptions Myth: Families are expected to sell their home •
Since IM asks about the family home and uses this in the calculation, families should be prepared to sell
Fact: •
IM does look at home equity as a measure of the family’s financial strength. The equity is treated in a similar fashion as other assets, with allowances applied against it
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Options around the home can be set to adjust base behavior
Base Behavior Misconceptions Myth: Adjustments for more students in school make no sense Fact: •
The FM adjustment simply divides by the number in college
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IM does use percentages, rather than dividing by the number in college. This is done in order to treat families more equitably, regardless of the spacing between their children
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Financial aid offices can set alternate rates, rather than the base IM rates
Common Options •
Provide Alternate Allowance Values •
May be appropriate as a professional judgment to use different values for certain allowances
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In many cases, alternate values can be provided (income protection allowance, taxes paid, medical/dental allowance)
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In some cases, an alternate rate is provided (annual savings goal) that impacts allowances (educational savings allowances)
Common Options, cont. •
COLA (Cost of living adjustment) •
May be appropriate for families living in higher cost areas
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Allowances are adjusted by the COLA factor if the option is invoked, increasing the allowance against either income or assets
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COLA factor is based upon the student’s permanent address ZIP code
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COLA factors are based upon annual review of expenses in several metropolitan areas
Common Options, cont. •
Home value/home equity •
May be appropriate to adjust the reported home value, debt, or equity to more accurately reflect the family’s financial strength
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Home equity or home value can be capped by a factor of the family’s total income •
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For instance, home equity can be capped at 2 times the total income
The reported home value can also be tested against the housing multiplier table for validity
Common Options, cont. •
Asset assessment •
Base IM sets asset assessment rates at standard amounts. An institution can also choose to set different asset assessment rates for parents and/or students
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Institutions may choose to treat student assets like parent assets, assessing them at the lower parent rate. Student trusts can be treated with the other student assets, or left with the student
Common Options, cont. What other option questions do you have?
Resources to Learn More •
Resources: •
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A Primer on Economics for Financial Aid Professionals, by Sandy Baum •
Excellent economic underpinnings of determining need
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Details economic principles behind earnings over time, horizontal and vertical equity, and supply and demand
IM Guide •
Clickable user guide to explore IM. An iterative version that will be expanded over time with member feedback
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Available online for PROFILE users
Session Evaluation Using the Session Number, please complete the session evaluation by: 1.
Scanning the QR code and submitting the online evaluation:
2.
Submitting the online evaluation at: https://www.surveymonkey.com/s/2014PFConf Session
3.
Returning the paper evaluation
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