Money @ MIT (The Archives) : 1. How We Determine Your Family Contribution

The Blog is Dead. Long Live the Blog.

barkowitz — Thu, 30 Jun 2005 23:22:00 GMT

This blog is officially closed and will now only exist as an archive of past posts.

Please visit the new blog at http://daniel.mitblogs.com.

And sometimes the changes you make can have great meaning...

barkowitz — Fri, 13 May 2005 00:14:00 GMT

I just finished dinner with the kids, and am getting ready to watch the last regular episode of Survivor, but before I do, I thought I needed to post a little more on the subject of corrections.

This is me on my soapbox, so if you don't want the preaching, move on... (fair warning)

While we send FAFSA corrections at MIT on all of our financial aid applicants, the Federal government does not require this of us. In fact, most colleges in the country do not send corrections on all of their applicants; most only send corrections for the students whose Pell awards are changing, for whom they are changing the number in family or in college, or for whom they are making a dependency status change. This is all that the Federal government mandates you do as a college processing Federal financial aid. Simply send these changes.

But at MIT we send them all. Why? Well to answer that I need to speak a little to what happens with the data you submit. While the data you file is maintained under strict confidentiality, the government does use aggregate data to make some assumptions about all people filing for financial aid. For instance, the government may use some of the information to estimate average family incomes, average number in family, average ages of parents, and average family contributions of those applying. Well, this worries me. If the data is bad, and I know it is bad since I have verified the information with a copy of a tax return or other information, why wouldn't I want to correct it? I update the information in the CPS (Central Processing System), because to do otherwise would be, in my view, to be knowingly allowing bad data to persist. And if there is something I can't stand, it's bad data.

While we may be out on this bandwagon on our own at MIT, guess what? We won't be for long, more than likely. Why? Well, guess what' s coming down the proverbial pipe for those of us in the financial aid profession, and for you as a financial aid applicant... An IRS match.

Soon, although how soon is anyone's guess at this point, the Department of Education and the IRS will begin to run a match between data provided by you on your financial aid application and data provided by you on your tax return. This match, referred to as the “IRS Match”, will provide a more centralized way to confirm the accuracy of your application data. Sounds OK, no? Well, no. There are a lot of concerns about this, beginning with a problem of timing. IRS Data is generally not available until July or August, financial aid awards need to be complete much earlier that that. Since we do right now (and probably still will be) collect tax returns from applicants much earlier than July or August, we already know what the match will reveal. It only makes sense for us to send our corrections so that our applicants won't fail the match. In fact, this year the FAFSA has taken baby steps toward this process (asking for mother and father's SSNs, sending emails to families who applied saying that their tax status was “estimated“ asking them to correct their information, etc.). There are many other unanswered questions about how the IRS Match would work including concerns around privacy, information sharing, resolution, etc. If you are interested, the presentation made by the Department of Education representative at last summer's financial aid conference can be found here.

So, MIT may indeed just be ahead of the curve. Hmm, us?

Be well, and keep commenting. I would love to see your thoughts on this issue as well.

Sometimes change is meaningless...

barkowitz — Thu, 12 May 2005 15:38:00 GMT

If you are an incoming Freshman student, this message is for you!

No grandiose ideas in the title. I know that change is meaningful and that you will be undertaking major changes soon as you close the book on your high school life and prepare to enter MIT for the next chapter of your saga.

But my purpose in this post is much more mundane.

We just submitted a number of FAFSA corrections for those of you who will be attending MIT next year. What this means is that we made some change to the FAFSA data you provided when you originally applied (maybe your tax information wasn't valid, maybe you left out a sibling, etc.) and we changed your record on our system. We have now reported those changes to the Feds (via a correction file) and as a result the Federal Processor will be sending you a revised Student Aid Report giving you a new Federal EFC and showing you the changes we made.

What do you need to do about this? Nothing.

Will your aid change as a result of these changes? No.

If you are curious and what to know what we changed, how do you find out? Look on the Student Aid Report. Any changes will be identified with a # sign.

Is change sometimes meaningless? Yes.

Now back to your regularly scheduled program...

When it feels like another logic puzzle... How to afford your EFC?

barkowitz — Fri, 01 Apr 2005 01:17:00 GMT

Hi all.

First off, let me say that I am really enjoying the feedback on the previous post. My one logic puzzle has turned into a thread of logic puzzles with a really hard one which Michael posted (Jane and her dad just answered it -- I think), and some easier (but still difficult) ones from Jane, Ben and Meder (and others). So keep up the fun!

Also a bit of a news update: we will be packaging about another 25 students tomorrow (we missed it today) and will be sending out these awards. This brings us up to those of you who completed as of Tuesday of this week, so keep your applications coming... We will also be sending another set of missing information letters out by email to Freshmen admits, either tomorrow or Monday.

I also will be out of town this weekend, so be aware that if you post something here I will not see it until I get back late Sunday (I'll be in New York City with a religious retreat -- 8th through 10th graders). If you are in the Big Apple, look for me this weekend!!!

Now, to the post:

I know some of you may be concerned as to how you (or really, your parents) are going to cover your EFC. As I said in one of my previous posts, the EFC is supposed to be an expectation of how much your family can absorb in costs for a year, not just how much you can pay out of pocket directly to the bill. If your EFC seems like a stretch for you and not something which you can simply pay from savings or current income, this post is for you.

Some families see their EFC and panic -- they think that the only option to them if they cannot pay it all is to borrow it all, and while that may work for your family it leaves lots of other options unexplored. So I would like to recommend the following hierarchy for you and your family.

Determine what your EFC is. If you will be using some of your Self-Help as work, add the amount of the work to the EFC you will need to cover. If you will be earning your summer expectation, subtract that amount from the EFC.
Determine what your out-of-pocket cost is. Realize that you are not billed for books and supplies. Decide if you plan on covering these with a payment plan or from a different source. Look at the budget in “Making MIT Affordable.” Keep in mind that the housing and meal costs will be estimated until you finally move into a dorm (in September) and choose a meal plan.
Determine how much you can pay directly toward the bill. Do you have money set aside for college expenses? Are there resources you can apply to (even if it doesn't completely cover) the Fall and Spring semester bills?
Examine the MIT Monthly Payment Calculator to see what combination of Loan and Monthly Payment Plan works for you.

So here we arrive at the crux of this post. To help you determine what should be the best combination of loan and payment plan works for your family, we have designed a fairly simple Excel spreadsheet which should help.

To understand how this works, let's examine a sample family -- the Joneses. The Joneses want to send their son, Ben, to MIT, and in order to make this work they need to come up with $15,000 (assume they have already done step 1 - 3 above). They download the MIT Monthly Payment Calculator and enter in the $15,000 figure (in the top line which says “Enter the amount the family needs to finance”) which presents them with twenty options they can consider as they look at financing Ben's cost at MIT (see the image below):

With the “calculator” in hand, the Joneses see that they can spend between $133 and $1,906 a month during Ben's Freshmen year to cover their $15,000 expense (see column labeled 2). They understand that each row in the sheet represents a combination of a loan (in this case, the MEFA Fixed Rate Loan) and the MIT Monthly Payment Plan. They look at the chart and notice that column 3 lists the total amount they will put in the MIT Monthly Plan while column 4 demonstrates how much they will be paying monthly (in 8 payments) under the MIT Monthly Plan. Similarly column 5 shows how much they will need to borrow using a MEFA loan while column 6 demonstrates how much the monthly payment will be for the MEFA loan (with a 15 year repayment term).

Looking at this chart, and more importantly looking at their monthly budget, they determine that a $500 monthly payment seems reasonable. They therefore will apply for a MEFA loan in the amount of $12,000 and will place $3,000 under the MIT Monthly Plan (with a payment of $381 for the MIT Monthly Plan and a payment of $106 for the MEFA Loan).

Several caveats:
There are some built in assumptions in the spreadsheet: that the payments to the MIT Monthly Plan have a generalized 8% interest rate and that payments are made on the first of every month; that the family borrows a fixed-rate MEFA loan with a 6.19% interest rate and pays on the first of every month; that the interest rates and terms of the loans do not change between now and when the family borrows; and that there are no prepayments under either program. This chart should be used for illustrative purposes only. It does not pretend to be a final representation of your actual monthly payments and should not be considered an offer of the loan.

So, enough warnings, and have at it. Here is the version with the MEFA loan, and here is one using the PLUS loan. The PLUS interest rate has not been set yet for next year, so the chart is using the rate for 2004-05.

If you have questions about any of this, feel free to ask! I will also be talking a bit about this at my presentation at CPW. In the Excel file, you will also notice a very pretty chart which illustrates the breakdown between payment types for the 20 options. It is suitable for framing, if you like!

Hey all! Enjoy. Remember I won't be around tomorrow or this weekend! And see you at CPW (I hope!).

One clarification to student contribution...

barkowitz — Thu, 03 Mar 2005 14:53:00 GMT

Just wanted to offer one clarification on my student contribution post below.

The numbers I gave ($1500 Freshmen, $2200 Sophomores, $2500 Juniors, $2800 Seniors) are summer earnings expectations for US Citizens and Permanent Residents only. For International Students (as well as US Citizens living abroad), we do not require a minimum student contribution as we recognize it may be difficult in your home country to earn the amount of money necessary to meet this expense. Instead, we expect a $0 student earning contribution, but do expect international students to cover their own travel to MIT. We encourage you to earn enough during the summer to cover that travel, but we let you determine how to get here and let you make the arrangements yourself.

Sorry for any confusion!

The rest of the bunch... Parts 3 and 4 of your family contribution

barkowitz — Thu, 03 Mar 2005 02:03:00 GMT

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 MIT 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 last tax year (in your case 2004). 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 the number is $2,440).

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 (MIT included) 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. At MIT, the minimum student contribution levels are $1500 for Freshmen, $2200 for Sophomores, $2500 for Juniors, and $2800 for Seniors. If your contribution seems to be higher than this (for IM purposes) any amount that we expect over these minimums is removed from your self-help (loans and work) not your grant, therefore not penalizing you for earning too much. This also means that you can work for more than the minimum number of hours in the summer, knowing that what you earn can replace the expectation of work or borrowing during the school year. 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.

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 25%. As you can see, this is a MUCH different treatment than parent assets (which have a much lower assessment rate).

At MIT, as well as at other 568 schools, we 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. Hopefully, savings should be treated uniformly. We try to address this in our approach.

At MIT, we do consider one type of student asset as a student asset alone, and that is trusts in the student's name which have been established by someone other than a parent. In these cases, students would see an asset contribution expected from them, but these situations are rare.

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 letter!

Part 2: Parental Contribution from Assets

barkowitz — Tue, 01 Feb 2005 18:41:00 GMT

First off, I need to say publicly that the Q-Man is my new personal hero! And also I need to let you know that Autumn is now working! (For those of you not in the know, Autumn is our online tracking system for prospective freshmen which lets you see what financial aid documents we have received from you, and which still need to be sent in). Note that Autumn is updated nightly, so anything we receive today, for instance, will not show until tomorrow morning! You will need your MIT ID in order to access your record.

On to my second post on the topic of how we determine your family's contribution. The first post was on parent contribution from income. This post will be in regard to the parental contribution from assets.

There are some assets that are included in the analysis of both the CA (Consensus Approach) and the FM formulas. These include:

Cash and savings accounts.
Stocks, bonds, mutual funds, and other regular (i.e. non-retirement) investment accounts (including life insurance cash value).
Real estate other than your primary residence (including investment real estate, 2nd homes, etc).
Business or farm equity (this amount is not at a 100% assessment rate, you report the total amount on the form and we make an adjustment based on a table, usually somewhere between 40% and 50% depending on the amount of equity). Special note: In order to determine what makes up your business or farm equity, we do require a business or farm supplement for each business you own (this includes Schedule C businesses, Schedule F farms, Partnerships, S-Corporations, and regular Corporations).

Some assets are ignored from both formulas. These include specially designated retirement accounts like 401K accounts, IRAs, KEOGH plans, etc (although remember the amount of the current year's contribution was added back as non-taxable income before).

One particular asset is included only in the CA formula, and not in the FM formula. This is the home, or the primary residence. At MIT, we do use a number of modifications to your reported information to arrive at a reasonable value, but the home is a factor in our analysis. Many other institutions may use similar or very dissimilar processes, so you may want to confirm with the institution what policy they have in place.

Why is the home not included in FM? In 1993-94, the Federal Government removed the home from the financial aid formula. This was done for several reasons, I believe, none of which make particular sense from the point of view of assessing a family's ability to pay for college. The action of removing this asset from the formula was to, in effect, pretend there is no difference in a family's financial strength whether they rent an apartment or own their home. Private colleges determined that this analysis wouldn't work for them, so they created their own process to analyze financial aid (therefore the birth of the Institutional Methodology). There are very many other differences between IM and FM, but the issue of home equity serves as the starting point for their divergent paths. A history book on this subject is just itching to be written...

So enough history, what does MIT actually do?

We start by looking at what year you purchased your residence and how much the purchase price was in the year in which you purchased it (I say you when in fact, more than probably, it is your parents' house). Based on a table which eliminates regional variation, we determine how much the property should be worth today. This table uses a national coefficient so that parents are neither penalized or advantaged by living in an area where values over time have deviated from the national norm. As an example, if you purchased your home in 1988 for $100,000, we would use a coefficient of 1.76, so the value would be $176,000. (And if you are interested in finding the rest of the chart, it is not publicly available. The underlying information comes from here though.)

Once we have the value as determined by the multiplier, we compare that to your stated value (on the Profile application) and in most cases will use the multiplier value (we may use your stated value on a case-by-case basis, usually if it is lower than the multiplier value).

The next item we examine is whether you could access the value in your home. To determine this we cap the total value based on your total income. This cap is 240%. So, a family who earns $100,000 a year would have their home value capped at $240,000. In other words, we cap your home value at 2.40 times your income. This is to protect families who, due to real estate market growth, live in a home that they could not afford to purchase today. We cap the value of the home at this amount to account for the fact that a family could not afford to qualify for a mortgage to access equity higher than this level.

We take the lower of these two numbers into account as your total home value, and then subtract debt from that to determine the home equity.

Another asset we consider under CA is the student's siblings' assets since we try to get a whole picture of a family's net worth (we will also later provide an allowance against these assets for the siblings' savings for college). In addition, under CA we consider all student assets (with the exception of trusts) to be family assets as well so that students will not be penalized for saving for college (due to the higher rate used in the student-only analysis).

Once all of your assets are in place, we subtract allowances from them to determine your net worth. The allowances are different depending on the formula.

The following allowances are subtracted under the FM formula:

Education Savings and Asset Protection Allowance -- An allowance against assets based on the age of the older parent and marital status. As an example, for a married couple with an older parent aged 48, the amount is $40,500. For a one-parent family with a parent aged 48, the amount is $15,900. This amount is supposed to be, according to the Federal formula, a protection against your assets to supplement your retirement and to allow for savings for college for younger siblings of the student.

The following allowances are subtracted under the CA formula:

Emergency Reserve Allowance -- An allowance against assets based on the number in family and in college (again, modified by a regional COLA figure) to represent what a family should have saved in case of emergencies.
Cumulative Education Savings Allowance -- An allowance representing how much a family should have saved by this point for college for this student as well as any college-attending or younger siblings. This amount is based on the Annual Education Savings Allowance calculated earlier in the formula.
Low Income Asset Allowance -- If the Available Income calculated before is negative, the amount is subtracted from assets available (to represent that the family is living off of its assets).

The resultant value (Net Worth minus Total Allowances) is then referred to as the Discretionary Net Worth. Discretionary Net Worth is then combined with Available Income and the whole thing is run through a final conversion, leading to somewhere between 22 to 48% of Available Income (based on how high the Available Income is) and somewhere between 3 to 8% of Discretionary Net Worth (again, based on how high the Net Worth is) appearing as part of the final contribution from parents.

This figure is finally adjusted to reflect how many students are attending college in the same academic year. Under the Federal Methodology, the number is simply divided by the number in college (so, if your contribution was $10,000 and you had two in college, each student would have a $5,000 parent contribution).

Under the CA methodology, the resultant number, instead of being evenly divided, is modified by a percentage (60% for two in college, 45% for three in college, 35% for four or more in college); this would mean that for a contribution of $10,000 with two in college, the contribution for each student would be $6,000).

So, I think this is a good general overview of the asset treatment. And here I thought this would be simple. Ask away, since I am sure this will generate questions. I will tell you I am out of the office at a meeting tomorrow and Thursday so I might not get back to you very quickly, but let me know your reactions.

Again, please let me know if this is way too much detail, or not enough information.

Determining the parent contribution from income

barkowitz — Thu, 20 Jan 2005 21:09:00 GMT

So, 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 both the FM and CA methodologies treat parents’ income and then answer some frequently asked questions about the methodologies.

First, though, some pressing business at hand…

Thanks to all of you who have posted your random 10 songs from your mp3 player or music library. I’ve enjoyed reading them and I don’t feel so far out in left field musically, since I recognized (almost) all of the bands listed.

Some answers to recent questions…

From Ipsen:

- The income statement of 2004 hasn't been produced yet; instead, we have only the one of 2003. As the numbers are not much different, so when filling the section about my family's income in 2004, can I supply the number of 2003?

If the answer to the above is "No", please help me coping with this question:
-My parents' taxes are collected by their governmental employers before they actually get the salary. Hence, they don't know the amount of taxes in 2004 until the official income statements of the year are produced. So can I fill the **post-tax numbers** in the (father/mother)*'s income blanks, of course with some indications?

My answer:

Do the best job you can of estimating the 2004 numbers. We would prefer you not to just simply fill in 2003 information, as it is likely that there has been a change of some kind to the income in 2004. As regards taxes, you should always report gross earnings and then let us know the amount of the tax. If you are completing the application before the actual file date, estimate taxes, but follow on with actual tax returns when they are available.

From Arvind:

I am an international student from India. I had a query about the financial aid form.
My grand mother also depends on my parents income, hence including her, my parents, my sisters and me q.14 of the f.aid form for international students has answer as 5.
Do I include her and my parents name in section 15 of the same form. if yes, do i leave the educational information par blank.

Answer:

If your grandmother lives in the household with you, you should include her in the number in your family and in the family matrix (in this case leave any educational information blank unless she is currently enrolled in college!!). If your parents provide money to support her but she doesn’t live with you, note that in the comments section, provide information on how much support they provided in the past year (a monetary estimate) and do not include her in the number in family or in the family matrix.

Albert:

hey daniel, when is the FAFSA and CSS/Profile due for MIT? Some schools are expecting it for February 1, but to be turned into the agencies. Thanks.

Answer:

We would like to have received all of your information by March 1 at the latest, so this means that you need to send it in earlier to ensure that it arrives to us by the 1st. If you will be filing the FAFSA electronically, allow 2 to 3 weeks, so get it done by February 7th or 8th at the latest. If by paper, allow a month, so it needs to be mailed by February 1st. The Profile (since it is only online) should be done no later than February 15th so that we can receive the information by March 1st (and so that you receive your information about IDOC before that [<- more information coming on IDOC, I promise]). If you plan on submitting 2004 tax returns, you will use IDOC. If you will not have 2004 returns available in time by March 1, then send your 2003 returns directly to our office instead.

You didn’t ask this question, but I will answer it anyway. For international applicants, please make sure all information is received by March 1 as well!

So, on to my main post!

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

Determining the parents’ total income,
Figuring out allowances against the income, and
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).

To that 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 Worksheets A and B from the FAFSA application for the appropriate sources].

Next we remove from parent income any items listed on Worksheet C of the FAFSA (child support paid, 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:

US Income Tax Paid – we use the actual income tax paid by your parents as reported on the FAFSA and Profile, and as documented by the copy of your tax return,
State Taxes Paid – for this calculation, we use a table (two different ones in fact, one for FM and one for CA) to determine how much of your Total Income should be protected to cover state and local taxes,
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,
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
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.

There are also three additional allowances that are used only under the CA methodology:

Medical / Dental Expense Allowance – any amount spent on medical and dental expenses greater than 3.5% of total income is allowed as a deduction under the CA methodology.
Annual Educational Savings Allowance – an allowance for savings for other children in the family who are pre-college age (1.52% of total income per pre-college age child). By allowing for this amount, the formula is encouraging families to save some money for college out of current income for younger siblings, and
Private Elementary and Secondary School Tuition allowance – an allowance to reflect ongoing costs for private school tuition for younger siblings; no allowance is allowed for the current student applying to college, but a maximum of $7900 per child.

Some other considerations as regards the CA treatment of income:

For negative income, we do examine whether the loss was truly a cash loss or a paper loss. If the loss is not a true loss (in other words, a loss on the tax return, but not a cash outlay for the family), the loss is added back to the income.

Depreciation (whether on a business return or a rental return) is also considered to be a paper loss and therefore is added back to income.

For families living in a metro area with a high cost of living, we use an optional regionally based cost of living allowance in the CA formula to allow for an increased IPA.

As a reminder then, 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.

barkowitz — Wed, 12 Jan 2005 19:04:00 GMT

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. Now, my choir isn't an MIT thing (although there are MANY MANY MIT choirs -- from the Logs to Techiya to the Muses and everything in between). My group practices every Monday night.

Last Monday 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.

The Expected Family Contribution is made up of four components:

Parent Contribution from Income
Parent Contribution from Assets
Student Contribution from Income
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 here 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.

Remember that before, I explained how there were really two different formulas, one used by the Federal Government at all schools to determine Federal aid, and one used by a number of colleges (including MIT) to determine how to award their own aid. Also, remember that I said that while the Federal rules were pretty standard across the board, there were many variations in the Institutional formula.

So, let me tackle the Federal rules first. If you meet any of the following 7 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):

You will be 24 by January 1, 2006.
You are an orphan or a ward of the court.
You are married.
You are a graduate student.
You are a veteran of the United States armed forces.
You have a legal dependent of your own (other than a spouse) who lives with you.
You have a legal dependent of your own who doesn't live with you, but for whom you provide more than 1/2 of their support.

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

For institutional aid, the rules may be different. At MIT, we only consider as independent undergraduate students, those students whose parents are deceased. We believe that a parent's obligation to assist with a student's undergraduate college cost doesn't end just because the student turns 24 or gets married. For our funding in these cases, we require parental information. (If you are curious about how other colleges might handle this, you should contact their financial aid office).

Also, it is important to remember that our 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 either the Federal or the institutional formulas.

That is not to say that there are never situations where we would waive parental contributions (how is that for a double negative?), but they are extremely 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.

Look next for a beginning breakdown of the parental contribution from income.

Keep working on your applications! A number of them have started rolling in! How nice to see them!

Do you want the 10,000 foot view? Or the extreme closeup?

barkowitz — Tue, 28 Dec 2004 21:54:00 GMT

So now it seems time to describe how the determination of your financial contribution happens here at MIT. Suffice it to say that I could write a book on the subject (and indeed, we have one that we use internally) and still not be done with the complete description of every case, but I figured I would at least give you a closer view than you might otherwise have into what we do. This blog entry presents part 1 of what I am sure will be a several blog entry.

So, first time for some definitions:

There in reality are several different ways of measuring ability to pay for college. There is the standard Federal Methodology (also known as FM) which is the process all colleges must use to determine what Federal financial aid for which you may be eligible (this includes Pell Grants, SEOG Grants, Perkins Loans, Federal Work Study, and Stafford Loans). When you file your FAFSA (all of you should be ready to do this VERY soon), you will get back an EFC (also known as Expected Family Contribution) which will provide you the number that the Federal Government determines is your family contribution.

By completing the Profile application (which you should already be working on now!), you give us another entry into a different type of analysis (one which we at MIT rely upon more heavily than FM for the distribution of our scholarship money). This is referred to as the Institutional Methodology (IM).

Both methods follow the same general rule. They consider income (of parents and students separately) then by using formulas subtract some allowances for non-discretionary expenses. They then look at assets (other than those in specifically determined retirement accounts) and allow for some protection of these assets based on other tables. The totals are then run through a conversion formula, and the student and parent contributions are added together to come up with a final expected family contribution (or EFC - for an example of how the formulas work where you can enter your data and run a sample needs analysis, see here).

Why are there two methodologies (or more)? Well, to answer that we need to look at some history. Several years ago (now more like many years ago) in 1996, the Federal government stopped considering home equity as an asset in the Federal formula. This combined with the fact that the tables on which the Federal method rely are very outdated pushed many colleges into developing a “loose” standard treatment for their own money. IM was born.

Since there is no real “standard” rule to determine a family’s ability to pay when giving away an institution’s own money, many colleges may make different adjustments to the IM for their own purposes (explaining why in some cases the contributions you may be expected to pay could vary widely from college to college). Several colleges (including MIT) joined together in the past several years to try to limit the number of differences that students and parent face in their EFCs, and started the 568 group. MIT practices its need analysis (the process by which we determine your EFC) using the 568 group principles, commonly known as the consensus approach.

Much more on all of this to come, but this ought to be enough to whet your appetite.

Now for your assignment! How much detail are you interested in when it comes to this process? Are you curious about the blow by blow or more concerned about the general parameters (in other words, would a blog entry specifically on how we handle home equity, say, bore you or excite you)? Please leave some feedback so I know where to go next.