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EarlyStarter
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| Joined: | Fri Mar 30th, 2007 |
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Posted: Thu Jul 12th, 2007 01:31 am |
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I see in alot of places and websites the assertion that parent's assets are assessed toward EFC at no more than 5.65% (also student's assets at 20% or 35%).
WHen I do the EFC calculators, e.g., finaid.org, I don't see where this limitation is orginating. I read the FAFSA guide and other DOE stuff and I didn't see anything about 5.65%. In fact, the material doesn't mention any cap. Rather, EFC seems to be based on a multi-step process involving income and assets and then applying various allowances. It seems like everyone will be slightly different because the formula is based on the number of household members in college, age of oldest parent and so on. E.g., marital status plays a role with asset analysis.
So, please help. Where is this 5.65% cap talk coming from ?
Also, when counting assets, FAFSA instructions say that "annuities" are not counted toward assets. I have been trying to figure out where that rule came from (other than the instructions). I have even emailed a few people at DOE and all I get back is blank stares. (If email could have a blank stare.) Thanks for the help. I need this for a personal injury case I am working on for a college bound minor and court approval of the settlement. The Judge wants to know.
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leftcoast
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Posted: Thu Jul 12th, 2007 10:06 am |
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You can get the full EFC formula here:
http://www.fafsa.com/fmtables.htm
I would recommend downloading the PDF with the full tables from that site and printing it out.
The math works out to no more than 5.6% of assets being assessed - it can be less than that because there is an asset protection allowance.
Here is how it works -- you have to download the PDF file here for the rest of this post to make any sense:
http://www.fafsa.com/downloads/EFC/0708EFCFormulaGuide.pdf
Lets say there is a married couple, 2 kids, one in college, and they have $75,000 in assets. Let's say that the older parent is age 50.
From table A5 (page 19) we know that the asset protection allowance is $48,700
So using the worksheet on page 13, we subtract out that allowance from the total assets and come up with a discretionary net worth of $26,300 (line 21). We then multiply that by a factor of .12 and come up with $3,156 (line 24). This is the amount of money that will be added to income when coming up with the figure from which the EFC will be derived.
So lets just say that the available income (the amount remaining after all deductions and income protection allowance) is $45,000. So line 25 - "adjusted available income" is the combination of the adjusted income figure plus the asset contribution we calculated above -- $3,156. This leaves the parents with $48,156. Now we are going to go to table A6 on page 19 and calculate the parents contribution. -- according to the table that is:
7334 + [.47 x (48156 - 27100)] = 17230.32
So this families EFC is $17230. If their assets had been 0, their EFC would be:
7334 + [.47 x (45000 - 27100)] = 15747
So their $75,000 of assets has resulted in an incrase of EFC of 17230 over 15747, or 1483.
In their case, 1483= 1.9% of $75,000 -- so actually less than 2% of their assets is going to EFC.
The 5.6% figure comes from multiplying the highest EFC rate - 47% - by the asset conversion rate of 12% -- .47 x .12 = .0564 -- so that is the highest possible rate at which a dollar of assets may figure into EFC.
As to annuities -- they are treated as retirement assets, and the FAFSA instructions simply say to exclude them. This is on page of the FAFSA worksheet at http://www.fafsa.ed.gov/fafsaws78c.pdf -- 2nd paragraph under "Parent Asset Information": "Do not include the value of life insurance, retirement plans (pension funds, annuities, noneducation IRAs, Keogh plans, etc.) or cash, savings, and checking accounts already reported in Q43 and Q87."
If you want to find the law behind the instructions and worksheets to cite to the judge, go here:
http://caselaw.lp.findlaw.com/casecode/uscodes/20/chapters/28/subchapters/iv/parts/e/toc.html
For more detail, you can go to the CFR (code of federal regulations) under chapter 34, here:
http://www.access.gpo.gov/nara/cfr/waisidx_02/34cfrv3_02.html#600
Last edited on Thu Jul 12th, 2007 10:20 am by leftcoast
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DesperateDad
Member
| Joined: | Tue Mar 14th, 2006 |
| Location: | California USA |
| Posts: | 831 |
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Posted: Thu Jul 12th, 2007 01:12 pm |
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ES:
while you didn't specifically ask about the Profile schools, attached link explains the rationale on Profile in compariso to fafsa (starting on page 49). Of course, every school can implement differently by making different allowances for special circumstances.
http://www.collegeboard.com/prod_downloads/highered/fa/Economics-Primer-2004.pdf
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EarlyStarter
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Posted: Thu Jul 12th, 2007 03:18 pm |
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Thank you for such a thorough answer. I did understand the formulas but wasn't seeing that the 5.65 thing was just a product of the math rather than some separate rule I was missing. With your permission, I will just copy your explanation for the brief?! 
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mackinaw
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| Joined: | Mon Mar 6th, 2006 |
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Posted: Thu Jul 12th, 2007 03:20 pm |
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LC knows her stuff.
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leftcoast
Member
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Posted: Thu Jul 12th, 2007 04:49 pm |
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Keep in mind that assets held in the student's name are treated differently than assets held by the parents. You wrote, " I need this for a personal injury case I am working on for a college bound minor and court approval of the settlement" -- if funds are going to go in trust for the minor, it can cause a lot of problems -- they will be assessed at a much higher rate than assets held in the parents name.
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Lderochi
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Posted: Thu Jul 12th, 2007 06:02 pm |
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LC knows her stuff.
Does she ever. Thanks LeftCoast, you are the 
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