24. Effective income of the student (line 24). For purpose of the Basic Grants program effective income of the student is: That amount of social security benefits paid to or on behalf of a student because he is a student; and one-half of that amount of veteran's readjustment benefits and/or war orphan's benefits (exclusive of dependency allowances) paid to or on behalf of a student because he is a student. In both cases the amount is the total to be received during the academic year for which Basic Grant assistance is requested. Veteran's dependency allowance are clearly not for the support of the Veteran himself. Therefore they are included with and given the same treatment as "other family income". 25. Net assets of the student (line 25).The applicant's net assets would be defined in the same fashion as the assets of the parents. Debts against these assets would be deducted. Trust funds in the student's name would be included. 26. Student asset assessment rate (line 26). In determining a fair treatment of student assets the theory of the major need analysis systems has been followed; 1.e., that because the student himself is the direct beneficiary of postsecondary education, he should be expected to invest a greater portion of his resources in meeting his educational costs than should be expected from his parents. Usual financial aid procedures divide a student's assets by the number of years remaining for a 4-year program of postsecondary education. The result of this division is considered to be the student's asset contribution. For the Basic Grants program, a different treatment of student assets is employed. Onethird of the student's assets (recalculated each year) would be expected. This method is simple, provides a modest reserve for the student, and avoids the assumption that all students are enrolled in a traditional 4-year program. 27. Student's contribution from assets (line 27). The result of multiplying the student's net assets (line 25) by the student asset assessment rate (line 26) is that amount expected from student assets for educational purposes. 28. Total family contribution (line 28).The total expected family contribution for a dependent student is determined by adding line 23 plus line 24 plus line 27. EXPECTED FAMILY CONTRIBUTION FOR INDEPENDENT STUDENTS, ACADEMIC YEAR 1973-1974 Summary of Calculations 1. Effective income of student--- 2. Adjusted gross income of applicant (and spouse).. 3. Other family income.. 4. Annual adjusted family income 5. Federal income tax paid----. 10. Total offsets against + = 11. Discretionary income (line 6 minus line 10) - 12. Determine net assets of applicant (and spouse) 13. If line 11 is a negative amount, substract from line 12 the amount necessary to bring discretionary income to zero. Enter the amount of the remainder of net assets_ 14. If line 11 is a positive amount, enter that amount. If line 11 is a negative amount, enter zero 15. Determine net other assets of applicant (and spouse) ---16. Multiply discretionary income on line 14 by applicable rate to obtain standard contribution 17. Multiple amount of assets of applicant (and spouse) entered on line 13 by 0.33-----18. Contribution from assets. 19. Subtract other asset reserve of $7500 from amount entered on line 15 to obtain available other assets of applicant (and spouse) 20. Multiply available other assets by 0.33__ 21. Contribution from other assets 22. Add lines 16 plus 18 plus 21 to obtain standard contribution from income, assets, and other assets. + EXPECTED FAMILY CONTRIBUTION FOR INDEPENDENT STUDENTS ACADEMIC YEAR 1973-74 Explanation of calculations. For the purposes of the Basic Grants program, independent (self-supporting) student status may be claimed if the applicant: (1) Has not been and will not be claimed as an exemption for Federal income tax purposes by any person except his or her spouse for the calendar year(s) in which aid is received and the calendar year prior to the academic year for which aid is requested, and (2) Has not received and will not receive financial assistance of more than $600 (in cash or kind) from his or her parent(s) in the calendar year(s) in which aid is received and the calendar year prior to the academic year for which aid is requested, and (3) Has not lived or will not live for more than two consecutive weeks in the home of a parent during the calendar year(s) in which aid is received and the calendar year prior to the academic year for which aid is requested. Once a student has been determined to meet these criteria and is defined as an independent student, his expected family contribution is calculated according to the process outlined below. 1. Effective income of student (line 1). For purposes of the Basic Grants program. Effective income of the student is: That amount of social security benefits paid to or on behalf of the student because he is a student; and, one-half of the amount of veteran's readjustment benefits and/or war orphan's benefits (exclusive of dependency allowances) paid to or on behalf of a student because he is a student. In both cases, the amount is the total to be received during the academic year for which Basic Grant assistance is requested. Dependency allowances are clearly not for the support of the Veteran himself. Therefore they are included with, and given the same treatment as, "other family income". 2. Adjusted gross income of applicant (and spouse) (line 2). All income which is available to the applicant (and spouse) should be considered in the evaluation of ability to support the cost of postsecondary education. The most valid reference for taxable income is the adjusted gross income item in the Federal income tax return. This information is readily available and can be verified by referring to the IRS forms actually filed. 1 Reference numbers are keyed to line items of preceding summary. The decision as to which year's income is to be considered is a difficult one for independent students. Traditionally, a student's income may vary considerably from year to year. While it may be preferable to ask the student to estimate his earnings for the current year, obtaining realistic projections of earnings would not be possible without establishing counseling centers where students could be assisted in preparing this information. Because this is not feasible at this time, it has been determined that the adjusted gross income to be considered is that amount entered on the previous year's Federal income tax form. This also has the advantage of being consistent with the data collected for dependent students and assures that the family contribution of all students is determined from the same base. 3. Other income of the independent student (line 3). Information on other income of the independent student must also be collected since this income does clearly contribute to financial strength and may represent a considerable portion of the income of many Basic Grant recipients. Elements of other income are: Income from tax exempt bonds, that portion of pensions on which no Federal income tax is required, that portion of capital gains on which no Federal income tax is required, welfare benefits, social security retirement, child support payments, veteran's disability, income of persons who did not file income tax returns, etc. 4. Annual adjusted family income of applicant (and spouse) (line 4).—Annual adjusted family income is the sum of adjusted gross income (line 2), and other family income (line 3). 5. Federal income tax paid by applicant (and spouse) (line 5). The legislation requires that a deduction be made, from annual adjusted income, for the amount of Federal income tax paid on income received during the base year. 6. Effective family income (line 6). The result of subtracting Federal income tax paid (line 5) from the annual adjusted family income (line 4) is effective family income. 7. Family size offset (line 7). In addition to taxes, there are basic subsistence expenses which must be met before any contribution from income can be expected. These expenses will vary depending on the size of the family involved. For the single independent student, this offset is $700 which covers the student's summer living expenses. Using the same base for deriving family size offsets as is used for multiple member families (weighted average thresholds at the low-income level) and adjusting for an estimated 4 percent inflation, the family size offset for a single member family is $2,114 per year. Generally, a student is in school for approximately 65 percent of the year (two 16-week semesters plus a 2week break between semesters). Since his expenses during this 34-week academic year 8. Unusual expenses (line 8).-The Basic Grants program is required by law to take into consideration at least two kinds of unusual expenses, those arising from a "catastrophe" and "unusual medical expenses." It is proposed to use the Internal Revenue Service definitions for medical and dental expenses and casualty loss (es) to constitute "unusual expenses" for the Basic Grants program. The use of Internal Revenue Service definitions avoids the need for creating a new definition of expenses which would be used only by the Basic Grants program. However, some distinction must be made between expenses which may be itemized for income tax purposes, and those itemized expenses which are "unusual" for Basic Grants. For purposes of the Basic Grants program those items which may be included as unusual expenses are: 1. Those medical and dental expenses incurred during the base year (not compensated by insurance or otherwise) which may be listed as "medicine and drugs" on line 2 of Schedule A, Form 1040 of the Internal Revenue Service and those expenses which may be listed as "other Medical and Dental Expenses" on line 6 of Schedule A, Form 1040. The gross amount of all medical, dental and drug expenses may be listed. 2. In addition, those casualty or theft loss (es) incurred during the base year permitted by the Internal Revenue Service (Form 1040 Schedule A, line 30). The amount of unusual expenses which may be deducted is that amount of unusual expenses (as defined above) in excess of 20 percent of the effective family income. This exclusion is designed to confine claims for such expenses to those which are genuinely unusual. 9. Employment expense offset (line 9). In constructing budgets which recognize minimum expenses for families, provision must be made for the expenses of the breadwinner which occur as a result of employment itself. Some expenses for clothing, transportation, food, and other items are attributable to occupational needs. When two persons work, additional employment expenses are incurred Also, if a household is headed by a single per son, the costs associated with that employment are greater than for a comparable worker who has the economic advantage of a nonemployed spouse. Therefore, in the determination of family contribution an "Employment Expense Offset" has been constructed to treat more equitably the income of the two-person family where both persons work during the base year, or the single person who heads a household during the base year. It is recognized that both of these types of families will occur frequently in the lower income families where Basic Grants eligibility is greatest. The offset provides that 50 percent of the earnings of that person with the lesser earnings, or 50 percent of the earnings of the single head of household, will be protected from any contribution toward education. The maximum offset would be $1,500 and would thus assure that up to $30 a week would be available for the additional expenses which these persons face. 10. Total offsets from income (line 10). The sum of line 7 (family size offset) plus line 8 (unusual expenses) plus line 9 (employment expense offset) is the total amount which can be deducted from effective family income (line 6) in order to determine discretionary income. 11. Discretionary income (line 11). The income which remains after adjustment has been made for family living expenses, Federal income taxes, unusual expenses and the employment expense offset may be identified as discretionary income. This income is available for the purchase of goods and services which enhance the standard of living of the family, including postsecondary education. 12. Net assets of applicant (and spouse) (line 12). For purposes of Basic Grants, the following types of assets will be considered: Equity in farm, business, home, other real estate, stocks bonds, other investments, savings accounts, etc. Since equity is being measured, debts against the stated assets will be deducted in evaluating the net worth of these assets. 13. Asset adjustment in cases of negative discretionary income (line 13).-In measuring family financial strength both income and assets must be considered. Very low income families may have a strong enough asset position such that a contribution from those assets can be expected. At the same time, the calculation of discretionary income for those families may yield a negative amount due to the low level of income. Therefore, in order to arrive at a family contribution which more equitably treats both the income and the assets of these families, an amount sufficient to offset the negative discretionary income is subtracted from the net assets. The resultant amount of adjusted net assets becomes the base from which the contribution from assets is expected. 14. Discretionary income (line 14).—In cases where the discretionary income on line 11 is a negative amount a zero is entered here. Where line 11 is a positive amount, that positive amount is repeated here. 15. Net other assets of applicant (and spouse) (line 15).-For purposes of Basic Grants, the following types of other assets will be considered: automobiles, boats, art objects, electronic sound and visual equipment, jewelry, antiques, cameras, etc., each of which has a value of $500 or more. Since equity is being measured, debts aaginst the stated assets will be deducted in evaluating the net worth of these assets. 16. Standard income contribution rate (line 16).-Because of the direct benefits of postsecondary education received by the independent student, the expected contribution rate for such students from income has traditionally been much greater than the rate applied to the discretionary income of the parents of dependent students. In fact, the independent student has usually been expected to use all of his discretionary income for educational purposes. In developing a system for the Basic Grants program, it was felt that a 100 percent contribution rate was excessive, especially for independent students with family responsibilities. The following income contribution schedule was developed to accommodate these responsibilities: (a) 75 percent of discretionary income for the single independent student with no dependents. (b) 50 percent of discretionary income for the married independent student with no dependents other than spouse. (c) 40 percent of discretionary income for independent students who have dependents other than spouse. The amount of expected contribution from annual adjusted family income is shown in the illustrative charts at the end of this paper. Annual adjusted family income does not reflect the adjustments for Federal income taxes paid, unusual expenses, or employment expense offset. 17. Asset contribution rate (line 17).-In determining a fair treatment of student assets, it has been assumed that since a student is the direct beneficiary of postsecondary education, he should be expected to invest a greater portion of his resources in meeting his educational costs than would be expected from his parents. Existing financial aid procedures divide a student's assets by the number of years remaining in a 4-year program of postsecondary education. The result of this division is considered to be the student asset contribution. For the Basic Grants program, a different treatment of student assets is employed. One-third of the student's assets (recalculated each year) would be expected. This method is simple, provides a modest reserve for the student, and avoids the assumption that a student is enrolled in a traditional 4-year program. 18. Contribution from assets (line 18).— The result of multiplying the student's net assets (line 13) by the student asset assessment rate (line 17) is that amount expected from student assets for educational purposes. 19. Available other assets of applicant (and spouse) (line 19).-In order to determine the amount of other assets which can be assessed for contribution for educational purposes, an other asset reserve of $7,500 is subtracted from the net other assets (line 15). 20. Other asset contribution rate (line 20). A contribution rate of 33 percent (recalculated each year) is expected from other assets. 21. Contribution from other assets (line 21). The result of multiplying the student's net other assets (line 15) by the student's other asset assessment rate (line 20) is that amount expected from students' other assets for education purposes. 22. Standard contribution from income, assets, and other assets (line 22).-The standard contribution (contribution before multiple student adjustment) from income, assets, and other assets is determined by adding the contribution from income (line 16), the contribution from assets (line 18) and the contribution from other assets (line 21). 23. Multiple Student adjustment (line 23). Adding the Income Contribution from annual adjusted family income to the asset contribution and the other asset contribution results in the expected contribution for one family member in postsecondary education from family income and assets. Some adjustment must then be made for those families in which more than one family member will be enrolled in postsecondary education for the academic year 1973–74. Since each student has an allowance for costs of attendance, the family's discretionary income is effectively increased when there is more than one family member in postsecondary education. In order to determine the appropriate percentages, the contributions expected from different family sizes were compared. These investigations indicated that 140 percent of the contribution for one child would be a reasonable assessment against the family with two students. Thus, each student would receive 70 percent of the contribution which the family would make if there were only one student in the family. Similarly, 150 percent of the single student contribution seemed adequate for the family with three children in postsecondary education; each student could expect 50 percent of the single student contribution. For families with four or more students, each family will be assessed 40 percent of the single student contribution for each child in postsecondary education. |