Need analysis is the main formula used to determine a student’s amount of financial need to finance their postsecondary education. Need analysis consists of an overall formula of “cost of attendance (COA)” minus “expected family contribution (EFC)” minus “other estimated financial assistance not found in Title IV of the Higher Education Act (HEA)” equaling the amount of need.
In order for the amount of need to be determined, a student must complete the Free Application for Federal Student Aid (FAFSA). The data gathered from the completion of the FAFSA serves as the foundation of elements used in the need analysis formula. In passing the FAFSA Simplification Act in December 2020, Congress significantly rewrote the need analysis formula for the first time since 1992.
Key Terms
Cost of Attendance: The COA is determined by the institution of higher education. An institution is able to consider a number of elements when determining the cost of attendance, including tuition and fees; an allowance for books, supplies, transportation, and miscellaneous personal expenses; an allowance for room and board; and the one-time cost of obtaining the first professional credentials for students who are enrolled in programs requiring professional licensure or certification.
Expected Family Contribution: The EFC is the amount of money a student, or a student’s parent(s), is expected to contribute to their postsecondary education. In order to determine this amount, there are multiple formulas and tables that are used and the information is taken from the FAFSA.
Overall, there are three main student categories: dependent student, independent student without dependents (other than a spouse), and independent students with dependents (other than a spouse). Depending on the student classification, a certain formula is used with metrics to determine their EFC. A dependent student is a student who lives with their parent(s), is under the age of 24, and is receiving more than one-half of their support from their parent(s). Students outside of this definition are considered independent students. The number of family members, or students, in college is a factor that is taken into consideration when determining the overall EFC of a household, and the EFC can be no lower than zero.
Other Estimated Financial Assistance: Other estimated financial assistance is considered to be scholarships, grants, loans, or other assistance that the institution is aware of when the amount of financial need is determined. Certain tax credits that are not required to be reported as gross income are not included, nor is financial assistance provided by a state to offset a specific component of the COA or special combat pay.
History
In the early 1950s, John Monro, Director of the Harvard University Financial Aid Center at the time, developed the first need analysis formula, known as the “15 percent rule,” to be used by institutions to help them distribute institutional scholarships for students with financial needs. Before the development of this formula, institutions were simply awarding financial aid grants to students based on the desires and philanthropic efforts of community members who were wealthy. The creation of the 15 percent rule led to the creation of the College Scholarship Service (CSS) by the College Board, which institutionalized a methodology that could be used by all institutions. While CSS had created a method, there were other organizations at the time that did the same, such as American College Testing.
When what would later be known as the Pell Grant program was created in the Higher Education Amendments of 1972, a separate formula written in the law was used to determine the amount that each student could receive. However, in 1978, the Department of Health, Education, and Welfare, from which the Department of Education was created, decided to use data from a uniform methodology created by the National Task Force on Student Aid Problems between 1974 and 1975.
In 1986, Congress followed the lead of the taskforce and created a congressional methodology for determining student financial aid but kept the formula for the Pell Grant separate. The congressional methodology introduced various formulas for dependent students, independent students without dependents, and independent students with dependents. It wasn’t until 1992 that a federal methodology was created to merge the Pell Grant formula and the congressional methodology together to create a federal methodology that was widely adapted by states and institutions.