“Need" is established when the total cost of attendance (tuition/fees + room/board) for one year's education at a particular school exceeds the EFC, whether determined by Federal or Institutional Methodology. Let’s look at an example of two students planning on attending the fictional State University. State U. costs $10,000 a year and Jimmy Jones’ EFC is $3,000. The difference ($7,000) is his established need. However, Sara Garcia’s EFC is $11,000. The difference is $-1,000. No need is established, and Sara’s family must turn to non-need based sources of aid for assistance.
So, need is the relationship between the cost of one year's education at a specific school and what the government determines to be the family's fair share of that cost.
“Need” will vary based on the cost of the college or university in question and the Methodology used to determine the EFC. Again, the major difference is that the FAFSA does not ask for home equity information while the CSS Profile and some institutional forms do. In some cases more detailed financial information on business enterprises is required as well. As a result there could be about 12% of the equity value tacked on to the Federal
Remember, the EFC is calculated on the "base year" or tax year prior to the student’s enrollment. The critical issue is that anything the family does financially during the base year can positively or negatively impact their ability to qualify for financial aid. The sophomore year in high school is the latest time to effectively plan for college financing, and the fall of the junior year is the last chance to maneuver financially. However, there may still be positive actions the family can take before submitting the FAFSA or CSS Profile.
In determining the family's EFC, the Department of Education takes into account the parents' and student's (or independent student's and spouse's) financial situation--income as established by the previous year's tax information and current assets value reported as of the day the FAFSA is filed. Reportable assets do not include the value of retirement accounts (any amount added to retirement accounts during the reportable tax year will be assessed), life insurance or annuities, nor equity in the home. Remember, if required, the CSS Profile and some institutional forms will ask for this information. Other variables that are considered in the formula are the age of the older parent, the number of family members, and how many family members are enrolled in college.
It is also important to know that domicile is the key to determining which parent's financial information is required in the case of a divorce. Who claims the student for tax purposes is not the issue for financial aid eligibility. The "custodial parent" is the parent the student lived with the most during the past 12 months. Court orders for child support and college assistance have to be reported. Those schools which use the CSS Profile or their own institutional form may ask for information on the finances of the "other" parent when determining financial aid eligibility.