Daniel Barkowitz | March 02, 2005

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

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:

1. US Income Taxes paid -- Again, this comes directly from the tax return.
2. 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.
3. FICA Taxes -- Based on wages earned, a 7.65% allowance representing Social Security taxes.
4. 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:

1. Cash, savings and checking accounts.
2. Non-retirement based investments (including trusts).
3. Real estate owned by the student (don't laugh).
4. Home owned by the student (don't laugh harder -- and by the way, home is only considered in IM, not FM).
5. 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!