International Students - Assessing Family Contribution

National Association of Student Financial Aid Administrators

International Students -Assessing Family Contribution

Arlina DeNardo, Lafayette College Michael Fraher, Vassar CollegeCaesar Storlazzi, Yale University

Discussion Framework

• Identifying policy issues in the recruiting of, and the awarding of financial aid to International Students

• Overview of an excel based formula currently in use for assessing EFC’s from families of International Students

• Examination of the development of a Global Need Analysis Formula – Modified IM (or FM) Formula

International Student Definition: – Any student who is not a US citizen or permanent resident and whose family lives and works outside the United States

Policy Issues What are the institutional objectives to be achieved in the

recruitment of International Students?

- Enrollment- Diversity- Globalization is a reality and education is a way to

build bridges among countries

What are the support services that might need to be in place to enhance the recruitment and retention of International students?

What are the financial resources the institution is willing to make available? What about employment?

Who will process I-20’s, 1042s tax information, federal withholding tax calculation etc.?

Policy Issues Related to Available Resources

Do you award solely on merit ?- Limited resources with inability to meet full need

- Lack of method to assess relative financial strength

Is there a desire to establish some understanding of family financial strength before awarding?

- Budget Construction

- Travel Consideration

- Application and Documentation for Financial Data

- Analysis of financial data

Budget Construction

• Most likely driven by institutional budgets $

• Domestic vs International Budgets?

• Expenses unique to internationals: vacation periods, health insurance, visa, etc.

Developing Travel Allowances

• Cost– Actual Costs at time of travel – Lowest round-trip fares– Funded separately or by general scholarship budget?

• Frequency– Number of round trips per year and per 4 years

• Travel for Freshman year and Senior year only• One trip home during the undergraduate career• Travel allowance from point of entry• Travel to the states not covered at all

Application Documents

• Primary data collection vehicle– CSS International Application or Institutional Form

• Supporting documents:– Income Documents: tax returns, or other income

verification (statement of earnings and benefits from employers)

– Translation Required– Certification of Finances – documentation of available

resources

Currency Conversion IssuesIs this a verification issue?Timing

– At time of analysis– one point of time conversion for all countries (March 1?)– Quarterly– Reconvert: only for volatile currencies (Turkey, South

America, etc.) or only upon review.

Source of conversion rate Reviews of exchange ratesShould currency restrictions affect our analysis of

family financial data?

Formula Issues in Analyzing Financial Data from International Families?

Equity Principle – Allowing full access to educational opportunity and leveling the playing field for access to financial resources for higher education vertical equity – varying contributions according to

available resources – income and assetshorizontal equity – families with relatively equal

resources will be assessed at the same level Can we ensure the same level of equity for International

Student Needs Analysis found in the analysis for domestic students?

Realities of Analyzing Financial Data from International Families?

There are different economic realities, not only among countries but within countries

- many countries lack a middle-class

- wealthy vs subsistence poor

Disparate income levels lead to disparate living expenses that do not mirror US income quintiles and the associated Income Protection Tables used in domestic needs analysis

Lack of safety net services – medical, education & retirement Cultural differences in how people view their resources and

expenses. Money for education is what is left after everything else has been paid – servants – dowry – retirement - private school

One for all?

• Does one analysis work for all?– Eastern and Western Europe– South Africa and Saharan Africa

– China and Japan

• What sensitivity do we build in for different economies?

• Do we separate out Canadian and/or Mexican applicants?


International Student Need AnalysisISNA

The Spreadsheet Method

Spreadsheet Methodology Robert Donaghey is the originator of the ISNA

approach The economic soundness of this approach

compared to INAS and US financial data is open to debate, however, this approach does yield students and….

provides a level of consistency in assessing students from different economies previously unavailable

provides consistency in dealing with changes in financial circumstances from one year to the next

ISNA Overview

Requiring tax returns - with translation- is helpful and can be checked for conversion to US dollars by the following website and excel sheet

In the absence of a tax return require statement of earnings and benefits from employer.

Converting Earned Income from Foreign Tax Return

http://www.oanda.com/convert/classic

Converting Foreign Income Tax

ISNA Overview International Students Financial Aid Application

(referred to as ISFAA in the documentation) is the source of family financial data

Data from the application is entered in the need analysis excel sheet as provided by the family

Sheet will do intermediate calculations with the decision as to the appropriate parent contribution left to the discretion of the aid officer

Once the Parent contribution is entered the sheet will calculate any required federal withholding tax

Ghana

Family of 5 - 2 in college

Reported I & D income of $900 and only $5,000 in the bank – Imputed liquid asset value at 4%

Scholarship/Grant exceeds tuition & fees so required federal withholding tax is calculated.

Japan

Family of Three

I & D imputed at 4% of asset value

Utilized alternate calculation for industrialized nation

Critique of ISNA

Lacks vertical and horizontal equity of formulas that are available for US based economy analysis, since family provided expenses are accepted as reported.

In the absence of a better approach, at least this provides some consistency in how we treat families, and consistency from year to year in addressing changes in family finances.

Provides far fewer requests for reconsideration per applicant group than US applicants – less wear and tear!


The Modified IM Methodology

Modified IM Methodology

• Uses IM as the Base

• Modifies IPA and ERA using GDP Per Capita Coefficient

• Does Not Allow FICA or State Taxes (All Taxes are Included as Federal Taxes)

• Uses all Assets (Liquid and Real Estate)

• Allows Business Equity Adjustment

• Uses Home Value Cap

GDP per Capita

• Use of a Consistent Measure Globally

• Uses Gross Domestic Product Divided by Population

• Kept by the CIA as “Part of World Factbook” (http://www.cia.gov/cia/publications/factbook/)

• Determine Coefficient– percentage by Country as Compared to US

– Apply percentage to IPA and ERA for Use in Formula

Sample Countries and Coefficients

2.62%$1,100 West Bank208

100.00%$42,000 United States 5

73.57%$30,900 United Kingdom 20

25.48%$10,700 Russia 83

5.71%$2,400 Pakistan 170

24.05%$10,100 Mexico 86

12.62%$5,300 Lebanon 130

48.57%$20,400 Korea, South 51

2.86%$1,200 Kenya 202

73.10%$30,700 Japan 21

67.62%$28,400 Italy 30

53.10%$22,300 Israel 44

8.10%$3,400 India 152

54.29%$22,800 Greece 42

5.71%$2,400 Ghana 168

71.43%$30,000 France 24

24.05%$10,100 Costa Rica 85

15.00%$6,300 China 118

78.33%$32,900 Canada 16

21.43%$9,000 Bulgaria 89

20.00%$8,400 Brazil93

% of US GDP - per capita Country Rank


Case Study Review

Case Studies

• 9 Cases Attempting to Represent each Continent:– China

– Greece– Lebanon– West Bank– Costa Rica– Bulgaria– Ghana

– Brazil

– Canada

• Analyzed Using Both Methods:– IM with Adjustments– Spreadsheet Method

• Mix of Low and High Income Analyses

• Some Consensus on Total Expenses, but Left to Individual Reader

Western vs. Eastern Europe• Greece

– 4/2– Total Income $140,892– Reported Tax $39,407– Allowed Expenses

$80,823– Coefficient 54.29%– Modified IPA $13,430– Modified ERA $12,753– Savings $15,000– Home $97,600– PC Spreadsheet

$19,371– PC Modified IM $20,603– Offer $7,500

• Bulgaria– 4/1– Total Income $4,889– Reported Tax $810– Allowed Expenses

$3,560– Coefficient 21.43%– Modified IPA $5,110– Modified ERA $4,698– Savings $2,200– Home $11,774– ORE $32,600– PC Spreadsheet $995– PC Modified IM $1,295– Offer $1,500

Central vs. South America• Brazil

– 5/1– Total Income $58,116– Reported Tax $900– Allowed Expenses $19,900– Coefficient 20.00%– Modified IPA $4,446– Modified ERA $4,088– Savings $78,500– Home $68,000– ORE $88,000– PC Spreadsheet $35,758

(w/ORE)– PC Spreadsheet $26,958

(no ORE)– PC Modified IM $16,447– Offer $25,500

• Costa Rica– 5/1– Total Income $53,000– Reported Tax $1,320– Allowed Expenses

$18,520– Coefficient 24.05%– Modified IPA $6,869– Modified ERA $6,314– Savings $20,500– Home $127,200– PC Spreadsheet $20,315– PC Modified IM $21,637– Offer $6,000

Asia vs. Africa• China

– 5/1– Total Income $10,527– Reported Tax $0– Allowed Expenses $7,952– Coefficient 15.00%– Modified IPA $4,293– Modified ERA $4,342– Savings $0– Home $9,262– PC Spreadsheet $1,328– PC Modified IM $1,173– Offer $4,000

• Ghana– 5/1– Total Income $41,356– Reported Tax $10,672– Allowed Expenses

$35,231– Coefficient 5.71%– Modified IPA $1,623– Modified ERA $1,502– Adj. Bus. $1,440– PC Spreadsheet $3,207– PC Modified IM $5,342– Offer $1,000

Middle East• Lebanon

– 5/1– Total Income $154,234– Reported Tax $27,971– Allowed Expenses

$98,571– Coefficient 12.62%– Modified IPA $3,721– Modified ERA $3,320– Savings $0– PC Spreadsheet $27,832– PC Modified IM $41,246– Offer $19,000

• West Bank– 5/1– Total Income $15,012– Reported Tax $715– Elem/Sec Tuition $6,000– Allowed Expenses

$13,294– Coefficient 2.62%– Modified IPA $859– Modified ERA $689– Savings $0– PC Spreadsheet $859– PC Modified IM $1,536– Offer $1000

A Special Case – Canada

• 4/2• Total Income $28,588• Reported Tax $218• Allowed Expenses $56,551 (Mortgage. $31,000)• Coefficient 78.33%• Modified IPA $19,647• Modified ERA $18,400• Savings $121,043• Home $347,988• PC Spreadsheet $2,505• PC Modified IM $6,264• Offer $8,600

Limitations to the Modified IM Methodology• Coefficient adjustments to allowances other than

IPA and ERA (example, income bands for final contribution).

• Countries with greater than 100% of USA GDP• More complex programming required.• Is the theory behind AESA and CESA

allowances still valid for this population?– If not, what allowance should be used?

• Number in college adjustment doesn’t consider lower cost of siblings in college in home country.

• How do these elements affect the case study results?

Pros and Cons

• Modified IM Method– Pros:

• Uses IM/FM as the Base; Easier to Program• Country Contextual• Vertical and Horizontal Equity

– Cons:• No Individual Context by Student• Not fully adjusted IM• GDP compares economies to U.S. but does not account for

realistic view of the cost of living for some countries.


Discussion

request for spreadsheet with Rober Donaghey [email protected]

mailto:[email protected]

International Students - Assessing Family Contribution

Documents

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