USA Funds University Offers Professional-Judgment in Cases of Change in Income

Financial-aid administrators sometimes must use professional judgment to address unusual circumstances that affect students’ or parents’ ability to pay educational expenses. By exercising professional judgment, aid administrators can potentially adjust students’ federal financial-aid awards.

A number of circumstances can warrant professional judgment, including changes in a student’s or family’s income. To assist financial-aid administrators in considering adjusting students’ awards based on changes in income, USA Funds^® University offers the following scenarios in which students might report income changes.

One-time income
In cases in which a portion of a family’s income is one-time income, that income is not representative of the family’s annual recurring income. You may decide to disregard the one-time income or to zero out the income and consider it as an asset. Examples of one-time income include:

• Death of a wage earner.
• Wage earner’s temporary or permanent disability.
• Wage earner’s retirement.
• Wage earner’s loss of employment or benefits.
• A dependent student who works while in high school but leaves the job to enroll in college.
• An independent student who leaves work to return to college full time.
• Loss of income from a business or rental income.

You can reduce the reported income based on documentation of the income or benefit loss; then, calculate a new adjusted gross income and total income. You also should recalculate the taxes paid. Examples of documents to request from the student include the following:

• Loss of rental income: IRS Form 1040 and Schedule E.
• Loss or change of employment benefits: Documentation showing the termination or reduction in benefits.
• Any other documentation, where appropriate, to show the change of income.

Fluctuating income
Family income may vary from year to year due to the nature of a family member’s employment, such as availability of overtime or sales commissions or even the unreliability of self-employment income. For such families, the family’s reported income may not be a good measure of its future ability to pay for college costs.

You should collect two or more prior years’ tax returns and average the income and deductions as well as taxes paid. The resulting averages should replace the reported income and taxes paid. Recommended documentation includes the following:

• Tax returns from prior years.
• A letter from the employer explaining why overtime has been reduced.

USA Funds University’s online course about professional judgment — one of 32 online-learning courses available — offers further information about the topic. The course offers more scenarios for professional judgment and tips for how to handle them, as well as a printable summaries of those scenarios.

Additionally, professional judgment and the Expected Family Contribution is among the topics of upcoming USA Funds Financial-Aid-Workshop webcasts. The dates for the professional-judgment sessions are June 1 and June 8.

More information about USA Funds training is available on the USA Funds Web site.