Overview: Financial Need Formula

Below are comparisons between how Scholarship America^® and most post-secondary schools calculate financial need against the more liberal formula applied toward scholarship awards from the Families of Freedom Scholarship Fund^®.

In the calculation of financial need (family’s ability to contribute to school cost), Scholarship America uses the process used by most college financial aid offices.

Information requested is derived from the most recently filed tax return.

Starting point:

• Adjusted gross income

Discounts for:

• Federal taxes paid
• State, local, property and sales taxes - estimated per state
• FICA tax
• Medical costs not covered by insurance that exceed five percent of total income
• Employment allowance
  One parent families
  Families with two parents working
• Income protection allowance - based on family size    

Calculation:

• Adjusted gross income
  
• Minus discounts
  
• Plus income supplement (calculated at five percent of liquid assets [cash, checking, savings, and cash value of stocks]
  
  Adjusted available income calculated to derive parent’s (or family) contribution

If more than one family member is attending college, the parent contribution is divided by the number of students.

NOTE: Scholarship America does not factor in retirement funds, value of family residence, nor student earnings.

Scholarship America has implemented the following liberal modifications for the Families of Freedom Scholarship Fund.

• Nontaxable income is not considered
• Victim’s Compensation Fund payments are not considered as liquid assets (cash, checking, savings and cash value of stocks)
• Interest earnings may be required to be reported as income for tax purposes and may be reflected in the annual adjusted gross income
• In addition, $500,000 of assets (cash, checking, savings and cash value of stocks) will be ignored

Some ask why Scholarship America considers interest income from the Victim Compensation Fund awards that families have invested. The answer is simple: it's not always possible to separate this investment income from the rest of the interest income that people report on their tax returns. Furthermore, the purpose of the fund is to provide for the thousands of financially needy students who, absent this fund, may not have the financial resources needed to attend a post-secondary institution. If all investment income were excluded from the needs assessment, future generations of financially needy students would receive substantially less help from this scholarship fund.