Logic behind single parent asset protection amount

calmom
Mon, 02 Jan 2012 19:24:32 +0000

I can tell you where it comes from, but not the logic behind it – it looks like the numbers are being driven down for single parent over the years by a statistical quirk, not policy.

The numbers are set by title IV of the Higher Education Act - here’s a link to the full text:
https://www.mygreatlakes.org/mglstatic/sharedcontent/forms/HEA_Blackline_Title_IV_Part_F.pdf

If you go to section 478(d), you’ll find the formula used: (*beware, legal gobbledigook ahead)

quote EDUCATION SAVINGS AND ASSET PROTECTION ALLOWANCE.— For each award year after award year 1993–1994, the Secretary shall publish in the Federal Register a revised table of allowances for the purpose of sections 475(d)(3), 476(c)(3), and
477(c)(3). Such revised table shall be developed by determining the present value cost, rounded to the nearest $100, of an annuity that would provide, for each age cohort of 40 and above, a supplemental income at age 65 (adjusted for inflation) equal to the
difference between the moderate family income (as most recently determined by the Bureau of Labor Statistics), and the current average social security retirement benefits. For each age cohort below 40, the allowance shall be computed by decreasing the allowance for age 40, as updated, by one-fifteenth for each year of age below age 40 and rounding the result to the nearest $100. In making such determinations—
(1) inflation shall be presumed to be 6 percent per year;
(2) the rate of return of an annuity shall be presumed to be 8 percent; and
(3) the sales commission on an annuity shall be presumed to be 6 percent.




If you look at the same law under the preceding section, 477(c)(3), you will find the asset protection tables as they were set with the original law. As you will see, the discrepancy you note did not then exist – at age 50, the asset protection for 2 parents was $41,800, one parent $29,500 (less, but well over half). If you compare that with the current formula (See Table A5 at page 19: http://www.ifap.ed.gov/efcformulaguide/attachments/101310EFCFormulaGuide1112.pdf ) - you’ll see that the current protection at age 50 for 2 parents is now $48,800, for 1 parent now $16,700. So while the 2-parent family has seen a modest increase in asset protection over the years, the 1 parent family has suffered a 43% decrease in asset protection amount.

I think this is probably a result of the use of the “current average social security benefit” figure in the formula. My guess is that over the years, as women have remained in the workplace longer and employed in higher capacities, the “average” social security benefit for an individual has been driven up. So now the number you get by subtracting out the “average” social security benefit from a “moderate family income” (for a household of 1) – is going down as compared to the number you get by subtracting the “average” social security benefit from a “moderate family income” for a household of 2.

I don’t know the “moderate family income” figures, but I found this quote on wikipedia which is helpful for guesswork:

For example, in the United States the median household income in the year 2004 was $44,389, while the median income per member household was $23,535.[1]



I also found a quote somewhere that says “moderate” income is 80-95% of “median” – so let’s be generous and go with 90% of the “per member” income of $23.5K, to guess that that “moderate” income for one person would be about $21K. The government is now saying that, on average, if you are single and aged 50, you would only need $16.7K to buy an annuity to make up the shortfall between your expected social security benefit and that $21K annual income.

However, the median for a 2-person household (which appears to be $39.8K, from another wikipedia article) might translate into a “moderate” income of roughly $36K … and apparently you would need a lot more money to buy an annuity to make up the difference between that $36K annual income and the average expected social security benefits for a 2 parent household. I am guessing that married women are less likely to be in the workforce full time, maximizing their earnings, than single women – so therefore the “average” social security benefit for married couples has not risen as much over the years as for single women – and instead more closely tracks the amount of social security a couple gets when one is taking their earned benefit, and the other is getting a spousal benefit – or 1.5 x the value of the earned benefit.

Worse, even though the changing status of women in the workplace is what is probably driving the change in formula, and even though statistically, the single parent in the FAFSA analysis is more likely to be female – the “average” social security benefit is not gender specific – so the numbers are driven by what an average single person gets in social security, not what an average single woman gets. See [url=http://washingtonpolicywatch.org/2011/08/25/boost-social-security-benefits-to-close-womens-pay-and-caregiving-gap/]Boost Social Security benefits to close women’s pay and caregiving gap Washington Policy Watch/url.