Understanding Institutional Methodology (IM) in Financial Aid

Krystyna Dias .

As institutions begin working on sending and calculating award letters for students, it might be helpful to provide a breakdown of the basics around the Institutional Methodology formula that is oftentimes used to assist financial aid professionals in determining how much institutional aid to provide to students in different situations. As federal student aid professionals, it’s essential to expand our understanding beyond federal need analysis calculations to encompass Institutional Methodology (IM) in order to make the best use of limited institutional funds. Many educational institutions use IM to determine eligibility for nonfederal, institutional student financial aid funds. This article provides an overview of the IM calculation developed by financial aid officers and the College Board and discusses various IM approaches used to determine nonfederal institutional financial aid eligibility.

Principles of Institutional Methodology

The principles underlying Institutional Methodology align closely with those of the federal need analysis (FM). These are:

Primary Responsibility: Parents and students are primarily responsible for covering postsecondary education costs.

Ability to Pay: Financial aid distribution should be based on the family’s ability to pay, not their willingness.

Independence from Aid Availability: The assessment of a family’s ability to pay should not be influenced by the amount of financial aid available or the cost of attendance.

Horizontal Equity: Families in similar financial situations should contribute similarly.

Vertical Equity: Contributions should reflect the differences in families’ financial resources.

Snapshot Principle: The need analysis should capture the family’s financial situation at the time of application.

Professional Judgement: The need analysis results serve as a benchmark, subject to the financial aid administrator’s professional judgement.

What Is the Use of Institutional Methodology?

Despite shared principles with FM, IM is utilized to provide a more comprehensive assessment of a family’s financial strength, facilitating better distribution of institutional resources such as grants and scholarships. IM examines a broader array of data, allowing for a more nuanced understanding of a family’s financial capabilities, which then lets an institution leverage their limited institutional aid to support the families that need it most.

Factors Considered in IM Include:

  1. The institution’s mission and enrollment goals.
  2. The goal of accurately distributing institutional resources.
  3. The influence of student financial aid on access, enrollment, and retention.
  4. Limited institutional resources for meeting students’ financial needs.

IM is also tailored for international applicants through the CSS Profile, which adjusts IM tables to reflect the economic conditions of the applicant’s country, thereby accurately estimating parental and individual contributions.

The IM Need Analysis Formula

The formula for determining financial need under IM mirrors that of FM:

Cost of Attendance (COA)−Student Aid Index (SAI)=Financial Need

For a breakdown of the Cost-of-Attendance components and updates to the factors that make up that side of the formula, you can refer to the following HEAG articles: https://heag.us/the-consolidated-appropriations-act-of-2021-fafsa-simplification-part-2/https://heag.us/move-over-efc-here-comes-sai-in-2024-2025/

FM vs. IM: Key Differences

While the basic need analysis formula is consistent, the calculations under IM differ due to the additional data elements it considers. For example, while the FM formula includes select income and asset information for each family, the IM formula considers all income and assets for all family members. Additionally, the IM formula does not allow for income adjustments and losses, typically permitted under the FM calculation. On the other hand, the IM formula does allow for state sales tax in a way that the FM formula does not. Another notable change is that the IM formula accounts for a family’s home equity, allowing for limiting equity based on income, whereas the FM formula typically excludes home equity built up by each family; this is meant to account for the benefits associated with the mortgage interest deductions, the availability of home equity loans, and lower total percentage of income spent on housing. Lastly, one key difference between FM and IM is that the IM calculation allows for institutions to collect income and tax information for both biological and stepparents, whereas the FM formula limits the information collected to the custodial parent of the student. 

Typically, the IM formula can look as follows:
AGI/Taxable income

+  Untaxed income

+ Business, rental, and other taxable losses

– Income exclusions  

= Total parents’ income

Both methodologies, however, assess available student and parent income and assets to calculate the Student Aid Index/Expected Family Contribution, with IM providing a more in-depth analysis.


IM offers a robust framework for assessing a family’s financial capacity to contribute to educational costs, supporting the equitable distribution of institutional financial aid. By considering a broader set of data, IM aligns with the principles of need analysis while addressing the unique goals and resource constraints of individual institutions. For further exploration on this topic, feel free to contact us at info@heag.us to discuss how HEAG can explain how different organizations leverage this formula for aid determination decisions.