Two Approaches Being Considered for FAFSA Simplification

The Chronicle of Higher Education is reporting that the Department of Education in consultation with Treasury are considering two paths to FAFSA simplification:

Plan A:  Move to two factor aid formula:  adjusted gross income and family size.  "At its broadest, the plan would abolish the Fafsa and distribute aid strictly on the basis of adjusted gross income and family size, or another simple set of factors."

• Strengths
  • "Reducing the formula to just two questions — adjusted gross income and number of exemptions claimed on federal tax forms — as former Secretary of Education Margaret Spellings proposed last year, would pare the form to two pages."
• Tradeoffs
  • "You're trading equity for efficiency" said Donald E. Heller, director of the Center for the Study of Higher Education at Penn State.
    • "...redistribution of aid would be relatively modest. In 2007, Bridget Terry Long, a researcher at Harvard University, calculated that if 90 percent of the questions used to determine a family's expected contribution were thrown out, the average Pell Grant for families receiving them would change by only $54 a year, in part because many assets are already excluded from the formula."
  • "...states and institutions might reject the Fafsa if it becomes too simple."
    • "He (Donald Heller) suggests that the government offer incentives for states to piggyback on the federal form, such as larger grants through the Leveraging Educational Assistance Partnership Program, in which the federal government matches each dollar that states commit to need-based aid."

Plan B:  Use IRS tax data to pre-populate some of the questions on FAFSA

• Strengths
  • "...save Fafsa filers time and frustration while reducing the transcription errors that can occur when parents and students copy information from their tax forms onto the Fafsa."
  • "...It would also reduce the need for "verification" — the process by which student-aid offices cross-check Fafsa applications against students' tax returns — saving colleges $90 per application, or $432-million a year..."
• Weaknesses
  • "...it would rely on tax data that would be two years out of date by the time the applicants enroll in college."
    • "...government could use three or five-year averages of income to smooth out bumps and dips in income and point out that student-aid offices could use "professional judgment" to adjust award levels once updated tax information became available."
  • "...Some student-aid counselors wonder whether families will be comfortable letting the IRS share their tax data with the Education Department."

Here is the conclusions drawn from the FAFSA simplification report that Department of Education delivered to Congress on January 16, 2009

The Department’s analysis indicates that reducing the income data on the FAFSA to AGI and IRS exemptions would not significantly impact the eligibility of low-income students.  The combination of using less information with a different eligibility formula provides the opportunity to improve the information provided to students and families regarding their application for federal student aid.  Instead of informing them of what they are expected to pay, the simplified application process would allow the federal government to immediately (in real-time for on-line filers) inform students of the types and amounts of federal student aid the student is eligible to receive.

 We are hopeful that, with this specific information in hand, students and families would be able to work together with their States, institutions, and private groups to put together a financing package to better meet the challenges of paying for college. 

 We know that 40 percent of college students, nearly eight million, never even apply for federal aid, even though most of them would be eligible for assistance.  The reduction in required data discussed in this report will significantly reduce the burden now experienced by students and families in completing the FAFSA.  Simplification is not just about changing the FAFSA form; it is also about creating a new eligibility calculation that is simpler, understandable, and more easily verifiable.  This cannot be accomplished without changes to current law.

These suggested changes, along with the flexibilities provided to policymakers, could achieve the objectives many interested parties seek.