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FAFSA Simplification

FAFSA Simplification. Mark Kantrowitz Publisher of Edvisors.com. Overview of the FAFSA. The FAFSA is the Free Application for Federal Student Aid

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FAFSA Simplification

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  1. FAFSA Simplification Mark Kantrowitz Publisher of Edvisors.com

  2. Overview of the FAFSA • The FAFSA is the Free Application for Federal Student Aid • The FAFSA is used to apply for student financial aid from the federal government, state governments, most colleges and universities and some scholarship programs • A total of nearly 21.2 million students filed new or renewal FAFSAs in 2013-14 • Applicants spent an estimated 24 million hours completing the form

  3. Number of FAFSAs by Year

  4. Why Simplify the FAFSA? • Complexity of the FAFSA acts as a barrier to access and completion • Students who file the FAFSA are more likely to graduate • Students who do not file the FAFSA are more likely to work, with about a third working 40 or more hours a week • Students are leaving money on the table • In 2011-12, approximately 2.0 million students who would have qualified for a Federal Pell Grant did not file the FAFSA • Of these, 1.3 million would have qualified for a full Federal Pell Grant • Reasons why students didn’t file the FAFSA • 46.7% thought they were ineligible • 37.5% said that they had no financial need • 34.1% did not want to take on debt • 13.6% had no information on how to apply • 9.4% said the forms were too much work

  5. Benefits of Simplification • Reduce the amount of time required to complete the form • Eliminate the need for verification of FAFSA data • Free up college resources for counseling students • More students will enroll full-time • Fewer students will work full-time while enrolled in college, leading to improved academic performance • Graduation rates will increase • Less stress on students, families and financial aid administrators • Fit the FAFSA on the back of a postcard or integrate it into federal income tax returns

  6. Complexity is Not Necessary • Some colleges prefer complexity to try to prevent a handful of wealthy students from looking poor • The FAFSAs of low-income students are much more likely to be selected for verification than the FAFSAs of middle- and upper-income students • These colleges are chasing after a false sense of precision • Financial aid formulas are little more than devices for rationing aid • Most colleges do not meet the full demonstrated financial need of all eligible students. • Simplification will not introduce much error into the expected family contribution (EFC) • The federal need analysis methodology can be reweighted to yield a revenue-neutral result • Most FAFSA questions can be eliminated without significantly affecting the allocation of financial aid funds

  7. Most Federal Benefit Programs Are Simpler • Most means-tested federal benefit programs base eligibility on family income below 130% or 185% of the poverty line • Supplemental Security Income (SSI) • Free and Reduced Price School Lunch • Supplemental Nutrition Assistance Program (SNAP) • Temporary Assistance for Needy Families (TANF) • Special Supplemental Nutrition Program for Women, Infants and Children (WIC) • Education tax benefits determine eligibility based on the taxpayer’s income, disregarding assets and other factors.

  8. Current Simplification Efforts Are Inadequate • Skip logic attempts to simplify the FAFSA by adjusting the set of questions based on answers provided earlier in the form • But, the FAFSA must add several questions to determine whether the student can use skip logic • In some cases, skip logic requires students to answer more questions, not fewer • An extra 16 questions must be answered by dependent students to qualify for the Simplified Needs Test, which eliminates 6 asset questions • Applicants must answer as many as 9 questions to use the IRS Data Retrieval Tool, which prefills the answers to up to 11 questions • All students must answer more questions so that some students can answer fewer questions

  9. Three Approaches to Simplification • Sensitivity Analysis. Analyze the impact of the possible answers to each question on the EFC. Eliminate any question that causes a small variation in the EFC by setting the answer to the average value. • Adapt the Income-Based Repayment (IBR) formula. If income-based repayment works for determining affordability after graduation, why not use it for determining affordability during enrollment? Base the EFC on 15% of discretionary income (AGI – 150% poverty line) divided by the number of children in college. • Phase-Out Formula. Students would qualify for a full Federal Pell Grant with family income (AGI) at or below 150% of the poverty line. The grant would be reduced proportionately until AGI reaches 250% of the poverty line.

  10. Enhancements to Simplification • Prior-Prior Year (PPY) vs. Prior Year (PY) • The FAFSA currently uses one-year-old data to approximate income during the award year • Prior-prior year would use two-year-old data instead • If PPY data is adjusted for inflation, it will not yield much of a difference in financial aid eligibility • PPY would allow students to apply for financial aid before applying for college admission • Publish tables that map from income and family size to Federal Pell Grant eligibility or net price. Such an approach would be more accessible to low-income students.

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