Update on the EFC Simplification Study Presentation prepared for the

1. Update on the EFC Simplification Study Presentation prepared for the NASSGAP Spring Annual Conference Washington, DC May 29, 2007

2. BACKGROUND • Role of the Advisory Committee • Nearly 20 years involvement with need analysis and delivery • Understanding of federal, state, and institutional roles • The Student Aid Gauntlet – study and report • Aimed primarily at simplifying forms and processes • Not aimed at need analysis (except for auto-zero and SNT) • State of Simplification in HEA reauthorization • Interest on the Hill in several simplification proposals • Key Issue: What can be implemented immediately vs. pilot tested?

3. Feasibility of Federal EFC Simplification – Study Questions • The Current EFC Study • Purpose and Objectives • Motivated by widespread interest in simplification • Anticipated introduction of proposals in HEA reauthorization • Designed to estimate cost, redistributive, and delivery effects • Aimed especially at determining what needs to be pilot-tested • Study Questions and Phases • Can data elements be eliminated without significant adverse effects on program cost, integrity, and distribution of funds? • Can any of the remaining data elements in the resulting simplified formula be derived from alternative sources? • How would such changes affect the distribution of campus-based, state, and institutional need-based aid and associated application forms and processes?

4. Feasibility of Federal EFC Simplification – The Models • Previous studies: CRS and Dynarski and Scott-Clayton • Survey data versus applicant data • Three reduced data element models are considered: • Model 1: Substitute adjusted gross income (AGI) for total income • Model 2: Eliminate asset contributions • Model 3: Substitute AGI for total income and eliminate assets

5. Feasibility of Federal EFC Simplification – Redistribution Highlights of Results From Model 1 • The most redistribution occurs with dependent students. • In every dependency status, more students have lower EFC and therefore higher Pell Grants than higher EFC and therefore lower Pell Grants. • Gains by students with lower EFC are greater than losses by students with higher EFC. • On average, a higher total aggregate need for all students will result in an increase in Pell costs.

6. Feasibility of Federal EFC Simplification – Points of Note • These analyses are all preliminary. • ED or CRS will give Congress redistribution and cost projection numbers for use in legislation. • ACSFA is not judging whether the amount of redistribution and cost increase is acceptable or not. • However, due to the redistributive and cost effects the study has uncovered, the Committee would support a pilot to examine the effects before full scale implementation of any of these proposed models to simplify the EFC formula.

7. Feasibility of Federal EFC Simplification – Additional Phases • Prior, prior year data analysis • Determining the amount of redistribution when using two year old income data • Reliance on two year old income is a necessary condition for using IRS as a source of income data to pre-populate the FAFSA. • More applicable for dependent than independent students • Design for a pilot study • Current bills call for the Department to conduct a pilot study to test the feasibility of using IRS data. • The Advisory Committee will suggest study questions that can determine the success of an IRS data match. • The Committee wants to ensure such a design assuages the concerns of states and institutions.

8. Dr. William Goggin Executive Director Dr. Michelle Asha Cooper Deputy Director Brent Evans Assistant Director Lan Gao Graduate Research Assistant william.goggin@ed.gov michelle.cooper@ed.gov brent.evans@ed.gov lan.gao@ed.gov Contact Information Phone: 202-219-2099 www.ed.gov/acsfa