The FAFSA Gets Simplified – But Will It Help?
A month before the end of his final term in Congress, Senator Lamar Alexander (R-Tennessee) received the best retirement present he could ask for. As chair of the Senate education committee, he had been trying for years to simplify the Free Application for Federal Student Aid, commonly called the FAFSA. In a rare show of bipartisanship, the Senate delivered and Alexander got his wish. The FAFSA Simplification Act of 2020 became a 167-page insert to the 5,593-page COVID-19 relief package when it passed both houses of Congress and was signed into law on December 27, 2020.
But simplifying the FAFSA isn’t simple. The form is an interface that sits atop a 16- page formula whose results instruct 1,300 employees on how to disburse federal student aid to 13 million students attending 6,000 colleges and career schools. Changing the FAFSA will take time, and most of the the new rules won’t go into effect until July 1, 2024, the first day of the 2024-2025 school year. The new version of the FAFSA form will be available October 1, 2023 for students who expect to enroll in college the following year.
Most agree that the FAFSA needed a makeover. Last year, only 61 percent of graduating seniors submitted the application for federal aid. By reducing the number of questions from 108 to about 40, and better aligning the form to the federal tax returns, the hope is that the simplified FAFSA will be easier to submit. But simplicity without affordability is pointless; both must improve for these changes to make higher education more accessible. So how does the new FAFSA measure up?
Some Important Positive Changes
Scraps the term Expected Family Contribution (EFC) and replaces it with Student Aid Index (SAI). Many parents are misled into thinking their EFC is what they will have to pay for college, when often the real figure is significantly higher. The new system will be less misleading but will not reveal any sooner, nor more accurately, what a family’s actual costs will be at any institution.
Changes how cost of attendance (COA) is defined. Under the new law, COA will include tuition and fees, housing and meals (previously called room and board), books and other course materials, transportation, personal expenses, loan fees (for those receiving federal student and parent loans), and any costs associated with obtaining professional licensure, certification, or credentials.
Stipulates that the itemized cost of attendance must be disclosed on each institution’s website, an important improvement over the current lack of consistency.
Expands eligibility for Pell Grants, including incarcerated students. Additionally, changes to the calculation of SAI will make it easier to identify the neediest students.
Increases the parent Income Protection Allowance (IPA), the portion of income shielded from the SAI calculation. For a three-person family, this will increase 20 percent to $29,040.
Increases the dependent student IPA from $6,970 (for the 2021-2022 year) to $9,410, a jump of 35 percent. Since student income beyond the IPA amount is assessed at a massive 50 percent by the federal methodology, this removes much of the disincentive against student part-time or summer employment.
Increases the independent unmarried student IPA from $10,840 (2021-2022 school year) to $14,630, a jump of 35 percent.
Substantially changes the law regarding divorced or separated parents. It scraps the current standard of “the parent you lived with more during the past 12 months.” Under the new law, the parent who provides more financial support will be the parent required to report income and assets on the FAFSA. This will close a loophole regularly exploited by divorced and separated parents.
Excludes the question of “other untaxed income not reported.” No longer will workers’ compensation and veterans’ educational benefits be reportable as untaxed student income.
Excludes the question of “money received or paid on your behalf.” No longer will a distribution from a grandparent-owned 529, for example, or a cash gift from relatives be reportable as untaxed student income.
Renames Simplified Needs Test to the more accurate Applicants Exempt from Asset Reporting. Makes qualifying easier by raising the adjusted gross income cutoff from $50,000 to $60,000, providing that the applicant also meets other tax filing requirements.
Prohibits colleges and financial aid administrators from maintaining a policy that denies all financial aid appeals.
Expands the authority of financial aid administrators to exercise professional judgment, and allows them to consider a broader range of special circumstances including natural disasters, national emergencies, recession or economic downturn, and substantial losses in business, investments, and real estate.
Reduces barriers for homeless youth and foster care youth to access federal financial aid.
Amends the definition of independent student to also include situations in which the student is unable to contact the parent or where contact would pose a risk to the student.
Allows a FAFSA filer to import all of the student and parent identifying non-financial information from a prior year’s FAFSA, beginning with the 2024-2025 school year.
Removes the suspension of federal student aid eligibility for those convicted of drug-related offenses.
Removes the requirement that male students register with the selective service system.
Forgives the debt balance on all HBCU Capital Financing loans
Some Rules that Remain Unchanged
No change to the way parent available assets will be calculated, a net maximum of 5.64 percent.
No change to the way student assets are calculated at 20 percent of total assets.
Unfortunately, no change to the Asset Protection Allowance (APA) table, whose amounts have been steadily declining over many years. For the 2021-2022 school year, the APA for a two-parent household in which the older parent is 50 is $7,000. Ten years ago, it was $48,800. Some experts are suggesting that the APA may disappear altogether in the years ahead.
New Items That Are Deeply Concerning
In a major setback for many families, the FAFSA will no longer divide the parent assessment by the number of family members in college. This change will substantially reduce financial aid eligibility for those families with multiple family members in college simultaneously.
Prohibits any third party from charging a fee to help complete the FAFSA.
Adds a category of dependent students who are not exempt from asset reporting. This includes those citizens and eligible non-citizens who do not reside in the U.S. or territories, and those who do not file taxes in the U.S. or territories unless they are non-filers due to low income.
Will It Help?
The health of American higher education is in jeopardy. Looking at the percentage of 25-34 year-olds across industrialized countries who hold a postsecondary degree, we are tenth in the world and falling. Comparing the cost of tuition at public institutions granting bachelor’s degrees, we are the second most expensive in the world. These two facts are troubling and deeply interconnected.
Taken as a whole, the simplified FAFSA will be an improvement over the current model. If more students successfully submit the form, the hope is that more high school graduates will enroll in college. If more Pell-eligible students are identified and supported, it will make college incrementally more affordable for those with the greatest need. As a larger portion of student income is protected from the federal methodology, the hope is that more students will be incentivized to find part-time and summer employment to save for college. Yet the FAFSA Simplification Act of 2020 does little to lower the cost of a college degree for the overwhelming majority of students, and in some cases will make it substantially more expensive. We have much more work to do.
Primary resources consulted for this piece:
Text of Consolidated Appropriations Act, 2021, pages 5139-5307 (https://templates.legal/consolidated-appropriations-act/)
Association of American Universities – FAFSA Simplification Act of 2020 Section by Section Summary (https://www.aau.edu/key-issues/fafsa-simplification-act-2020-section-section)
“Pandemic Relief Package Simplifies FAFSA,” by Mark Kantrowitz, Forbes, December 22, 2020 (http://studentaidpolicy.com/pandemic-relief-package-simplifies-fafsa.html)
“A Last Push for Simplicity,” by Kery Murakami, Inside Higher Ed, September 18, 2020 (https://www.insidehighered.com/news/2020/09/18/alexander-prepares-leave-final-push-simplify-fafsa)