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FAFSA Reform Will Make It Easier to Access Federal Student Aid

In December, Congress passed its latest COVID-19 relief legislation and a $1.4 trillion omnibus spending package. Tucked into the 5,593-page legislation were several overdue reforms to the Free Application for Federal Student Aid (FAFSA). These changes will make it easier for students and families to access federal student aid to pay for college.

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What Is the FAFSA?

The FAFSA is a form administered by the Department of Education that collects information—such as sources of income, assets, family size, and the number of college-enrolled family members—to determine eligibility for federal student aid based on established formulas. To receive aid, students must complete a FAFSA for every year they are enrolled, amounting to about 20 million students filing a FAFSA annually.

Filing the FAFSA is critical to ensuring access and affordability for low- and middle-income students. Those who file a FAFSA are 72% more likely to continue progress toward a degree than similar students who do not file. Among low-income students, the effect is even more stark—those who file a FAFSA are more than twice as likely to persist in their education as non-filers.

Despite the FAFSA’s importance, the filing process can be confusing and time-consuming, which deters some students from completing the form. Students in lower-income school districts—who stand to benefit most from federal student aid—complete the FAFSA at a rate 7 percentage points lower than students from higher-income districts.

Low-income students are also disproportionately selected for FAFSA verification, an exercise similar to a tax audit that requires the submission of additional financial documentation. This extra hurdle in the FAFSA process further limits access to federal aid.

A Shorter, Simpler FAFSA

While the 2019 FUTURE Act will reduce some of the burdens associated with filing and verification by expanding data sharing between the Internal Revenue Service and Education Department, December’s omnibus bill implemented even more sweeping reforms. The new law reduces the number of questions on the FAFSA—from 108 to just 36—which will streamline the process for many students applying for financial aid.

Also included in the legislation is a small, but meaningful change in nomenclature. Previously, the information collected on the FAFSA would be used to generate an “Expected Family Contribution” (EFC) for every student. This term is confusing, as EFC is a measure of financial strength and not necessarily indicative of what a family would be expected to pay for college. Beginning with the 2022-23 application season, the term “student aid index” will replace EFC.

Finally, the legislation made significant reforms to the EFC formula to expand eligibility for Pell grants, the federal government’s largest source of need-based aid. Whereas Pell eligibility used to be entirely determined by a student’s EFC, students will now automatically qualify for the maximum Pell award if their income is below 175% of the federal poverty level (or below 225% for students who are single parents).

Next Step: A One-Time FAFSA?

Expanding Pell and changing the terminology for EFC were endorsed by BPC’s Task Force on Higher Education Financing and Student Outcomes. More can be done, however, to improve access to federal student aid. For example, the annual FAFSA filing requirement presents an onerous obstacle for students who may not see any change to their EFC from year to year. Studies indicate that more than 70% of Pell-eligible students see an EFC change of $500 or less while enrolled. Recertification also creates additional paperwork and increases the likelihood that students will miss deadlines that can put their degree progress in jeopardy.

To improve the system in this regard, BPC’s task force recommended that most students only be required to complete the form a single time—when initially enrolling in college. With automatic data sharing, students who might see significant changes to their financial situation could be flagged by the Education Department to prompt resubmission of the form. Additionally, transfer students or those who re-enroll after taking time off from school could be required to re-complete the form.

Before a one-time FAFSA can be implemented, additional analysis will need to be done to determine precisely what changes would trigger the requirement to submit an updated application. Further, to ensure a one-time FAFSA does not inadvertently provide a windfall to more affluent students, the Education Department should first conduct a study to determine the prevalence of asset fluctuations among middle- and high-income students and the extent to which these fluctuations affect financial aid determinations.

Conclusion

BPC applauds Congress for these bipartisan efforts to ensure students can access the federal student aid they need to achieve their educational goals. To build on this momentum, we urge Congress to come together to make the process even simpler through the implementation of a one-time FAFSA.  

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