Simpler FAFSA Helps College Affordability

After a half century of bloated tuition increases, circumstances are reaching critical mass, as has been recently revealed by the Covid-19 pandemic. Demand for bachelor’s degrees has been declining, yet tuition continues to rise. The U.S. is tenth in the world in the percentage of 25- to 34-year-olds who have earned a bachelor’s degree, but first in the amount paid in tuition for those degrees.

A positive step toward solving the affordability crisis was the recent enactment of the FAFSA Simplification Act of 2020, a law designed to simplify the student financial aid process and make it more equitable. Under the law, far more than the current 60% of high school students are expected to submit a FAFSA to obtain their fair share of the $120 billion in financial aid disbursed every year by the Federal government. The more students who receive financial aid, the more of them will be able to afford college. Enrollment will increase accordingly.

The FAFSA Simplification Act of 2020

The FAFSA Simplification Act of 2020 is a 167-page insert to the 5,593-page Omnibus Act for 2021 that was signed into law on December 27, 2020. The primary purpose of the Act is to make it easier to complete the FAFSA so that a larger percentage of students will submit it to obtain the Federal financial aid to which they’re entitled.

Revising the FAFSA is a complex undertaking. It will take time to establish new rules and modify administrative processes, so the changes in the Act won’t go into effect until July 1, 2023, the first day of the 2023-24 academic year. The new FAFSA will be available online on October 1, 2022, so students who are now high school sophomores— the college Class of 2028 — will be the first to use it.

Here’s What the FAFSA Simplification Act of 2020 Does:

1. Increases the Income Protection Allowance (IPA) for dependent students from the current $6,970 to $9,410, a 35% increase. Since student income in excess of the IPA is assessed as an asset at 50% of its value under the FAFSA methodology.  This IPA increase will reduce the existing disincentive for students to seek part-time and summer employment.

2.  Increases the independent unmarried student IPA from the current $10,840 to $14,630, an increase of 35%.

3.  Eliminates the term Expected Family Contribution (EFC) and replaces it with Student Aid Index (SAI). Many parents mistakenly believe that the EFC is the amount they will have to pay for college, but the real figure is often much higher. However, clarifying the terminology won’t help the main problem that parents experience. They still won’t know the actual cost to attend a college until their child has applied to and been accepted by that college.

4.  Expands eligibility for Pell Grants to include incarcerated students.

5.  Changes to the SAI will make it easier to identify the neediest students.

6.  Re-defines Cost of Attendance (COA). COA will include tuition and fees, housing and meals (previously Room and Board), books and other course materials, transportation, personal expenses, Federal loan fees, and any costs associated with obtaining professional licenses, certifications, or credentials. The Act stipulates that the itemized COA must be disclosed on every college’s website.

7.  Increases the amount of the parent IPA that is shielded from the SAI. For a 3-person family, the IPA increases by 20% to $29,040.

8.  Changes the law regarding divorced or separated parents by eliminating the current standard, which is “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 that has been abused by some divorced and separated parents.

9.  Eliminates the question, “Other untaxed income not reported.” Such income as worker’s compensation and veteran’s educational benefits will no longer need to be reported as untaxed student income.

10.  Eliminates the question, “Money received or paid on your behalf.” No longer will a distribution from a grandparent-owned 529 account or a cash gift from relatives be reportable as untaxed student income.

11.  Renames the term Simplified Needs Test to the Applicants Exempt from Asset Reporting. Makes qualification easier by raising the Adjusted Gross Income cutoff from $50,000 to $60,000.

12.  Prohibits colleges and financial aid administrators from establishing a policy that doesn’t allow appeals of financial aid decisions.

13.  Expands the authority of financial aid administrators to exercise professional judgement. It 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.

14.  Reduces obstacles for homeless and foster youth in accessing Federal aid.

15.  Expands the definition of “independent student” to include students who are unable to contact their parent as well as students for whom contact with their parent would place them at risk.

16.  Removes the suspension of Federal student aid eligibility for individuals convicted of drug-related offenses.

17.  No longer divides the SAI by the number of family members in college. This change will substantially reduce financial aid eligibility for those families with multiple members in college simultaneously.

18.  Prohibits a college admissions consultant or financial aid counselor from charging a fee to help a family with the FAFSA. This means that families will be able to obtain FAFSA assistance only from volunteers.

19.  Makes it easier for the Department of Education and the Internal Revenue Service to share tax data so student aid applications can be processed faster.

20.  Forgives $1.3 billion in Federal loans that were made to Historically Black Colleges and Universities (HBCU’s) for repairs, renovations, and construction.

Changes to the FAFSA Are an Improvement, But…

The new FAFSA is an improvement over the current one in most respects. However, it introduces two changes that run counter to the interests of most families. These are Change 17, below, which removes the accommodation for families with more than one student attending college at the same time, and Change 18, which prevents consultants from charging a fee to assist families with the FAFSA. A summary of the major changes is provided below.

In addition to FAFSA simplification, the Omnibus Act for 2021 included emergency spending to help colleges and students cope with the impact of COVID-19. It also took foundational steps toward fundamental reforms in post-secondary education. The American Rescue Plan (ARP) Act, enacted on March 12, 2021, provided additional funds to colleges and students to cover pandemic-related expenses. It too included provisions that lead to reforms.

saving on college costsEven these two helpful acts of legislation, as welcome as they are, can’t cure what ails college education in America the most — excessively high tuition. No action has been taken on reforms such as debt-free college, the $1.5 trillion in outstanding student debt, the reauthorization of the Higher Education Act, and the unaffordability of most colleges for the average American family. Further work needs to be done in these areas.

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