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FAFSA Simplification – Current Status

Details of FAFSA changes in the current Appropriations Act

The 5,000 page+ Consolidated Appropriations Act (2021) signed into law on December 27 contains a significant section on FAFSA Simplification, a long-time objective of Lamar Alexander, the Tennessee Senator who has retired from Congress after many years of education system oversight. As a quick reads summary, this post provides some details of the lengthy provisions.

Headline takeaways

The FAFSA form is simplified, reducing the current 106 questions to 20 and prohibiting any future additions (some of the 20 questions have multiple components)

Renames the EFC the Student Aid Index (the SAI?)

The new FAFSA form does not ask filers for information on income, meaning the Department of Education (DoE) must repurpose the current system importing data from IRS filings (the IRS Data Retrieval Tool or IRS DRT) to make it a seamless process, invisible to filers

Exempts students with family income <$60,000 from the need to report assets

Takes effect July 1, 2023 for the 2023/24 academic year

Requires the DoE to collect work-study benefits from the schools with that information automatically used to calculate the SAI

The FAFSA form no longer asks about student drug convictions

Maintains the asset conversion rate at 12% for the SAI calculation

Prisoners become eligible for Pell Grants, reversing a provision in the 1994 crime bill

Colleges are expressly allowed to adjust student contribution calculations in the case of a recession (as determined by the Secretary of Education)


Sen. Lamar Alexander

The provisions, located at the end of the Appropriations bill, amend the 1965 Education Act and would take effect on July 1, 2023, first applying to the 2023/24 academic year.

SAI is the new EFC

Renaming: One significant change here is cosmetic. The name ‘Expected Family Contribution’ has sometimes rubbed people the wrong way and the equivalent figure will be retitled the ‘Student Aid Index’ (here, SAI – this is not an official acronym and it does not appear in the bill).

 

Cost of Attendance: Student need is defined as the Cost of Attendance (COA) less other defined sums, like the EFC. There are no significant changes to the formula and process for defining the COA. Part-time students can include living expenses for up to 3 semesters in the COA determination.

 

The new SAI: Calculation of the SAI, like the EFC, takes into account student and family income and assets less income and asset protection and less certain taxes and expenses. And as in the EFC, SAI income protection is partly determined by the number of children in the family, with dollar levels reset annually. The bill provides an example (e.g. family with 2 children has an allowance of $23,330) and lays down rules for the annual rest of these levels. Primary residences continue to be excluded from consideration in the SAI, as with the EFC. The employment expense allowance is set at the lower of $4,000 or 35% of the parent(s) income. Family assets are multiplied by 12% after a defined asset allowance, unchanged from the current level.

 

Parent Contributions to the SAI: Parents’ Contribution, defined as the Adjusted Available Income (AAI), is specified according to a sliding percentage and fixed contribution increasing progressively as income and assets rise. Starting at an AAI of approximately $7,000, the percentage contribution rate increases from 22% to the topmost bracket of 47% with a fixed level of $9,494 for this upper bracket. Independent students continue to have separate thresholds. For example, a married independent student would have an income protection allowance of $23,460.

 

The legislation instructs regulators to use an inflation rate of 6% to calculate changes to the asset protection allowance. This is far in excess of actual inflation so the levels of asset protection will rise faster than other indices. The logic behind this is likely tied to an assumption that investments will grow at this 6% rate over the long-term, but in fact this provision is likely to lower asset contributions to the new SAI over many years, as portfolio investment returns are different from the US population’s pool of assets. The bill also sets out that the inflation rate used for FAFSA purposes will be the Department of Labor CPI for Urban Consumers.

 

Adjustments: Colleges are forbidden from disallowing all SIA adjustments by policy, cannot charge for meetings with students and parents considering these adjustments and are required to notify the public that they are possible. Certain ”unusual circumstances” that allow for such an adjustment are defined, including homelessness and unemployment, along with better defining the documentation needed to support them. College are also now expressly permitted to use their professional judgement in adjusting SIA in the case of specified emergencies, including a pandemic and, significantly, a recession (as determined by the Secretary of Education).

FAFSA Simplification

 

Simplifications in the bill are very consumer friendly and restrict bureaucratic creep. The DoE is tasked with simplifying the filing and verification process and prevented from making the process more complex in the future. The legislation specifically shortens the FAFSA form to 20 questions, specifies exactly what will be asked in the new form and prohibits future additions to the form on the part of the DoE.

 

FAFSA form questions are listed in the Act and include:

 

Name & contact information

 

Demographic info: Date of birth, social security information & marital status, citizenship, sex, race or ethnicity, state of legal residence, whether the applicant’s parents attended college, number of members of a student’s family also enrolled in higher ed (at least half time). Information on homelessness, separation from one’s parent, armed forces service, and whether the student has a child.

 

Educational attainment and objectives: Name of all institutions where the student “intends” to apply or is enrolled; and schools or organizations granting them their high school or bachelor’s degree; year when aid is sought.

 

No income reporting is required: This implies that the DoE will need to arrange for communication of income levels by the IRS, probably based on social security numbers. Note that the parent social security numbers are not among the 20 questions required by the updated FAFSA.

 

Financial info: Beyond asset reporting when required, annual amount of child support received, and receipt of a specific set of Federal benefits (includes free lunches and the Earned Income Tax Credit). Reporting of any pension benefits, foreign income, or college aid and scholarships if reported as taxable income by the student or parents.

 

Exemptions: The bill exempts certain classes of students from asset reporting, including those with income below $60,000, who qualify for an automatic zero in the SAI calculation, and who do not file a certain schedules, including Schedule C required of business owners. The $60,000 provision would likely exempt between a third and half of students from having to complete the asset reporting, one of the big simplifications achieved by the legislation. Students who don’t file taxes (directly or through their parents) are automatically assigned an SAI of negative $1,500, which is set as the floor for this index throughout the Act.

 

Simplification: No information may be requested more than once in the form and no information outside of the prescribed list may be asked. Work-study is to be collected from colleges by the Dept of Education and applied to the SIA determination, not asked of applicants in FAFSA. A repeating FAFSA filer will have their prior year data automatically imported into the current submission. The DoE currently provides this so this is we believe a statutory confirmation of existing practice. The Secretary is charged with simplifying the process of financial verification to “the maximum extent practicable.” and to publicly report on the verification process.

Other provisions

 

Data security: Colleges are prohibited from using the FAFSA’s financial information for anything except financial aid and must anonymize individual student data for any research. The Secretary of Education is charged with maintaining proper security of the FAFSA data, to report back to Congress on progress of the implementation within a year and begin consumer testing of the proposed solution

 

Incarcerated students: Various provisions applying to prisoners, including making them eligible for Pell Grants. Their ability to receive these grants was removed in the big 1994 crime bill championed by then-Senator Joe Biden (officially, the Violent Crime Control and Law Enforcement Act of 1994).

 

Languages: The FAFSA will be made available in at least 11 languages, the most common used in the US. Studentaid.gov currently provides information in English and Spanish so this looks to be an expansion.


Outreach and access:
The Secretary will also conduct studies assessing whether the FAFSA obstructs college attendance, in particular with respect to State Aid requirements. Secretary of Education charged with outreach and consumer testing to educate prospective students about how much they could receive through Federal financial aid. , including a consumer-friendly calculator on the Dept of Education’s website,

 

Reporting: Annual reporting of FAFSA filings by the DoE is required. Reporting will include demographic information and data about attendance and applications to secondary and postsecondary institutions .

 

Please also visit our Higher Ed Business blog on Substack for this report and others.