Federal Student Aid
Highlights of a Study Group on Simplifying the Free Application for Federal Student Aid Gao ID: GAO-10-29 October 29, 2009Federal student aid is intended to play an integral part in fulfilling the promise of greater academic access and success for less affluent students. However, many experts have expressed concern about the length and complexity of the Free Application for Federal Student Aid (FAFSA) and the statutory need analysis formula used to determine aid eligibility. The Higher Education Opportunity Act required GAO to form a study group to examine options and implications in simplifying the financial aid process. The study group focused on (1) identifying ways to shorten the FAFSA and make it less burdensome to complete, (2) identifying changes to the statutory need analysis formula that would reduce the amount of financial information required by the FAFSA without causing significant redistribution of federal and state student aid, and (3) determining how any changes to the FAFSA and the statutory need analysis formula could be implemented. To address these questions we convened an expert panel on May 7, 2009, and conducted additional interviews with experts. This summary captures the ideas and themes that emerged at the panel and during interviews. It does not necessarily represent the views of GAO or of the organizations whose representatives participated in the study group.
Study group participants said using federal income tax data that the government already collects and revising the form could shorten the application process, making it easier on students and their families. Many participants proposed that relevant federal income tax data be directly transferred to the appropriate answer fields on each applicant's online FAFSA, an approach that the Department of Education (Education) plans to pilot for some applicants in January 2010. Such a change could decrease the amount and complexity of some of the financial questions on the application. In addition, many participants proposed changes to the design and contents of the form to clarify and streamline the application. Education has recently taken steps to shorten and reorganize the online form and has plans for further improvements. Participants said changing the federal formula to reduce required financial information would ease applicants' burden, but such a shift would likely result in some change in the distribution of aid. Many study group participants supported changing the need analysis formula to rely solely on a family's income and number of tax exemptions to determine aid eligibility. These changes would greatly reduce the number of complicated financial questions on the FAFSA. However, reducing the amount of financial information collected could change the distribution of federal, state, and institutional aid, prompting some concern about this approach. Education's recent legislative proposal to limit the formula to financial information available through tax forms would eliminate 26 financial questions, including those on assets. Participants said technology and public outreach efforts could improve the federal student aid application process, but successful implementation of changes hinges on the ability of federal and state agencies to address several challenges. While it is feasible to electronically transfer tax data directly from the Internal Revenue Service (IRS) to the FAFSA by using income data one year older than what is currently required, participants expressed some concern about the potential implications of such a change. Specifically, using older tax data might result in increased aid eligibility for some applicants whose data may not reflect their current economic needs. In addition, it may be more difficult for applicants who do not file taxes to provide sufficient documentation of their income from two years earlier. Education and the IRS have begun developing a plan to allow some applicants to electronically access their tax data when they apply for aid online. However, because taxpayers can submit their data as late as April 15, these data will not be available in time to accommodate most aid applicants. Many participants also called for linking state aid Web sites to the online federal application to mitigate the potential effects of federal formula changes on state aid. Education plans to offer this option to states in January 2010. In addition, participants said that efforts to simplify the application process should be accompanied by a public outreach strategy aimed at increasing knowledge of the availability of federal student aid. Education plans to undertake a public outreach campaign beginning in fall 2009.
GAO-10-29, Federal Student Aid: Highlights of a Study Group on Simplifying the Free Application for Federal Student Aid
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Report to Congressional Committees:
United States Government Accountability Office:
GAO:
October 2009:
Federal Student Aid:
Highlights of a Study Group on Simplifying the Free Application for
Federal Student Aid:
Federal Student Aid:
GAO-10-29:
GAO Highlights:
Highlights of [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-10-29],
a report to congressional committees.
Why GAO Did This Study:
Federal student aid is intended to play an integral part in fulfilling
the promise of greater academic access and success for less affluent
students. However, many experts have expressed concern about the length
and complexity of the Free Application for Federal Student Aid (FAFSA)
and the statutory need analysis formula used to determine aid
eligibility. The Higher Education Opportunity Act required GAO to form
a study group to examine options and implications in simplifying the
financial aid process. The study group focused on (1) identifying ways
to shorten the FAFSA and make it less burdensome to complete, (2)
identifying changes to the statutory need analysis formula that would
reduce the amount of financial information required by the FAFSA
without causing significant redistribution of federal and state student
aid, and (3) determining how any changes to the FAFSA and the statutory
need analysis formula could be implemented. To address these questions
we convened an expert panel on May 7, 2009, and conducted additional
interviews with experts. This summary captures the ideas and themes
that emerged at the panel and during interviews. It does not
necessarily represent the views of GAO or of the organizations whose
representatives participated in the study group.
What GAO Found:
Study group participants said using federal income tax data that the
government already collects and revising the form could shorten the
application process, making it easier on students and their families.
Many participants proposed that relevant federal income tax data be
directly transferred to the appropriate answer fields on each
applicant‘ s online FAFSA, an approach that the Department of Education
(Education) plans to pilot for some applicants in January 2010. Such a
change could decrease the amount and complexity of some of the
financial questions on the application. In addition, many participants
proposed changes to the design and contents of the form to clarify and
streamline the application. Education has recently taken steps to
shorten and reorganize the online form and has plans for further
improvements.
Participants said changing the federal formula to reduce required
financial information would ease applicants‘ burden, but such a shift
would likely result in some change in the distribution of aid. Many
study group participants supported changing the need analysis formula
to rely solely on a family‘s income and number of tax exemptions to
determine aid eligibility. These changes would greatly reduce the
number of complicated financial questions on the FAFSA. However,
reducing the amount of financial information collected could change the
distribution of federal, state, and institutional aid, prompting some
concern about this approach. Education‘s recent legislative proposal to
limit the formula to financial information available through tax forms
would eliminate 26 financial questions, including those on assets.
Participants said technology and public outreach efforts could improve
the federal student aid application process, but successful
implementation of changes hinges on the ability of federal and state
agencies to address several challenges. While it is feasible to
electronically transfer tax data directly from the Internal Revenue
Service (IRS) to the FAFSA by using income data one year older than
what is currently required, participants expressed some concern about
the potential implications of such a change. Specifically, using older
tax data might result in increased aid eligibility for some applicants
whose data may not reflect their current economic needs. In addition,
it may be more difficult for applicants who do not file taxes to
provide sufficient documentation of their income from two years
earlier. Education and the IRS have begun developing a plan to allow
some applicants to electronically access their tax data when they apply
for aid online. However, because taxpayers can submit their data as
late as April 15, these data will not be available in time to
accommodate most aid applicants. Many participants also called for
linking state aid Web sites to the online federal application to
mitigate the potential effects of federal formula changes on state aid.
Education plans to offer this option to states in January 2010. In
addition, participants said that efforts to simplify the application
process should be accompanied by a public outreach strategy aimed at
increasing knowledge of the availability of federal student aid.
Education plans to undertake a public outreach campaign beginning in
fall 2009.
What GAO Recommends:
GAO makes no recommendations
in this report. The Departments of Education, Treasury, and the
Internal Revenue Service had no comments on the draft report.
View [hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-10-29] or key
components. For more information, contact George Scott at (202) 512-
7215 or scottg@gao.gov.
[End of section]
Contents:
Letter:
Background:
Participants Said Using Federal Income Tax Data and Revising the FAFSA
Could Reduce Applicants' Burden:
Participants Said Reducing the Financial Information Required by the
Need Analysis Formula Could Ease Applicants' Burden, but Some Aid
Redistribution Is Likely:
Participants Said Technology and Public Outreach Are Central to
Implementing Changes, but Several Challenges Must Be Addressed:
Concluding Observations:
Agency Comments:
Appendix I: Expert Panel Agenda:
Appendix II: Expert Panel Participants:
Appendix III: GAO Contact and Staff Acknowledgments:
Figure:
Figure 1: Student Aid Application Process:
Abbreviations:
AGI: adjusted gross income:
COA: cost of attendance:
EFC: expected family contribution:
Education: Department of Education:
FAFSA: Free Application for Federal Student Aid:
HEA: Higher Education Act of 1965:
IRS: Internal Revenue Service:
[End of section]
United States Government Accountability Office:
Washington, DC 20548:
October 29, 2009:
The Honorable Tom Harkin:
Chairman:
The Honorable Michael B. Enzi:
Ranking Member:
Committee on Health, Education, Labor, and Pensions: United States
Senate:
The Honorable George Miller:
Chairman:
The Honorable John P. Kline:
Ranking Member:
Committee on Education and Labor:
House of Representatives:
Federal student aid is intended to play an integral part in fulfilling
the promise of greater academic access and success for less affluent
students. In fiscal year 2008, the Department of Education (Education)
delivered about $96 billion in federal student aid through grant, work-
study, and loan assistance to almost 11 million postsecondary students
and their families. Additionally, the College Board estimates that
states and postsecondary institutions provided approximately $37
billion in grant aid to students in the 2007 to 2008 academic
year.[Footnote 1] Completion of the Free Application for Federal
Student Aid (FAFSA) is the first step in securing federal financial
assistance, such as need-based grants and loans, for postsecondary
education. Federal aid is currently awarded based on a formula
specified in the Higher Education Act (HEA), as amended, that takes
into account such factors as income, assets, and tax expenses that
students and their families report. Many state and postsecondary
institutions rely on the information provided in the FAFSA and the
federal statutory need analysis formula to calculate their own aid
awards. However, many experts, both within and outside of government,
have expressed concern about the length and complexity of the FAFSA and
the formula used to determine aid eligibility, including the
possibility that the application process itself may discourage some
students from applying. Education estimates that nearly eight million
college students never apply for federal aid, and further contends that
most of these students would be eligible for some type of assistance if
they applied.[Footnote 2] In addition, another study estimates that of
the students who did not apply for federal aid in the 2007 to 2008
academic year, 2.3 million would have qualified for Pell Grants, which
are targeted at low-income students.[Footnote 3] Although the potential
impact of FAFSA simplification on the number of applicants is unknown,
many experts presume that it would increase the number of applicants
for federal student aid. Despite a general consensus on the need to
simplify and streamline the student aid application process, there are
varying views on how best to achieve this aim.
The Higher Education Opportunity Act[Footnote 4] required GAO to form a
study group to examine options and implications for simplifying the
financial aid process. In convening this group, we focused on the
following objectives: (1) identifying ways to shorten the FAFSA and
make it less burdensome to complete, (2) identifying changes to the
statutory need analysis formula that would reduce the amount of
financial information required by the FAFSA without causing significant
redistribution of federal and state student aid, and (3) determining
how any changes to the FAFSA and the statutory need analysis formula
could be implemented.
To form a study group, we convened an expert panel and conducted
interviews to examine options for simplifying the student aid
application process. The panel, held on May 7, 2009, was composed of 20
experts from the Departments of Education and Treasury, the Internal
Revenue Service (IRS), the Office of Management and Budget, the
Congressional Budget Office, postsecondary institutions, state
executive offices of higher education, and other experts, as required
by the Higher Education Opportunity Act. We selected these participants
to represent a range of views on the issues. See appendix I for the
panel agenda and appendix II for a list of participants. To gain a
better understanding of issues related to FAFSA simplification, we
conducted interviews with officials from the Departments of Education
and Treasury and the Congressional Budget Office. As part of the study
group, we also interviewed representatives from four higher education
professional associations, seven state aid agencies, and financial aid
administrators from eight 2-year and 4-year postsecondary institutions,
including public, private not-for-profit, and private for-profit
institutions. In addition, we reviewed relevant federal laws and
regulations. Following Education's June 2009 announcement of its plan
for simplifying the aid application process and conducting outreach, we
provided study group participants--both those who attended our expert
panel and several people we interviewed--with the opportunity to
comment on the plan.
This summary captures the ideas and themes that emerged at the panel
and during interviews. This summary does not necessarily represent the
views of GAO or of the organizations whose representatives participated
in the study group. Panel participants reviewed a draft of this
summary, and their comments were incorporated where appropriate. We
conducted this engagement from November 2008 to October 2009 in
accordance with all sections of GAO's Quality Assurance Framework that
are relevant to our objectives. The framework requires that we plan and
perform the engagement to obtain sufficient and appropriate evidence to
meet our stated objectives and to discuss any limitations in our work.
We believe that the information and data obtained, and the analysis
conducted, provide a reasonable basis for any findings and conclusions.
Background:
Federal Need Analysis Methodology:
The HEA, as amended, specifies a formula, known as the federal need
analysis methodology, to determine students' eligibility for federal
need-based student aid. A student's need for financial aid is
calculated using a formula that subtracts a student's expected family
contribution (EFC) from the student's cost of attendance (COA). The EFC
represents the applicant's household financial resources that are
considered available to help pay for postsecondary education expenses
and is calculated by reducing the financial resources reported by
applicants by certain expenses and allowances, including state and
other tax allowances.
The factors used to calculate the EFC differ based on whether students
are classified as financially dependent on their parents or are
independent. For dependent students, the EFC is based on such factors
as the student's and parents' income and assets, as well as family size
and whether the family has other children enrolled in college. For
independent students, the EFC is based on such factors as the student's
and, if married, spouse's income and assets and whether the student has
any dependents other than a spouse, as well as the number of family
members enrolled in college.
The COA at a postsecondary institution includes tuition, fees, books,
and living expenses. If the COA is greater than the EFC, the difference
between the two represents the student's financial need. For example,
if a postsecondary institution has a COA of $10,000 and a student has
an EFC of $4,000, the student is eligible for up to $6,000 of federal
need-based aid. If the EFC is greater than the COA, the student is not
eligible for federal need-based aid but may qualify for aid that is not
need-based.
The Financial Aid Application Process:
In the 2007 to 2008 academic year, more than 12 million prospective
students applied for federal student aid. Education requires student
aid applicants to complete the FAFSA to collect students' data for the
federal need analysis formula. Although the primary purpose of the
FAFSA is to help Education distribute federal student aid, the form
also accommodates the needs of state and institutional aid programs
that rely on the FAFSA data for their own eligibility calculations.
Prior to the creation of the FAFSA, separate application forms were
required to apply for various types of federal, state, and
institutional aid. As required by law, in 1992, Education streamlined
the student aid application process by consolidating many of these
forms into a unified FAFSA. Since then, Education has undertaken
periodic efforts to modify the form's design and instructions and
reduce data elements required of applicants. In addition, several
amendments to the HEA have also modified the FAFSA by adding, for
example, some new questions to the application.
The 2009 to 2010 FAFSA consists of more than 100 questions that collect
information ranging from basic contact information to the current value
of assets. While less than half of the questions ask for financial
information, many of these questions require applicants and the parents
of dependent applicants to search for information located on tax
returns as well as bank, business, and investment records.
While both online and paper versions of the FAFSA are available,
Education recommends that applicants file online to take advantage of
features that are not available on the paper form, such as skip-logic,
which allows applicants to skip questions that do not pertain to them.
For example, independent students are not asked for their parents'
financial information. The online FAFSA can also detect many errors
prior to applicants' submission and allow the applicant to make
corrections. If such errors are made on the paper form, they may take
weeks to resolve, delaying financial aid eligibility notification from
Education. According to Education, 98 percent of FAFSA applications are
submitted online. Education's student aid application processing cycle
covers an 18-month period. For example, applicants seeking federal aid
for the 2009 to 2010 award year can submit a FAFSA from January 1,
2009, through June 30, 2010; however, most states and institutional aid
programs have earlier FAFSA deadlines.
After Education processes an applicant's FAFSA, a report is sent to the
applicant or made available online. This report includes the
applicant's EFC, the types of federal aid for which the applicant
qualifies, and information about any errors--such as questions the
applicant did not complete--that Education identified during FAFSA
processing. Colleges send applicants award letters after admission,
providing students with types and amounts of federal, state, and
institutional aid, should the student decide to enroll (see fig. 1).
Figure 1: Student Aid Application Process:
[Refer to PDF for image: flowchart]
Source: GAO analysis of Department of Education procedures.
[End of figure]
Federal Aid Provided under Title IV of the HEA:
Title IV of the HEA, as amended, authorizes the following federal aid
programs.
Grants. Generally, grants do not need to be repaid unless the recipient
withdraws from school and owes a refund. They include the following
types:
* Pell Grant. Grants to low-income undergraduate and certain
postbaccalaureate students who are enrolled in a degree or certificate
program and have federally defined financial need. For the 2009 to 2010
award year, the maximum award is $5,350.
* Supplemental Educational Opportunity Grant. Grants to undergraduate
students with federally defined financial need. Priority for this award
is given to Pell Grant recipients. In general, an annual award may not
be less than $200 and may not exceed $4,000.
* Academic Competitiveness Grant. Grants to Pell-eligible students
enrolled at least half-time in their first or second year of study who
completed a rigorous secondary school program of study. First year
students may receive up to $750, and second year students who have at
least a 3.0 cumulative GPA at the end of the first year of study may
receive up to $1,300.
* National Science and Mathematics Access to Retain Talent (SMART)
Grant. Grants up to $4,000 per year to Pell-eligible students in their
third or fourth year of study (or fifth year of a 5-year program)
majoring in certain subject areas with at least a 3.0 cumulative GPA.
* Teacher Education Assistance for College and Higher Education (TEACH)
Grant. Grants to undergraduate, postbaccalaureate, and graduate
students who are taking or will be taking course work necessary to
begin a career in teaching. TEACH provides up to $4,000 per year to
recipients who agree to teach full-time in a designated teacher
shortage area for 4 years, or the grant will be converted to a loan
that must be repaid with interest.
Work-study. Work-study is employment in on-campus or certain off-campus
jobs for which students who have federally defined need earn at least
the current federal minimum wage. The college or off-campus employer
pays a portion of their wages, while the federal government pays the
remainder. Work-study is awarded based on a student's need minus other
aid awarded. Colleges participating in the program administer the funds
and make award decisions based on the student's financial need.
Loans. These are funds that are borrowed and must be repaid, with
interest.
* Perkins Loan. Low interest--5 percent--loans made through
participating schools to undergraduate and graduate students. Interest
does not accrue while the student is enrolled at least half-time in an
eligible program. Priority is given to students who have exceptional
federally defined need. Undergraduate students can borrow up to $5,500
annually, and graduate students can borrow up to $8,000 annually.
* Stafford and Plus loans. Loans made by private lenders and guaranteed
by the federal government (Federal Family Education Loan Program) or
made directly by the federal government through a student's school
(Direct Loan Program).
- Subsidized Stafford Loan. A loan made to students enrolled at least
half-time in an eligible program of study and have federally defined
financial need. The federal government pays the interest costs on the
loan while the student is in school. The amount students can borrow is
based on their year in school and whether they are classified as
financially dependent on their parents or independent.
- Unsubsidized Stafford Loan. A nonneed-based loan made to students
enrolled at least half-time in an eligible program of study. Although
the terms and conditions of the loan (i.e., interest rates, etc.) are
the same as those for subsidized loans, students are responsible for
paying all interest costs on the loan.
- PLUS Loan. A nonneed-based loan made to credit-worthy parents of
dependent undergraduate students enrolled at least-half-time in an
eligible program of study, and credit-worthy graduate and professional
degree students. Borrowers are responsible for paying all interest on
the loan, and can borrow up to the cost of attendance minus any
financial aid the student receives.
Currently, dependent students may borrow combined subsidized and
unsubsidized Stafford loans up to $5,500 in their first year of
college, $6,500 in their second year, and $7,500 in their third year
and beyond. Independent students can borrow combined subsidized and
unsubsidized Stafford loans up to $9,500 in their first year, $10,500
in their second year, and $12,500 in their third year and beyond. There
are aggregate limits for an entire undergraduate education of $31,000
for dependent students and $57,500 for independent students. Graduate
and professional degree students can borrow combined subsidized and
unsubsidized Stafford loans up to $20,500 per year, and their aggregate
limit for undergraduate and graduate education generally cannot exceed
$138,500.
Participants Said Using Federal Income Tax Data and Revising the FAFSA
Could Reduce Applicants' Burden:
Obtaining IRS Tax Data Could Decrease the Burden on Applicants:
Many study group participants said using federal income tax data the
government already collects on annual income tax forms could shorten
the application process, making it easier on students and their
families. Specifically, these participants proposed that relevant
federal income tax data be directly transferred to the appropriate
answer fields on each applicant's online FAFSA. With answers to as many
as 20 FAFSA questions already collected on federal tax forms, such a
change could decrease the quantity and complexity of the financial
questions for the majority of applicants who complete the FAFSA with
information from tax returns.
Several participants said the FAFSA questions that take the longest to
complete tend to be those that require applicants to search their tax
forms for answers, such as questions on combined income and untaxed
portions of retirement accounts. One participant noted that directly
populating the FAFSA with tax data could particularly ease the burden
on many first-generation college students and their parents, who may
have less familiarity with the application process. Several
participants also suggested that the use of federal income tax data
could increase the number of applications completed, because fewer
applicants would be discouraged by the number of questions they had to
answer. One participant referred to her research showing that, by
electronically populating an applicant's FAFSA with IRS data, an
independent applicant could complete the online FAFSA in less than 10
minutes, on average. Another participant noted that financial questions
are the source of most errors on the FAFSA, resulting in students and
colleges spending additional time making corrections and verifying
information. Currently, Education requires colleges to verify that up
to 30 percent of their federal aid recipients provided accurate
financial information. This process involves the school's financial aid
office comparing an applicant's or his family's information on the
FAFSA to supporting documentation, including tax returns that the
student must provide to the school.
Although 98 percent of applicants submit the FAFSA electronically, a
few participants noted that some low-income applicants may not have
reliable internet access in their homes. These participants said that
applicants without such access would be more likely to complete a paper
FAFSA and would not benefit from an electronic transfer of IRS data.
Changes to the Design and Contents of the Form Could Streamline the
Application:
Many study group participants proposed changes to the design and
contents of the FAFSA that could help streamline the form and make the
application process less daunting for prospective students.
Instructions. Although Education has worked to clarify the online and
paper FAFSA instructions in recent years, some participants said the
length and complexity of the instructions continue to confuse
applicants and should be further reduced and clarified. Beginning in
January 2010, Education plans to improve instructions for the online
FAFSA by customizing the directions for each question based on
information the applicant has already provided. For example, if
applicants enter their marital status as single, the directions for
each question will only provide information pertinent to single FAFSA
applicants.
Tone. A few participants raised concerns about the tone of some
questions on the FAFSA--saying they conveyed the wrong message to
applicants--with one participant likening the application to a "beware
of dog" sign instead of a welcome mat. For example, two participants
recommended rewording a question that asks if applicants will attend
college full-time or part-time, saying the question erroneously gives
applicants the impression that they must commit to one of these options
in order to apply for aid. However, this question is not used to
determine federal aid eligibility, and students do not have to make
this decision until they decide to enroll in college. Education has
recently announced plans to make changes to the online FAFSA that are
designed to encourage applicants to complete the application process.
For example, in January 2010, Education plans to begin providing status
indicators throughout the application that will inform students of
their progress in completing the FAFSA.
Skip-logic design. Several participants praised the online FAFSA
feature--known as skip-logic--which allows applicants to bypass some
questions that are not relevant to their student aid eligibility, based
on their answers to previous questions.
Education's recent expansion of skip-logic now allows applicants to
bypass:
* a selective service registration question unless they are male and
younger than 26,
* most dependency questions if they are at least 24 years of age or
married,
* three homeless determination questions unless they are 21 years of
age or younger and answered yes to a question asking if they are
homeless or at risk of being homeless, and:
* all parental data for dependent applicants who only wish to apply for
an unsubsidized loan if their parents refuse to provide their data on
the FAFSA and refuse to provide financial support to the applicant.
In addition, upcoming enhancements planned for January 2010 will allow
applicants to skip:
* asset information if they have low incomes and assets are not
required to determine their eligibility;
* drug conviction questions if they are first-time college students, as
federal aid eligibility is not affected by drug convictions that occur
prior to college enrollment; and:
* the state of legal residence and date of residency question if they
confirm that, for at least the previous 5 years, their state of legal
residence is the same as the state on their mailing address.
Two participants recommended improving the skip-logic for financial
questions by grouping together all questions requiring applicants to
reference their tax forms and reordering the FAFSA questions to match
the order in which data are collected on tax forms. Another participant
noted that while skip-logic may be helpful for online applicants, it
does not benefit the approximately 2 percent of individuals who
complete the paper FAFSA.
Content. Many participants offered recommendations to streamline the
FAFSA's contents. A few participants suggested it would be helpful to
know the extent to which each question is used in determining
eligibility for federal, state, and institutional aid, since the value
of information gained from particular questions may be outweighed by
the potential loss of applicants due to the form's length. In addition,
a few participants recommended significantly shortening the FAFSA by
removing all questions not used to determine federal eligibility or
financial need. For example, some states consider the highest level of
education an applicant's parents have completed in targeting aid.
However, some participants expressed concern that eliminating such
questions from the FAFSA may cause states and colleges to develop
additional forms in order to get the data they need, which could in
turn increase the overall burden on applicants. One participant added
that it might be difficult for colleges to get a comparable response
rate if they tried to collect nonfinancial data. However, another
participant suggested that colleges could collect this information on
the acceptance form students submit after receiving letters of
admission. Two participants also suggested eliminating questions
currently asked on the FAFSA to determine aid eligibility--such as
those regarding selective service registration and drug convictions--
that are not used to calculate financial need.
Participants Said Reducing the Financial Information Required by the
Need Analysis Formula Could Ease Applicants' Burden, but Some Aid
Redistribution Is Likely:
Using Less Financial Information to Determine Eligibility Could Reduce
Burden on Applicants:
Many study group participants supported changing the need analysis
formula to require less financial information from federal student aid
applicants. Because the formula is specified by federal statute, any
modifications would require legislative change. In discussing the need
for a simpler formula, several participants noted both the sheer number
of questions required to compute aid eligibility and the relative
difficulty of answering the financial questions. For example, one
participant stated that applicants have a far easier time answering
questions about their marital status than they do complicated questions
about their assets. In particular, participants discussed the merits of
relying solely on a family's income--as measured by adjusted gross
income (AGI) on federal income tax forms--and the number of tax
exemptions to determine aid eligibility. Similar proposals have been
suggested previously.[Footnote 5] Such a shift would greatly reduce the
number of financial questions asked on the FAFSA--from more than 45
items to only 2--which several participants said could decrease the
burden applicants face in completing the form. Nevertheless, a few
state aid administrators we interviewed said they saw no need to change
the current formula, and one added that the online form's skip-logic
keeps the formula from being too burdensome for most applicants.
Several participants also noted that a simpler formula could increase
applicants' awareness of their potential financial aid eligibility, and
perhaps increase the probability that they will go to college. For
example, if eligibility were determined solely by AGI and number of tax
exemptions, Education could publish a reference table that would allow
students to estimate their aid eligibility far earlier in the aid
application process and plan accordingly. Supplying applicants with
earlier, more precise information on eligibility could ultimately
render the EFC unnecessary, replacing the estimate of an applicant's or
family's contribution to the cost of education with a direct
calculation of federal aid eligibility. Several participants said that
providing this type of early information could lead to an increase in
the number of financial aid applications submitted and could encourage
prospective students to apply for aid earlier in the cycle.
In addition, participants said that reducing the financial information
required by the formula could in turn simplify the verification process
for financial aid administrators and applicants. If fewer financial
items were included in the formula, financial aid administrators would
have to collect and verify less information, and students selected for
verification would similarly be relieved of the burden of providing
large amounts of documentation.
Reducing the Amount of Financial Information Collected Could Result in
Redistribution of Federal and State Aid:
Many participants said that although it would make the application
process easier on prospective students, reducing the amount of
financial information collected would likely result in some change in
the distribution of federal, state, and institutional aid, and would
create new winners and losers among the pool of aid applicants.
Participants differed in their assessment of whether the benefit of
simplifying the formula outweighed the potential cost in how federal
aid is distributed among applicants. For example, several participants
were concerned that eliminating asset information from the federal
formula could result in some applicants with high-value assets, such as
large bank accounts or trust funds, receiving more need-based aid--such
as Pell Grants--than they would under the current system. By
potentially increasing the pool of applicants who qualify for need-
based aid, eliminating assets could result in a smaller award amount
for each Pell Grant recipient, as the maximum amount of the grant
depends on program funding and can change each year.
Several other participants, however, asserted that simplifying the
formula would be beneficial to applicants--particularly those with the
greatest need and those who do not currently apply--and is therefore
worth the potential cost of a shift in who receives federal aid. One
participant's research suggests that redistribution at the federal
level would be relatively small if the formula included only AGI and
number of tax exemptions. Specifically, she said she has found that
approximately 85 to 90 percent of the variation in how the Pell Grant
is awarded can be explained by those two factors.[Footnote 6]
According to participants, formula changes could also affect the
distribution of state and institutional aid to varying degrees, as many
states and institutions use the eligibility determinations from the
FAFSA to allocate their awards. Consequently, some participants were
concerned that--much like with federal aid--the removal of asset data
from the formula could increase the overall pool of eligible award
recipients, and in turn reduce the size of state and institutional
financial aid awards available to the neediest applicants. Some
participants asserted that, while a change in the formula may not
greatly affect Pell-eligible students, state and institutional need-
based aid reaches into middle income ranges where the implications may
be far greater. One of these participants added that when her state
modeled what would happen to its aid program if it eliminated assets
from the eligibility formula, it found that expenditures would increase
by 12 percent. Because her state, like many others, has a program in
which all eligible applicants are entitled to receive aid, she
explained that such a change would result in the state either having to
cover additional costs or providing less money to each eligible
student. For a few participants, concerns over how formula changes
might affect state aid extended to the way in which family size is
calculated. These participants said that the number of tax exemptions
is a poor measure of the household size of an applicant or applicant's
family. For example, some children or other family members may live
with an applicant but not be listed as dependents on tax forms.
However, other participants countered that household size is already
difficult to measure accurately under the current formula. Several
participants recommended further analysis on how and to what extent
applicants for both federal and state aid would be affected by possible
changes to the federal formula.
Many participants stressed that, as federal aid does not cover the
entire cost of education for most students, the information needs of
states and institutions must be addressed in any plan to simplify the
federal formula. Two participants, however, maintained that it was not
reasonable to expect a single application to serve the needs of both
the federal aid program and programs from all states and institutions.
Education‘s recent proposal to limit the federal formula to financial
information available through federal income tax forms would eliminate
26 financial questions”-including those on assets”-while retaining up
to 20 financial questions that could all be answered with federal
income tax data. Although such a formula would decrease the burden on
applicants, one participant noted that it would not be concise enough
to allow for a simple reference table that prospective students could
use to estimate aid eligibility, as it would if it were limited to AGI
and tax exemptions. Proposed legislation passed by the House of
Representatives and under consideration in the Senate would simplify
the student need analysis formula by setting an asset cap for some aid
programs and eliminating assets from the need analysis of students
whose families do not equal or exceed the cap.[Footnote 7]
Participants Said Technology and Public Outreach Are Central to
Implementing Changes, but Several Challenges Must Be Addressed:
While many study group participants noted the potential benefits of
using IRS data to populate the online FAFSA, some raised questions
about the feasibility and limitations of this approach. Applicants
currently complete the FAFSA with income information from the tax year
prior to the beginning of the school year for which they are applying
for aid. For example, an applicant who completed the FAFSA with the
intent of beginning college in fall 2009 is required to use 2008 income
information. However, Education officials said that because the tax
calendar permits most tax filers to file their income taxes for the
prior calendar year as late as April 15, the IRS could not make tax
data electronically available to student aid applicants until July.
Some participants said that besides not giving students sufficient time
to plan for college costs, completing the FAFSA this late would cause
many students who plan to enroll in the fall to be ineligible for aid
from states and colleges.
Acknowledging these limitations, Education officials said making the
electronic transfer of IRS tax data to the FAFSA feasible for fall
college applicants would likely require the use of income data that
would be one year older than the information Education currently uses
to determine financial aid eligibility. For example, under this
scenario, an online applicant who completed the FAFSA in March 2009
with the intent of beginning college in August 2009 would be required
to use income tax data from 2007. As of July 1, 2010, the Higher
Education Opportunity Act authorizes the Secretary of Education to
allow such older data to be used in calculating applicants‘ aid
eligibility.[Footnote 8]
However, some participants expressed concern that by using older data”
often referred to as prior-prior year data”there is an increased risk
that the data may no longer reflect an applicant‘s current economic
need. For example, a college applicant could have a higher or lower
income than they did two years prior to attending college. Currently,
school financial aid officials can use professional judgment to change
an applicant‘s eligibility for aid upon an applicant‘s request, if they
determine that there are special circumstances. For example, applicants
may request professional judgment if they think their financial aid
award does not match their current economic need. Participants said
that while professional judgment may be used to increase or decrease an
applicant‘s financial aid, it is unlikely that applicants with an
improved economic status will ask their colleges to use professional
judgment to decrease their student aid award. Therefore, some
participants said they think that this will lead to increases in the
numbers of applicants eligible for federal and state aid. However, one
participant noted that although the implementation of using prior-prior
year tax data would likely cause an initial increase in applicants
qualifying for aid, the cost might level off in subsequent years.
In addition, some participants expressed concern about the possible
effects of using prior-prior year data on applicants who are not
required to file income taxes. According to Education, about 6 percent
of dependent applicants‘ parents and about 13 percent of independent
applicants who completed the FAFSA in the 2008 to 2009 academic year
did not file taxes. One participant said that although it may be
challenging for tax-filing applicants who submit paper forms to find
tax forms from up to 2 years earlier, it would likely be particularly
difficult for applicants who do not file taxes to provide information
on their income from 2 years earlier. A few participants also expressed
concern that Education had not offered a plan to simplify the FAFSA for
applicants not required to file income taxes. Education‘s recent
proposals do not address how changes would affect these applicants.
Education plans to begin providing applicants who both complete the
FAFSA and enroll in college between January 1 and June 30, 2010, with
the option of electronically transferring IRS data into the online
FAFSA. Education officials said this pilot is feasible since spring
2010 applicants are required to use income tax information from 2008,
which the IRS can make available electronically. Education officials
stated that during the spring 2010 online FAFSA sessions, a question on
the screen will ask if applicants would like to electronically retrieve
their IRS tax data”or their parents‘ data if they are dependents”to
answer financial questions. If the applicants agree, they will be taken
to an IRS Web site to confirm their identity and obtain tax information
that they can electronically transfer into the appropriate FAFSA fields
with a single push of a button. After piloting this electronic transfer
of tax data with spring applicants, Education plans to make it
available to all students who apply online for aid between July and
December 2010. Some study group participants said Education‘s plan to
pilot the electronic transfer of IRS tax data to the FAFSA is a good
initial step. Eventually, should Education elect to use its new
statutory authority to allow the use of prior-prior year data, the
option of electronically transferring IRS data into the online FAFSA
could be made available to all applicants year-round. One participant
said that additional piloting will be needed if Education ultimately
decides to base student aid eligibility on prior-prior year tax data.
Technology and Public Outreach Could Help Streamline Applications and
Increase Awareness of Federal and State Aid:
Many participants noted ways in which other technology could facilitate
additional improvements to the application process. One such
possibility would be in better linking the electronic applications for
federal and state aid. In 2001, Education began piloting a link between
the online FAFSA and New York's online state aid application.
Currently, New York residents who submit the online FAFSA are
immediately provided a link to the New York state aid Web site. Once
New York applicants register and receive a personal identification
number from the state student aid office, they may begin the online
application process for state aid. The New York online application is
automatically populated with FAFSA data that are sent electronically
from Education. Applicants are asked to verify that the populated
information is correct, and may be asked for additional information not
collected by the FAFSA, such as their spouse's social security number.
Many participants said linking the FAFSA to other state application
sites could prevent the possible negative effects on state aid programs
of changing the federal need analysis formula by allowing states to ask
additional questions that are not available on the FAFSA. One
participant further noted that providing states with this option could
make it feasible for Education to eliminate all FAFSA questions not
needed to determine federal student aid eligibility without affecting
the needs of states. However, a few participants expressed concern that
such a change could lead to states adding a large number of additional
questions on their applications, jeopardizing Education's efforts to
streamline the overall application process for students. Other
participants said that the cost of setting up state online applications
could create a barrier that would prevent some states from linking to
the FAFSA. Beginning in January 2010, Education plans to offer this
type of connection to all states, but the costs to states--and whether
Education will provide financial assistance to states to facilitate
this change--are not yet known.
In addition to technological improvements, participants suggested that
efforts to simplify the application should be accompanied by a strategy
to increase public outreach efforts. For example, one study group
participant suggested that Education should reach out to students from
middle school through high school to help raise awareness about the
affordability of college and the process of applying for financial
aid.[Footnote 8] Some participants also suggested that Education
provide monthly updates to states and colleges by zip code about how
many students have completed the FAFSA. They said that this could help
officials better target certain geographical areas with low FAFSA
completion rates to raise awareness about student aid eligibility.
Other participants suggested that Education send parents with children
in middle school through high school annual estimates of their child's
current eligibility for student aid. Education has announced its intent
to launch public outreach efforts that are designed to inform high
school students about the availability of federal aid for college
beginning in fall 2009.
Concluding Observations:
In creating an application process to distribute student aid, the
federal government has had to consider multiple competing demands to
promote college access and affordability: developing a formula precise
enough to ensure that resources reach the target population, collecting
enough information to assist states and institutions in administering
their own aid programs, and making the application process easy to use
and transparent for applicants. This last issue has proven particularly
challenging, and the complexity of the application form and underlying
formula has become a pain point for students and their families. The
prospect that the application itself may discourage students from
applying for aid--and perhaps to college--is especially troubling in
light of current economic conditions, as postsecondary access and
affordability become more challenging for some students. Our study
group participants proposed various options for mitigating some of the
complexity in the application process, and Education has proceeded with
the early phases of its new plan for simplification, which includes a
public outreach component. While most of these changes will result in
streamlining the application process and will not affect eligibility
for federal, state, and institutional aid, some--as is often true of
policy and process changes--come with trade-offs. In particular, any
changes to the formula used to compute eligibility may result in new
winners and losers among aid applicants. Because the formula is
complicated and no means of calculating eligibility--including the
current method--is a perfect prediction of financial need, the effects
of potential modifications on the pool of eligible applicants must be
weighed against the goals of federal student aid. The issue to be
considered is whether the benefit of simplifying the formula outweighs
the potential loss in the precision of how aid is targeted, and depends
not only on how great the overall change in the distribution of federal
aid is, but on how much various types of applicants gain or lose.
Agency Comments:
We provided a draft of this report to the Department of Education,
Department of Treasury, and the Internal Revenue Service for review and
comment. These agencies had no comments on the draft report.
We are sending copies of this report to relevant congressional
committees, the Secretaries of Education and Treasury, the Commissioner
of Internal Revenue, and other interested parties. In addition, this
report will also be available at no charge on GAO's Web site at
[hyperlink, http://www.gao.gov].
If you or your staffs have any additional questions about this report,
please contact me at (202) 512-7215 or scottg@gao.gov. Contact points
for our Offices of Congressional Relations and Public Affairs may be
found on the last page of this report. GAO staff who made key
contributions to this report are listed in Appendix III.
George A. Scott Director, Education, Workforce, and Income Security
Issues:
[End of section]
Appendix I: Expert Panel Agenda:
Simplifying the Federal Student Aid Application Process A Government
Accountability Office Expert Panel:
May 7, 2009:
AGENDA:
8:30-9:00: Breakfast available in the room:
9:15-10:15: Approaches to shortening the form and changing the
application process:
What are some approaches to shorten the Free Application for Federal
Student Aid or otherwise make it less time-consuming to complete? How
do states and institutions use the data collected on the current
application form? What are the possible risks of simplifying the
application form?
10:15-10:30: Break:
10:30-11:30: Approaches to changing the statutory need analysis formula
How could the statutory need analysis formula be changed to reduce the
amount of financial information collected, without causing significant
redistribution of federal grants and subsidized loans? What are the
possible risks of simplifying the need analysis formula? Following any
modifications to the need analysis formula, what are the best means of
addressing the needs of states and institutions that rely on the
federal application to administer their own aid program?
11:30-12:45: Working lunch with presentations from other GAO
engagements related to student financial aid issues:
12:45-1:45: Operationalizing changes to the application form and
underlying formula:
What is the feasibility of the IRS providing individuals‘ financial
data directly to the Department of Education for the purposes of
determining aid eligibility? How can changes to the application form
and underlying formula be operationalized?
1:45-2:45: General Discussion:
2:45-3:00: Concluding remarks:
3:00: Adjourn:
[End of section]
Appendix II: Expert Panel Participants:
Deena Ackerman:
Financial Economist:
Office of Tax Analysis:
Department of the Treasury:
Nabeel Alsalam:
Senior Analyst:
Health and Human Resources Division: Congressional Budget Office:
Lauren Asher:
Acting President:
The Institute for College Access and Success:
Sandy Baum:
Professor of Economics:
Skidmore College, and Senior Policy Analyst: The College Board:
Jim Dumais:
Executive Advisor:
Office of Deputy Commissioner:
Internal Revenue Service:
Susan Dynarski:
Associate Professor:
Gerald R Ford School of Public Policy and School of Education:
University of Michigan:
Sherry Fox:
Director of Grants and Scholarships: New Jersey Higher Education
Student Assistance Authority:
Michael Friedberg:
Program Examiner:
Education Branch:
Office of Management and Budget:
Lois Hollis:
Senior Advisor to the Deputy Commissioner for Business and Finance:
Texas Higher Education Coordinating Board:
Justin Humphrey:
Budget Analyst:
Budget Analysis Division:
Congressional Budget Office:
Pat Hurley:
Associate Dean and Director of Financial Aid: Glendale Community
College:
[End of section]
Appendix III GAO Contact and Staff Acknowledgments:
GAO Contact:
George A. Scott, (202) 512-7215 or scottg@gao.gov:
Staff Acknowledgments:
Debra Prescott, Assistant Director; Rebecca Woiwode, Analyst-in-
Charge; and James E. Lloyd III made significant contributions to this
report in all facets of the work. In addition, Jean McSween and Luann
Moy assisted in design; Sheila R. McCoy and Doreen Feldman provided
legal support; Mike Brostek, Dave Lewis, and Ron Fecso lent subject
matter expertise; Susannah Compton provided writing assistance; and
James Bennett provided help with graphics.
[End of section]
Footnotes:
[1] The College Board, Trends in Student Aid 2008 (2008).
[2] Department of Education, Report to Congress on Efforts to Simplify
the Free Application for Federal Student Aid (FAFSA) (Jan. 16, 2009).
[3] Kantrowitz, Mark, Student Aid Policy Analysis: Analysis of Why Some
Students Do Not Apply for Financial Aid (Apr. 27, 2009).
[4] Pub. L. No. 110-315, § 483(f)(3).
[5] The Rethinking Student Aid Study Group, The College Board,
Fulfilling the Commitment: Recommendations for Reforming Federal
Student Aid, (September 2008);,Susan M. Dynarski and Judith E. Scott-
Clayton, The Hamilton Project, College Grants on a Postcard: A Proposal
for Simple and Predictable Federal Student Aid (February 2007); and The
National Association of Student Financial Aid Administrators, The
National Conversation Initiative on Access and Aid for Student Success
in Postsecondary Education: Preliminary Recommendation, (Washington
D.C., Apr. 21, 2009)
[6] Dynarski, Susan M. and Judith E. Scott-Clayton, College Grants on a
Postcard: A Proposal for Simple and Predictable Federal Student Aid,
The Hamilton Project (February 2007).
[7] Student Aid and Fiscal Responsibility Act of 2009, H.R. 3221, 111th
Cong. (2009).
[8] GAO has previously recommended that Education develop a strategy to
increase awareness of the Academic Competitiveness and National Science
Mathematics Access to Retain Talent (SMART) grants among states and
high schools. See GAO, Federal Student Aid: Recent Changes to
Eligibility Requirements and Additional Efforts to Promote Awareness
Could Increase Academic Competitiveness and SMART Grant Participation,
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-09-343] (Washington,
D.C.: Mar. 25, 2009).
[End of section]
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