Aug. 14, 2015
In our first post, we looked at how the National Association of Student Financial Aid Administrators' recent report proposes timing and using data retrieval to complete the FAFSA. This post will examine another recommendation in NASFAA’s proposal dealing with how applicants are sorted into three “paths” and what that means for simplifying the FAFSA.
Path one uses a simple screening question to drastically simplify the FAFSA for very low-income families. Under NASFAA’s proposal, families and students who receive benefits from either the Federal Supplemental Nutrition Assistance Program (SNAP -- commonly referred to as “food stamps”) or Supplemental Security Income (SSI) would be automatically eligible for the maximum Pell Grant. That’s it. They would only need to sign their name, jot down colleges they’re interested in attending, and submit the form. We agree with NASFAA that qualifying for those benefits says enough about the applicant’s resources to reasonably conclude they should receive the full Pell Grant.
For comparison, the current FAFSA asks applicants whether anyone in their household is receiving any federal means-tested benefits, not just SNAP or SSI, but questions don’t quite stop there. If the applicant answers yes, they will automatically have an Expected Family Contribution (EFC) of 0, but only if their income is also below $24,000. But a family of four could still qualify for SNAP benefits with income over $24,000 per year, so NASFAA’s way of sorting applicants based on benefits would make things simpler, since they would ask no further questions about income for applicants who get SNAP or SSI.
And the FAFSA would only be a little longer for those who don’t get SNAP or SSI benefits but also don’t earn enough to file taxes. These applicants would only enter information about income from employment and child support. In its proposal, NASFAA chose to include child support because this is the most significant source of untaxed income for families. They assume non tax filers aren’t likely to have significant amounts of other income or assets available to pay for college, so non tax filers could wrap up their FAFSA application here. That means non tax filers who don’t get SSI or SNAP wouldn’t automatically get the full Pell Grant, but NASFAA’s proposal would keep the financial aid application process simple for them.
If the applicant didn’t qualify for designated benefits and filed taxes, they would be directed either to path two or path three based on the complexity of their financial situation. NASFAA’s proposal closely resembles Gates’ here, because it also uses schedules to sort students into two groups. If a student or his family did not bring in income from a farm, business, real estate or capital gains and therefore didn’t have to submit a separate tax schedule when they filed their taxes, they would go to path two, meaning they would only answer additional questions about income earned from work and cash assets.
However, NASFAA only recommends capturing the cash assets of path two applicants who are dependents or independent students without dependents. That means parents of dependent students who don’t file schedules won’t have to report their cash assets at all. In contrast, Gates’ proposal says dependents aren’t likely to have sizeable assets, so it’s not worth the trouble to ask about any of their assets, cash or otherwise. Yet, some financial aid administrators think this will give an unfair advantage to the small number of dependents with high assets, and they are concerned those resources will be overlooked, creating an aid package for those students that doesn’t reflect their true situation. For example, if dependents’ assets weren’t assessed, a parent could slip their high school senior tens of thousands of dollars and make it look like the family was financially weaker than they really were to try to get more need-based aid. NASFAA is right to be concerned about that. But on the other hand, asking about the cash assets of a high school senior who saved up money from his part-time job to pay for college but not his parents, who both make good money but don’t file tax schedules, doesn’t make sense either.
Applicants who do have tax schedules would follow NASFAA’s path three. Since filing tax schedules signals that a family has significant financial resources, all applicants - regardless of dependent status - would answer questions about cash and other assets. In another effort to prevent gaming the system, NASFAA wouldn’t let applicants carry over any losses declared on tax schedules to the FAFSA. If a family reported a business loss one year but still had hefty wage and investment income, those gains and losses wouldn’t cancel each other out, as NASFAA thinks a family with high resources and multiple sources of income is still relatively financially strong, even with occasional losses.
NASFAA’s report makes a few important contributions to the discussion around simplifying the FAFSA, but some recommendations may benefit from additional research. Dramatically simplifying the process for those already eligible for other federal benefits and then further sorting students based on the complexity of their financial situation makes good sense. However, better data around which assets matter most and how to incorporate that information could lead to further simplification. NASFAA made clear in their report that they’re willing to modify their recommendations if doing so would benefit students and families. And while the various proposals to reform the FAFSA might disagree about how to go about it, wanting students to have a well-marked, straightforward path through the FAFSA is driving this policy discussion."