July 17, 2015
Imagine two students in a Missouri high school dreaming of heading off to college next year. Both come from families with average income but are still concerned about how to pay for realizing their college dreams. To figure out what they’ll be expected to pitch in and how much federal aid they can get, they’ll each need to fill out the Free Application for Federal Student Aid (FAFSA). The current form -- with close to 130 questions -- has proven unnecessarily burdensome for many students and their families. Research has shown that low-income students have been especially deterred by this long list of complex questions, many of which do not apply to their financial situation. As we wrote in our previous post, the Gates Foundation believes they have a plan that could make FAFSA filing easier for applicants like these two aspiring college students while still accurately capturing their financial need.
To compare financial need estimates in the current system and Gates’ proposed system, let’s use our two Missouri high schoolers as examples. We’ve estimated their FAFSA outcomes using the 2014-2015 Expected Family Contribution (EFC) formulas and a calculator we developed based on the Gates proposal.
Let’s say both students are from two-parent families with two kids, and each will be the only college student in their family. Family One has an annual income of $63,847 - the average for a Missouri family of four in 2008. Family Two also brings in $63,847 a year but earns some money on top of that from stock dividends, for which they file a tax schedule.
Both Family One and Family Two earn too much money to use the simplified EFC formula on the 2014-2015 FAFSA, so they would have to answer questions about the net worth of their assets and their current bank account balances. The Department of Education’s FAFSA4caster tool assumes a family of four with their income would have $38,134 in assets, plus at least $2,413 in assets from the student herself. If we assume that’s correct for Family Two, we end up with an EFC of $3,348 using the EFC worksheet. The cost of attendance at the University of Missouri-Columbia is $24,704; if the student in Family One enrolled full-time there, she’d receive a Pell Grant of $2,380.
For contrast, let’s imagine that Family One has no net assets at all. If we enter zero assets for the family, the 2014-2015 formula produces an EFC of $2,772. With that EFC, if the student from Family One joined her friend at the University of Missouri-Columbia, she’d receive a Pell Grant totaling $2,980. As it stands, both these families would have to answer questions about their assets on the current FAFSA because of their income. Gates doesn’t think that’s necessary for our first family in order to capture their financial need.
The application process would go a little differently for our two applicants under the Gates plan. Since Family One doesn’t have any assets that require them to fill out a tax schedule, they could bypass questions about assets and net worth altogether. Since Family Two fills out tax schedules for their investments, they would answer two extra questions about the net worth of their assets. Let’s say their investments have a net worth of $38,134, the asset amount predicted by the FAFSA4caster for their income level. (Unlike the current formula, Gates leaves student assets and income out of the equation entirely.) Our calculator based on the Gates plan would give them an EFC of $3,638. At the state flagship university, that would get the student from Family Two a Pell Grant of $2,080. We calculated that Family One - with no net assets - would have an EFC of $2,818, which would make that student eligible for a $2,880 Pell Grant as a full-time student at Mizzou.
The student from Family One would only see a difference of $100 in the size of her Pell Grant using Gates’ simplified formula instead of the existing FAFSA formula. The difference between the two students’ Pell Grants doesn’t change much either. Using the EFC worksheet, the student from the family with no net assets would receive $600 more than her friend. Using Gates’ formulas, her Pell Grant would be $800 more. So, the simpler formula that would be used for most applicants - one without the burden of additional questions - didn’t drastically change outcomes. And that simplicity would give our two high schoolers and their families vital information with a little less headache.