Simplicity and Equity…Can it be done?

Presentation for NCASFAA

November, 2009Steven E. BrooksExecutive Director

State Education Assistance Authority

========================== Recommendations of College Board’s

"Rethinking Student Aid"  Recent USED and Congressional Activities

Why Does the Federal Student Aid System Need to be Simpler?

• Detailed information about family’s financial circumstances results in 153 questions on FAFSAo Financial detail and associated complexity result in minimal

improvements in targeting aido Complexity of form has led to a market for private companies that

charge families for help

• System is complex and students can’t predict their aid eligibility prior to enrollmento Multiple programs with different eligibility criteriao Complex need analysis formula

• FAFSA a hurdle—many enrolled students don’t apply• Complexity increases college administrative costs

Why Does this Matter?

• Helping more Americans to become college educated will strengthen our nation’s economy and its civic life and make ours a fairer society.

• A more coherent, comprehensible, and efficient federal student aid system can contribute significantly to making this happen.

Early Awareness and Simplicity: The Evidence

• Low- and moderate-income students would be more likely to prepare academically if they knew the money for college would be available.

• A simple, predictable, well-targeted student aid system will make taxpayer dollars go further in increasing educational opportunities and attainment.

Basic Principles

Federal student aid should be:

• Targeted to those in need

• Adequately funded

• Clear, transparent, well-communicated

• Predictable

Basic Principles (continued)

Federal student aid should:

• Be student focused

• Support both access and success

• Use taxpayer funds efficiently

Recommendations

• Comprehensive set of policy recommendations that are research-based and support goals and principles

• Four general categorieso Simplify the student aid system

o Improve the federal loan process

o Develop a federal savings program for low-income families

o Reward institutions that support student success

Simplification: Determining Aid Eligibility

• Eliminate financial information from the federal aid application and obtain needed information from IRS

• Base Pell Grant awards on family size and adjusted gross income

• Eliminate need as criterion for Stafford Loans by transferring subsidies from in-school to repayment

• Make detailed IRS data available to states and institutions for calculating eligibility

Simplification: The Application Process

• Student completes brief online applicationo Demographic informationo Dependency status questionso Colleges to which student is applyingo Signed permission to release IRS data to USED, state, institutions

• USED transmits application data to IRS• IRS transmits required tax data to USED• USED communicates Pell award to applicant• USED transmits more detailed IRS information to state and

institutionso IRS provides tax data from 3 most recent years

Simplification: Determining Financial Need

• Same formula applied to all independent students and parents of dependent studentso Current FM expects unrealistically high contributions from

independent students without dependents

• Detailed IRS data supports more nuanced calculation of need

• Opportunity to improve FM allowances and tables

Simplification: Early Communication

• Communicate with families annually about educational opportunity

o IRS data to US Dept of Educationo Pell Grant awardo State grantso Federal loans and tax creditso Average price at public institutions in stateo Importance of academic preparation

Federal Simplification:

Momentum is Building!

USED FAFSA Simplification Efforts: It’s a Start

1. Overhaul the online application• Since May, USED has provided instant estimates of Pell Grant and

student loan eligibility, and a link to more college information

• Since August, students could skip irrelevant questions

• Since August, FAFSA provides option for unsubsidized loan only

• In January, redesign will reduce number of web pages and length of application

2. Eliminate questions through legislation• Apply for financial aid with information on tax returns

• Eliminate questions related to assets, other non-verifiable data

3. Use tax data to complete remaining financial questions• In January students applying for spring semester will be able to retrieve

tax information from the IRS for easy completion of FAFSA

• Full implementation in summer 2010 for 2010-11

HR3221: Student Aid and Fiscal Responsibility Act

• Simplifies FAFSA by reducing asset questions Supports Administration goal of using only IRS data to apply Eliminates asset questions but sets asset cap of $150,000—if

assets exceed cap, student ineligible for Pell Grant and subsidized Stafford loans

Unclear how asset cap would be implemented May not simplify application, since instructions will be complex Value of asset varies with time; in volatile market, asset values can

swing wildly on a daily basis Asset cutoff produces eligibility cliff--unfair Could use asset income (interest, dividends, capital gains, etc.) to

implement cap, if cap is desired Could phase out Pell and Stafford eligibility as asset income

increases

Are Assets Important in Determining Federal Aid Eligibility?• Assets currently have little effect on Pell and subsidized Stafford

eligibility Families hold majority of asset wealth in homes and retirement funds Other assets count only if above threshold that increases with age of parents

85% of dependent students don’t have assets that exceed threshold

No assets considered for families that earn less than $50,000 and are eligible to file a 1040A or EZ

• Asset cap provides little relevant information Among dependent students with parent income in the Pell income range, 96%

have non-retirement, non-housing assets below $150,000 Among those with parent incomes up to $80,000, 90% have assets under

$150,000 Among independent students with incomes below $20,000 (Pell income range),

93% have assets below $150,000

Simplification: Next Steps

• Senate bill, similar to HR3221, in progress Differences worked out in conference

• College Board will work with states to support modeling of state grant eligibility under simplified system Grant funded by Lumina Foundation for Education

• We’re making progress, but more work to be done Decision on use of “prior prior” year income More detailed IRS data to states and institutions More transparent and predictable Pell Grant Early communication to families regarding paying for college

For More Information on Rethinking Student Aid

www.collegeboard.com/rethinkingstudentaid

Kathie Little

klittle@collegeboard.org

Questions and Comments?