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There is growing recognition among student aid experts, policymakers and foundations that the process of applying for federal financial aid is too complex and may be discouraging low-income students from pursuing higher education.
Until now, policymakers seeking to remedy this problem have mostly focused on proposals to simplify the federal student aid application, known as the FAFSA. For example, Sen. Lamar Alexander, the Tennessee Republican who heads up the Senate committee in charge of higher-education policy, has repeatedly stood on the Senate floor with a taped-together FAFSA form that is longer than he is tall, indicating just how complicated applying for aid can be. For this reason, he has co-sponsored a bill that aims to limit the number of questions on the FAFSA to just two. Essentially, he would like the FAFSA to fit on a postcard.
Such proposals are extremely controversial. While they would radically simplify the financial aid application process, these types of plans would also make it much harder for the federal government to ensure that its aid goes only to those who truly need it.
To its great credit, the Obama administration has taken an alternative approach that will make the aid application process far less complex without significantly compromising the government’s ability to ensure the aid programs serve only their intended beneficiaries.
Starting in the fall of 2016, the Obama administration will allow students to use two-year-old tax information, otherwise known as “prior-prior year income,” to determine aid eligibility for the 2017-18 school year rather than relying on families to estimate their income from the previous year.
Currently, a student reports his or her family’s income from the prior year on the FAFSA. For example, students who apply for aid in January (when the FAFSA becomes available) for the 2016-17 academic year will be required to use tax and income data from 2015. The problem is that most families don’t file taxes until closer to the April 15th deadline.
As a result, many students either estimate their families’ income on their FAFSAs or wait to fill them out until their taxes are filed. If they use estimated income data, they’ll have to update their information on the FAFSA once they’ve filed their tax returns. In the meantime, these students may miss out on state and institutional aid that is awarded—often using income information from the FAFSA—on a first-come, first-served basis.
Moreover, under the current system, most students don’t find out about their aid eligibility until March or April, just weeks before they have to commit to a college.
Under the Obama administration’s new policy, students will be able to apply for aid much earlier than they do now—in October, instead of January—because they will be using older tax data. As a result, they’ll learn of their aid eligibility months in advance and have more time to make a better-informed decision about which college to attend. Also, they’ll no longer have to worry about missing deadlines for state or institutional aid because their families don’t have the necessary tax information.
In addition, students will be able to make better use of the IRS Data Retrieval Tool (DRT), which automatically populates a student’s FAFSA with tax-return data. Currently, about four million aid applicants each year are unable to use the DRT because they apply for aid before filing their taxes. Under the new system, all aid applicants will be able to use the DRT, which will ensure the accuracy of reported incomes because the data will be coming straight from the IRS.
As a result, fewer aid applicants will be subject to “verification,” a time-consuming process mandated by the federal government that requires a share of students on each campus to prove the accuracy of the data on their aid applications.
In a 2010 report, the Institute for College Access and Success warned that some low-income students can be so discouraged by the verification process—which “in extreme cases can be akin to a tax audit”—that they decide to forgo federal financial aid altogether, even though they may not be able to afford college without it. “The current process can discourage students whose college attendance and completion the financial aid system is supposed to encourage and support,” the report states.
Moving to a “prior-prior year” system clearly has many benefits. But will it correctly determine a student’s eligibility for federal financial aid?
Robert Kelchen, an assistant professor of higher education at Seton Hall University, set out to answer that question in a 2013 paper he wrote for the National Association of Student Financial Aid Administrators (NASFAA). Examining FAFSA data for 70,000 students enrolled at nine colleges from 2007-08 through 2012-13, he found that the vast majority of students would see no change in their Pell Grant eligibility as a result of the change. Those who qualified for a maximum Pell Grant under the current system remained eligible for it using “prior-prior year” data. Those who did not qualify for Pell Grants remained ineligible under the new system. The largest changes occurred for students who were on the cusp of eligibility for Pell Grants and for older students without children.
The most serious concern in moving to a “prior-prior year” system will be for students who experience, or whose families experience, a sudden shift in their financial circumstances, due to a job loss, for instance. In such cases, financial-aid administrators can exercise authority that the federal government gives them to use their “professional judgment” to adjust a student’s financial-aid award, just as they do now in similar circumstances.
This isn’t the first time policymakers have considered using “prior-prior year” data. In the late 1990s, the Clinton administration called on Congress to make this change. Congressional Republicans rejected the proposal, in part because it was offered by a Democratic administration.
But these days, the idea seems to have bipartisan support. Sen. Alexander, for example, has spoken out in favor of it.
Making the change this time around, however, did not require Congressional action. In 2008, lawmakers gave the U.S. Secretary of Education the authority to move to a “prior-prior year” system. Last week, the Obama administration followed through by announcing the new policy.
Justin Draeger, NASFAA’s president, has said that, “Prior-prior year income is the closest thing we have to a ‘silver bullet’ for an industry in search of meaningful solutions” for simplifying the way students apply for financial aid.
He’s right—it’s a no-brainer.