STUDENT-CENTERED SOLUTIONS FOR COLLEGE PLANNING

This blog was first published on www.witf.org under Education, Life After 12th Grade on July 6, 2009.

Over the past several months, the Obama administration has initiated a series of bold measures to improve college access and completion rates in the U.S. Two of the initiatives may have immediate implications for students seeking to enter college in 2010.

On June 24, 2009, U.S. Secretary of Education, Arne Duncan, outlined substantive changes to the Free Application for Federal Student Aid (FAFSA) designed to simplify the application process. This announcement follows earlier moves to reduce cost barriers by increasing grants (free money) and low interest loan opportunities for America’s neediest students.

These are positive signs for families looking for encouragement in the face of rising costs and diminishing means. In a two-part series, I will take a closer look at the real impact each is likely to have on educational access in the next several years.

Streamlining the Financial Aid Application Process
According to the U.S. Department of Education, students applying for financial aid using the Free Application for Federal Student Aid (FAFSA) should find the process easier this year. Starting in January 2010, students completing the online FAFSA can retrieve relevant tax information from the Internal Revenue Service giving them seamless access to information needed to their aid applications.

In a related move this spring, the Education Department began providing instant estimates of Pell Grant and student loan eligibility. Students had previously been forced to wait several weeks for notification. And starting this summer, enhanced “skip-logic” will be employed to make it easier to navigate the online FAFSA.

Analysis
Most financial aid models assume at least three sources of funding with regard to college costs: the family, the institution and the Federal Government. Students attending in-state institutions may also receive funding from their own states. Some students also receive scholarship assistance from various funding sources in the community.

The intent of the FAFSA is to determine the contribution from the family and, thereby, the family’s eligibility for funding (grants, loans, work study) from the Federal government. Unfortunately, that determination of eligibility or “need” does not apply uniformly across all funding sources.

While the Federal government and most state governments subscribe to the definition of need that emerges from the FAFSA, all bets are off when institutions themselves make EFC determinations relative to the distribution of their own funds. In fact, colleges and universities frequently rely on more stringent assessments—including sensitivity to factors such as home equity or the financial contribution of a non-custodial parent in the case of a divorce or separation—that invariably require greater contributions from families. Many private institutions use the College Scholarship Service (CSS) Profile to collect such data. As a result, you might receive mixed signals regarding their respective EFC’s.

On the surface, then, each of these moves to simplify the FAFSA makes sense. Whenever complex data collection relating to family finances can be simplified by eliminating steps or unnecessary information, everybody wins. The big news, however, relates to the access to IRS files. Personal IRS files have always been accessed after the fact in the financial aid process to verify data submitted on the FAFSA. In this case, making the connection between the Department of Education (FAFSA) and the IRS saves steps and eliminates redundancy of effort for families of college-bound students.

Providing links to information that has already been captured (prior year tax returns) early in the process will make it easier for families to complete the financial aid application. Current year tax returns will still be used for verification as family circumstances often change from year to year. The FAFSA may be further simplified if/when the Administration is successful in its efforts to eliminate unnecessary questions from the application.

Lest you see these developments as a panacea in the financial aid process, however, I would raise two cautions. One, the connectivity to data collected by the IRS can only work as well as the completeness of the IRS files for that individual and his/her custodial parents. For example: How will families with IRS files that are incomplete, in dispute or non-existent be able to complete the FAFSA in a timely fashion? And imagine the complexity of determining the appropriate IRS files for students who live in blended families or with unrelated guardians. Ironically, the FAFSA/IRS marriage may fail to make the process easier for those who are in greatest need of assistance.

Two, and perhaps more importantly, the discussion about ease of access with regard to the financial aid application process overlooks an important detail. The outcome of the FAFSA submission—a determination of the “expected family contribution (EFC)”—is not a reliable indication of how colleges themselves will assess the expected family contribution in determining “need.”

Frankly, none of this is new. Colleges have resorted to their own methodologies for determining the EFC for some time. Be cautious, therefore, about making assumptions with regard to the EFC that is reported by the FAFSA as you try to anticipate college costs and the assistance you might receive in meeting them. While you may indeed have eligibility for enhanced Federal assistance, the bulk of your financial aid is likely to come from the college itself.

Make sure you understand from each college how it will determine your EFC and, subsequently, your financial need. The Federal government is but one source of need-based financial aid. The reality is that, across the board, colleges and universities fund the vast majority of financial aid that is awarded each year. Moreover, they are not obligated to meet a student’s full need as demonstrated by the FAFSA or the Profile. While you are not likely to receive any guarantees of funding, it is certainly worth exploring these questions with each of the schools on your list as you visit them this summer.