keeping it simple: impact of fafsa simplification on federal and state student aid eligibility sheeo...
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Keeping it Simple: Impact of FAFSA
Simplification on Federal and State Student Aid Eligibility
SHEEOAugust 2011
Current Federal and State Issues
Pell Grant program expenditures have doubled since 2008-09Increases not sustainable
Federal budget deficit threatens cuts in Pell Grant and other federal aid programsStudent loan subsidiesCampus-based aid
Economic downturn has resulted in cuts in state funding to higher education and to need-based grants
President Obama has set a goal for increasing college completion by 2020
Early Awareness and Simplicity
An effective federal and state student aid system is key to meeting college completion goals
The current student aid system is complex (process and programs)
Low- and moderate-income students are more likely to prepare academically if they understand financial aid
A simple, predictable, well-targeted student aid system will lead to more efficient use of taxpayer dollars
College Board’s Rethinking Student Aid (RSA) recommendations are based on this premise
Simplification: Progress to Date
HR 3221 passed but never considered by SenateOnly data available from IRS used to determine
federal aid eligibility; families with assets above legislated cap ineligible for federal aid
Similar proposal in President Obama’s FY 2012 budget
Administration committed to further FAFSA simplification
State Need-Based Aid Study
Goals of studyHelp states understand impact of a simplified
federal aid process on state grant programs• Support institutions’ ability to plan for a simpler FAFSA
Build state support for a simplified process to ensure that students will benefit• Evidence about benefits of simplifying the application
and increasing predictability of grant aid is compellingHelp states advocate for a streamlined system
that will enable them to distribute need-based aid equitably and efficiently• May require changes to underlying Federal Methodology
Our Approach
Selected a representative group of pilot states based on criteria for eligibility & aid determinationKentuckyMinnesotaOhioTexasVermont
Using state’s 2007-08 or 2008-09 FAFSA and award data, simulated impact of potential federal data and formula changes on state grant awards
Our Methodology: Multiple Simulations
1. Remove Worksheet A items (new baseline for comparison) — previously eliminated in 2009-10 FM
2. Eliminate all assets3. Eliminate untaxed income and income
adjustments (Worksheets B and C items)
4. Use only IRS data (similar to HR 3221 language)• No employment allowance• FICA based on AGI/total earnings• IRS data included AGI, taxes paid, number of exemptions
Reviewing the Results
Focus today on 2 statesMinnesota (Shared Responsibility Model)Kentucky (EFC cut-off, first come/first-served)
Ohio completed but results more complexLimited data make results difficult to compare to other
statesVermont process very different from other 4
statesRequires additional application formConsiders asset data, noncustodial parent financial
informationAnalysis of Texas data incomplete
Impact of Removing Assets on EFC
Average EFCs decline for all applicantsLargest declines among dependent applicants from
highest income households (more likely to have significant assets)In MN dependent students from families with incomes > $75K
would see average EFC decreases of $2,540 (10%); similar results in KY
In MN dependent students from families with incomes between $45K and $60K would see average EFC decreases of $530; in KY average EFCs for this group decline by $636
Lowest income students (incomes below $30K) would see average declines in EFC < $200 in both states
Small decreases in EFC for independent studentsUnlikely to have significant assets; little impact when assets
removed
Impact of Removing Assets on State Grants and Pell GrantsMinimal impact on average state grant in MN,
OH, KYTargeted at students from low- and moderate-income
backgrounds who are less likely to have significant assets
MN: average grant would increase by $10 per applicant; total expenditures by $1M or .6% (Shared Responsibility model)
KY: eligibility would increase on average by $27; total expenditures by $2.9 million or 3% (if program were fully funded)
More significant increases to average Pell Grant in both states ($87 per filer in MN and KY)
Using Only IRS Data: Impact on Dependent Filers
Average EFCs would decline for most applicants Largest impact among those from higher income families; more likely to have
complex financial situations In MN, average decrease in EFC of $3,323 for FAFSA filers with family income
> $75,000; $2,569 drop in KY In MN, average EFC declines by about $600 for filers with family income
between $45K and $60K; by about $750 in KY In MN average decrease in EFC of about $300 for lowest-income (< $30K);
similar pattern in KY Small impact on Pell Grants and state grants which are targeted at
students from lower income backgrounds MN: Average Pell Grant per filer would increase by $23; average state grant
would decrease by $6 KY: Average Pell Grant would increase by $47; average state grant eligibility
would increase by $22 Institutional need would increase significantly, particularly at
institutions that award need-based aid to higher income applicants
Using Only IRS Data: Impact on Independent FilersIndependent students without dependents
Average EFCs would decrease modestly: in MN by $323 on average, in KY by $46 on average
Small increases in Pell and state grants for lowest income filers, but small decreases for those with higher incomes
Independent students with dependents Average EFCs would increase for all but lowest income
filers as a result of elimination of employment allowanceIn MN EFCs would increase by $70 on average; in KY
average EFCs would increase by $15; slight EFC decreases for lowest-income filers in both states
Small decreases in Pell and state grants as a result of EFC increases
Additional Modeling Activities
White House Council of Economic Advisers (CEA)National ISIR sampleSimulated impact of HR 3221 on Pell GrantsSegmented results by state to support College
Board study• Small samples for most states• Income distribution based on sample
• State tax allowance based on national average (2-3%) • Simulated impact on EFC, PC and Pell for families with
EFCs below $25,000
What We Learned from CEA Model
National analysis using only IRS data
Dependent students
• 61% change in Pell Grant < $250
• 36% increase > $250
Independent students
• 90% change in Pell Grant < $250
Average EFC Changes: MinnesotaAGI % of FAFSA
Apps in MN (Total = 100%)
Mean “Old”
EFC
Mean “New”
EFC
% with EFC Decreases >
$2000
% with EFC Decreases >
$1000
% with EFC Decreases
$500 - $1000
% with EFC Decreases
$200 - $500
% with EFC change within
+/- $200
% with EFC Increases
$200 - $500
% with EFC Increases
$500 - $1000
% with EFC increases >
$1,000
% with EFC increases >
$2,000
Net change in
EFC
Panel A: Dependent StudentsAll 100.0 11,079 10,042 18 10 9 6 34 6 9 7 2 (1036.69)<$0 0.8 1,555 160 12 4 5 6 73 - 0 - 0 (1395.08)$0 to $9,999 6.0 220 80 1 1 1 1 96 0 0 0 0 (139.47)$10,000 to $19,999 5.7 416 201 2 1 2 2 91 1 1 0 0 (214.73)$20,000 to $29,999 7.2 1,969 1,502 6 7 14 11 39 8 13 1 0 (467.03)$30,000 to $39,999 8.2 3,326 2,550 10 13 19 10 20 10 15 3 1 (775.79)$40,000 to $49,999 8.5 5,109 4,081 15 16 15 8 14 10 14 7 1 (1027.43)$50,000 to $59,999 8.1 7,379 6,065 20 14 11 8 12 8 12 11 2 (1314.29)$60,000 to $69,999 8.4 9,858 8,569 23 12 9 6 12 7 12 15 4 (1289.08)$70,000 to $79,999 7.9 12,587 11,209 26 12 9 6 11 7 11 14 4 (1378.44)$80,000 to $89,999 8.2 15,277 13,848 28 12 9 6 12 6 10 13 4 (1428.27)$90,000 to $99,999 7.8 17,671 16,117 32 14 9 5 13 6 9 10 3 (1553.60)$100,000 to $124,999 10.3 20,232 18,904 25 13 9 5 33 4 6 4 1 (1327.59)$125,000 to 149,999 5.5 22,205 20,969 22 8 5 2 59 2 2 0 0 (1236.65)$150,000 to $199,999 4.3 23,870 22,774 22 8 4 2 62 1 1 0 0 (1095.76)$200,000 or more 3.2 24,858 24,655 4 2 1 1 93 0 0 0 0 (203.17)
Minimizing the Impact of Fewer Data ElementsMake modest changes to the underlying
need analysis formula Achieve EFC results closer to current level while
simplifying the application for studentsModeled impact of changing the adjusted
available income assessment ratesParameters in current system are arbitrary and
not based on economic research• Increase marginal tax rates by 3% • Modify Adjusted Available Income (AAI) bands
Achieved EFC levels similar to those in effect in 2007-08
2007-08 FM AAI Assessment Rates
Adjusted Available Income (AAI) Assessment Rate Applied to AAI
Less than -$3,409 -$750 -$3,409 to $13,400 22% of AAI $13,401 to $16,800 $2,948 + 25% of AAI over $13,400
$16,801 to $20,200 $3,798 + 29% of AAI over $16,800
$20,201 to $23,700 $4,784 + 34% of AAI over $20,200
$23,701 to $27,100 $5,974 + 40% of AAI over $23,700
$27,101 or more $7,334 + 47% of AAI over $27,100
Minimizing the Impact of Fewer Data ElementsIf only IRS data were used to determine
federal aid eligibility, why couldn’t more detailed IRS data be provided to institutions and perhaps to states?Identify tax filers with negative AGIImpute assets based on interest and dividend
incomeCreate more effective need analysis system
than exists todayModel still under review, but opens up possibilitiesWould require support from Administration and
perhaps legislation
Policy Considerations
Given the evidence related to the effect of a simpler student aid system on increasing enrollment and graduation rates among low-income students, would states and institutions support a move to a system based only on IRS data?
Would states and institutions be supportive of modifications to the federal need analysis system to reduce impact of less federal data?
Would states and institutions support a proposal to develop a new need analysis formula that relied on more detailed IRS data?
