simplifying student aid: what it would mean for states may 2012
TRANSCRIPT
Simplifying Student Aid:What It Would Mean
for States
May 2012
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Why Simplicity Matters
An effective federal and state student aid system is key to meeting college completion goals
Low- and moderate-income students are more likely to prepare academically if they understand financial aidMore likely to believe college is in their future
Simple, predictable, well-targeted student aid system will lead to more efficient use of taxpayer dollars
Current system is complex
Simplification: Progress to Date
HR 3221 passed but never considered by Senate
Only data available from IRS used to determine federal aid eligibility; families with assets above legislated cap ineligible for federal aid
Administration committed to further FAFSA simplification
IRS data retrieval process is a big step in the direction of process simplification
National Evidence on Simplifying the FAFSA
2009 report from the Executive Office of the President: Relying on IRS data would have minimal impact
on Pell eligibility for independent students but generate increases for about 1/3 of dependent students.
Simplifying would remove some questions included for states.States needed information about budgetary and
distributional impact.College Board proposed state simplification
study to Lumina Foundation
State Simplification Study: Goals
Help 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 compelling
Help states advocate for 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 Pell and state grant eligibility
Mean Income and Assets of 2007-08 FAFSA Filers
State
Average Parents’ Income
(Dependent)
Average Parents’ Assets
(Dependent)
Average Income
(Independent Without
Dependents)
Average Income
(Independent Students
with Dependents)
Kentucky $59,278 $29,558 $18,405 $23,732
Minnesota $69,329 $45,563 $21,315 $27,682
Ohio $37,279 $17,793 $15,267 $21,451
Texas $41,236 $21,647 $10,771 $15,634
Vermont $63,638 $58,847 $18,629 $28,113
State Grant Program Characteristics 2007-08Kentucky College Access Program
First-come first-served; centralized awardingFM EFC cutoff $4,110
Minnesota State GrantDesigned for shared responsibility; centralized awarding• Award = cost less student and family share, less Pell Grant
Ohio College Opportunity GrantFirst-come first-served; decentralized awardingFM EFC cutoff $2,190 (2008-09)
TEXAS Grant (for students enrolled in public institutions)First-come first-served; decentralized awardingFM EFC cutoff $4,000 Students must enroll within 16 months of h.s. graduationMust be enrolled at least ¾-time
Vermont Grant Remaining need based on VSAC methodology; centralized awardingSupplemental information required; information verifiedFull-time enrollment required; may enroll out-of-state
Our Methodology: Multiple Simulations1. Remove Worksheet A items (new baseline for comparison) —
previously eliminated in 2009-10 FM
• Earned Income & Additional Child Tax Credits
• Welfare benefits
• Untaxed Social Security benefits
2. Eliminate all assets (assets not considered today for many filers)
3. 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
• Number in college from FAFSA
What if FAFSA Worksheet A Had Been Eliminated in 2007-08?
EFCs would have declined and grant eligibility would have increasedIncreased % of filers eligible for Pell Grants by about 1% in
each stateAverage state grant eligibility increase per filer ranged from $2
(MN) to $50 (OH public 4-year)Total state grant eligibility increases ranged $300K in MN to
$5.4M in Ohio 4-year
Little discussion nationally because impact confounded by economic downturn
Worksheet A simulation results served as baseline for comparison in study
Impact on EFC of Removing Assets: Dependent ApplicantsAverage EFCs decline for all applicantsLargest declines among dependent applicants from
highest income households (more likely to have significant assets)State
Average EFC Decline per
Filer (Recipient)
Lowest Income <$15K
Middle Income $45-60K
HighestIncome $>75K
Kentucky -$914 (-$2) -$119 -$636 -$2,080
Minnesota-$1,350 (-
$167) -$242 -$814 -$2,540
Ohio -$509 (-$11) -$200 -$769 N/A
Texas -$660 (+$2) -$73 -$414 -$1,946
Vermont-$1,878 (-
$199) -$468 -$1,164 -$3,181
Impact on EFC of Removing Assets: Independent ApplicantsAverage EFCs decline more for independent
applicants without dependents than for independent applicants with dependents
State Without Dependents With Dependents
Kentucky -$146 -$20
Minnesota -$309 -$39
Ohio (public 4-year) -$125 -$16
Texas (publics) -$71 -$5
Vermont -$358 -$71
Impact of Removing Assets on State Grant Eligibility per FAFSA Filer$ (in Millions) and % Change in Eligibility
DependentApplicants
Independent Without
Dependents
IndependentWith
Dependents
Kentucky$1.1 (+1.2%)
+$19 +$5 +$1
Minnesota$1.1 (+0.7%)
+$8 +$9 +$1
Ohio (public 4-yr)
$2.9 (+2.7%)
+$45 +$8 +$0
Texas (publics)$1.3 (+1.4%)
+$29 +$5 +$0
Vermont$1.1 (+4.5%)
+$64 +$9 +$2
Impact of Removing Assets on % of Students Eligible for State Grant
StateBase % of Filers
Eligible (Current FM, No Worksheet A)
% Eligible if Assets Eliminated
Kentucky58.6% 59.2% (+0.6%)
Minnesota59.2% 60.1% (+0.9%)
Ohio (public 4-yr)55.2% 56.4% (+1.2%)
Texas (publics)61.8% 62.4% (+0.6%)
Vermont46.8% 48.3% (+1.5%)
Removing Assets: Considerations
Removing assets has greater impact on dependent than on independent students
Most independent students have few assets
Higher income families are more likely to have significant assets, so reductions in EFC increase as incomes increase
Pell Grants and most state grants are targeted at students from low- and moderate income backgrounds
Removing assets does not have great impact
Share of filers eligible for Pell Grant would increase by between 1 and 3%
Share of filers eligible for a state grant would increase by 1 to 2%
Impact on EFC of Using Only IRS Data: Dependent Applicants
Average EFCs would decline for most applicants Largest impact among those from higher income families; more
likely to have complex financial situations
State
Average EFC Decline per
Filer (Recipient)
Lowest Income <$15K
Middle Income $45-60K
Highest Income $>75K
Kentucky-$993 (+
$52) -$150 -$532 -$2,515
Minnesota
-$1,650 (-$95) -$304 -$840 -$3,323
Ohio -$289 ($0) -$236 -$555 N/A
Texas-$891 (+
$70) -$99 -$515 -$2,756
Vermont-$2,379 (+
$5) -$604 -$1,269 -$4,294
Impact on EFC of Using Only IRS Data: Independent Filers Independent students without dependents would benefit more
than independent students with dependents Greater incidence of increased EFCs as a result of elimination
of employment allowance
State Without Dependents With Dependents
Kentucky -$46 +$81
Minnesota -$323 +$70
Ohio (public 4-yr) -$48 +$126
Texas (publics) -$190 +$36
Vermont -$418 -$4
Impact of Using Only IRS Data on State Grant Eligibility per FAFSA Filer Many students would see decreases in grant eligibility
$ (in Millions) and % Change in Eligibility
Dependent
Applicants
Independent Without
Dependents
Independent With
Dependents
Kentucky-$400,000 (-0.4%)
$0 -$7 -$10
Minnesota-$800,000 (-0.5%)
-$6 +$2 -$11
Ohio (public 4-yr)-$800,000 (-0.7%)
-$5 +$15 -$49
Texas (publics)$800,000 (+0.9%)
+$17 +$28 -$2
Vermont$800,000 (+3.3%)
+$51 +$2 -$4
Impact of Using Only IRS Data on % of Students Eligible for State Grant
StateBase % of Filers
Eligible (Current FM, No Worksheet A)
% Eligible if Assets Eliminated
Kentucky58.6% 58.3% (-0.3%)
Minnesota59.2% 59.4% (+0.2%)
Ohio (public 4-yr)55.2% 54.7% (-0.5%)
Texas (publics)61.8% 62.0% (+0.2%)
Vermont46.8% 48.8% (+2.0%)
Using Only IRS Data: Considerations
Dependent students benefit more than independentMost independent students have few assets and removing
employment allowance has greater effect
Higher income families more likely to have complex financial circumstances; reductions in EFC grow as incomes increase
Pell Grants and most state grants are targeted at students from low- and moderate-income backgroundsUsing only IRS data does not have great impactMany independent students with dependents would see
decreases in grant eligibility
Minimizing the Impact of Fewer Data ElementsMake modest changes to underlying federal need
analysis Achieve EFC results closer to current level while
simplifying application process for students
Modeled impact of changing Adjusted Available Income (AAI) assessment ratesParameters in current formula are arbitrary and not
based on economic research
• Increased marginal tax rates
• Modified Adjusted Available Income (AAI) bands
Achieved EFC levels similar to those in effect in 2007-08
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 states?
Identify tax filers with negative AGI
Impute assets based on interest and dividend income
Create more effective federal need analysis system than exists today
Would require move to “prior prior year” income
Would require support from Administration and most likely legislation
Implications for Other States
Impact of simpler FAFSA on level and distribution of state grant aid would be relatively small overall.
Impact would vary from state to state.
Differences in eligibility rules for state grant programs
Level of funding for state grant programs
Variations in incomes and assets of state residents
• States with more affluent residents would see greatest changes
States selected to permit other states to find closest comparison
Conclusion
Simplifying the FAFSA would lead to small changes in the distribution of federal and state grant awards.Could lead to an eligibility system that is simpler
and more predictable for filersReductions in EFCs could be counteracted through
minor changes to the assessment rates in the Federal Methodology.
Similar results could be achieved by creating a more robust formula that includes more data elements from the IRS without increasing the application burden for filers.
Read the Complete Report
http://advocacy.collegeboard.org/simplifying-student-aid