Issue 1: Computations in Case of Separation, Divorce, Remarriage, or Death of Parents [Section 475(f)]
Recommendation: Treat legal guardian as parent with dependent student treatment to continue while student is in college and has financial relationship with the legal guardian.
Rationale: The Department's recent interpretation to exclude legal guardians from the definition of "parent" has had an adverse impact on many students. This recommendation would relieve these students of the burden of proving independent status when in reality they have a dependent relationship with their legal guardian. Financial aid administrators would have the ability under Section 479A to grant independent status on a case-by-case basis.
Issue 2: Inclusion of Siblings in the Family Size [Section 480(l)]
Recommendation: Exclude all children aged 24 years and older for dependent student families and independent student families.
Rationale: The suggested amendment recognizes the complexity of the variety of family situations in our world today and asserts that young adults who qualify as independent students for Title IV aid should be responsible for their own maintenance. NASFAA believes that financial aid administrators can address the care of elderly family members and/or family members who are disabled using the authority under Section 479A.
Issue 3: Independent Student Definition [Section 480(d)]
Recommendation: Retain current definition; clarify that to qualify for independent status as a veteran, the student must have served in the military for the required number of days that would qualify the student as a veteran as defined by the Veterans Administration.
Rationale: NASFAA believes that the current definition targets the appropriate population and should be retained with one modification. The current definition for veteran status in the Title IV programs does not correspond with the certifying federal agency, the Veterans Administration. Strengthening this definition will curb perceived abuses in the current law. All students who meet the VA definition and serve the required number of days with a discharge other than dishonorable would qualify as independent. All students currently in the military on active duty would qualify for independent status, regardless of days served. National Guard and Reserve training (including the initial active duty training period) would not count as active duty service.
Issue 4: Earned Income Credit (EIC) [Section 480(b)]
Recommendation: Exclude the earned income credit from untaxed income.
Rationale: The EIC is a tax benefit provided by the IRS to aid the "working poor." NASFAA supports providing the true benefit to low-income families and not adding it back to the formula analysis.
Issue 5: Treatment of Paper Tax Losses [Section 475. 476, and 477]
Recommendation: Develop alternative analysis for families who have a low or zero AGI due to business deductions, by excluding net operating losses and loss carry-forwards.
Rationale: There is general concern that "paper losses" allow higher income families to qualify for Pell Grants and other need based programs unfairly. Schedule E and prior year carry-forward losses should be excluded. This could be accommodated by an instruction on Worksheet B (if negative number, enter as a positive). We do not recommend that business losses be included in this revised treatment.
Issue 6: Treatment of Student Assets [Section 475(d)]
Recommendation: Add a $1,000 asset protection allowance (APA) for dependent students and single independent students under the age of 26. For married students, use an APA based on the age of the older spouse. The minimum allowance for students under the age of 26 will be $1,000.
Rationale: The suggested amendment would protect students who have been prudent and saved for their education and not disadvantage these students when compared to the student who couldn't save, or chose not to save. Using a minimum APA will ensure that low-income students continue to qualify for maximum Pell Grant eligibility.
Issue 7: Updating State/Local Tax Tables [Section 478(g)]
Recommendation: Replace the Treasury Statistics of Income file with the data and tax model used by the Institute of Taxation and Economic Policy to the updating process.
Rationale: The suggested amendment requires the Secretary to update the current state and local tax table to more sensitively recognize the variance in state tax structures by increasing the number of income bands. A simple review of the Treasury Statistics of Income file provides an inadequate assessment of the full effect of state and local taxes. Since sales tax was eliminated as an allowable deduction, the current updating language would severely understate the effective tax rate. NASFAA believes that adding the data and tax model used by the Institute of Taxation and Economic Policy to the updating process would improve the tax tables for all families and protect the working poor in particular.
Issue 8: Income Protection Allowance [Section 478(b)]
Recommendation: Use the Consumer Expenditure Survey (lowest 20% table), to develop the IPA tables instead of updated BLS data.
Rationale: The FM income protection allowance has been updated by the change in the consumer price index from year to year. The problems with the current table are that (1) the market basket of goods and services that underlies the IPA's was established by the Bureau of Labor Statistics in the 1960s, and (2) the family equivalency tables (i.e., coefficients that are used to adjust the family of four, with children aged 8 and 13 [as I recall] to other family sizes with children of college age) were also established in the 1960s. It would be reasonable to use the government-sponsored Consumer Expenditure Survey, (lowest 20% table) to update the IPA tables.
Issue 9: Simplified Needs Test [Section 479(b)]
Recommendation: Eliminate this formula treatment.
Rationale: The linkage with tax filing status significantly complicates the identification of eligible families. As an added benefit of eliminating this formula, availability of the asset information will provide a more accurate assessment of eligibility for those families with assets. The SNT does not make the process simple and is not achieving its stated goal.
Issue 10: Automatic zero EFC [Section 479(c)]
Recommendation: Eliminate this formula treatment.
Rationale: The suggested amendment would eliminate this formula treatment. NASFAA is concerned about whether the current automatic zero approach identifies and serves its intended audience. The tax form a family is "eligible to file" is a central eligibility criterion for the formula. Many low-income families go to tax preparers who generally use the long form. These families are often not knowledgeable enough about the tax system to understand that they could have filed a simpler form thus making them eligible for this formula.
NASFAA does not anticipate a negative impact on the FAFSA. Families will complete all data items just as they currently do. If there is any negative formulaic impact resulting from this change, NASFAA believes that the current formula offsetting dependent student income in the amount of the negative adjusted parental available income mitigates the impact.
Issue 11: FAFSA Simplification [Section 479(a)]
Recommendation: Develop a check-off box on the Free Application for Federal Student Aid (FAFSA) for TANF and General Relief recipients that would allow them to bypass all income and asset questions. These students would automatically qualify for the maximum Pell Grant and would have a zero EFC for determination of financial need.
Rationale: These families have already passed a needs test certifying their eligibility for federal, state and local subsistence programs. Evidence indicates that the complexity of the FAFSA may discourage these families from applying for financial aid. A simple check-off on the FAFSA would mitigate this problem.
Issue 12: Expected Family Contribution (EFC) [Section 473]
Recommendation: Rename the Expected Family Contribution (EFC) the Federal Eligibility Index (FEI).
Rationale: This change in terminology would recognize that the federal analysis of income and assets is an eligibility index for federal aid rather than an actual family contribution calculation.
Issue 13: Veterans' Benefits [Section 480(c)]
Recommendation: Establish consistent treatment of VA benefits for all financial aid programs regardless of the chapter. These benefits should be assessed as a resource at 50% of the award amount in determining eligibility for the Title IV programs.
Rationale: NASFAA believes that veteran's educational benefits should continue to be treated as a resource and not as a part of the income component in the formula in determining a student's eligibility for financial aid awards. However, since these men and women have contributed in a unique way to their country, we suggest that these benefits should be assessed at 50% of the total benefit.
Issue 14: Optional Professional Credential Allowance [Section 472]
Recommendation: At the institution's option, permit the inclusion of an allowance in the cost of attendance for obtaining professional credentials, including professional certification or licensure, national or state examinations, if these costs are incurred during the academic period. The program must be taken and be paid for while the student is in school (not post graduation). The program must be directly related to the student's program.
Rationale: The suggested amendment would permit schools to include the cost of obtaining professional credentials in a student's cost of attendance. In certain professions, students incur significant expenses for professional certification and licensure-including cost of national or state examinations-in order to enter their chosen profession or continue their education. NASFAA recommends that such costs incurred prior to graduation or completion of program of study be included by the institution as part of the cost of attendance or on a case-by-case basis.
Issue 15: Tuition Prepayment Plans, Including "529" Plans [Section 480(j)]
Recommendation: For purposes of determining a dependent student's eligibility for funds under this title, all "529" plans, including prepaid tuition and savings plans, as well as Educational Savings Accounts (ESAs), and other similar educational financial savings plans will be counted as a parental asset, regardless of ownership, including relatives, the student, or the parent. For purposes of determining an independent student's eligibility, all "529" plans, including prepaid tuition and savings plans, as well as Educational Savings Accounts (ESAs), and other similar educational financial savings plans will be counted as the student's asset
Rationale: This recommendation is a simple approach to the treatment of these assets that encourages families to save for college. This approach continues to include such assets in the EFC calculation, but moderates their impact significantly.
[Return to main article on NASFAA's Reauthorization Task Force Preliminary Recommendations]
Posted October 11, 2002 on www.NASFAA.org, the Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
Copyright 2002.
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