Recent press reports detailing how a change in the Expected Family Contribution (EFC) formula could affect up to $5 billion of the annual $90 billion in need-based aid, beginning with the 2004-05 academic year, has resulted in a flurry of discussion within the higher education community, congressional activity, and denials by the Department of Education that the effect of the change will have a significant impact on student aid.
Annual updates to the tables that will be used in the Federal Need Analysis Methodology
were published in the May 30, 2003 Federal Register. The problem arose because the most recent available IRS data used to construct the formulas is three years old. In the intervening three years the economy has deteriorated significantly and the data no longer accurately reflects a family's real ability to pay for college. Most significantly, starting in 2004 families will be able to deduct a smaller portion of their state and local taxes, even as such taxes have increased significantly in many states. That means many families apparently will end up paying from $100 to over $1,000 more than previously, with the exact amount varying based on individual family circumstances as well as the state in which the family resides.
The New York Times article that first publicized the situation noted that the Department's tax table change would "have a ripple effect across almost every level of financial aid, shrinking the pool of students who qualify for federal awards, tightening access to billions of dollars in state and institutional grants and, in turn, heightening the reliance on loans to pay for college."
"It is one of those really technical things that has a great effect," Terry Jackson, director of financial aid at Illinois' Knox College, told the Washington Post on June 18. "The impact will not be minimal."
Department Responds to Charges
The Washington Post reports that the "Department of Education is brushing aside calls from congressional Democrats to reverse recent changes in the way student financial aid eligibility is calculated, saying that predictions that the adjustments will result in reduced aid for millions of families are overblown."
While the Times article said "many college administrators characterized the change as a backdoor way to cut education spending," Sally Stroup, ED's assistant secretary for postsecondary education, on June 13 told the Associated Press, "We don't believe this is going to result in any significant changes."
The Department notes that the adjustments will leave students unaffected or with increased aid in some states where the state tax portion of the formula is the smallest. However, according to the Post, ED "has not developed any estimates of the total impact of the changes."
Democrats Introduce Legislation
In a June 16 statement before the House of Representatives, Rep. George Miller (D-Calif.) told his colleagues that at the time the old IRS data was compiled, "our country had yet to enter the downward economic spiral that we find ourselves in today. Students are going to be denied critically needed financial aid because of the poor performance of the economy."
House and Senate Democrats have rallied in support of changes to lessen the impact on students, introducing three new pieces of legislation.
- H.R. 2485, the "Ensuring College Access for All Americans Act," introduced on June 16 by Rep. Miller, would "limit the applicability of the annual updates to the allowance for state and other taxes in the tables used in the Federal Needs Analysis Methodology for the award year 2004-2005."
- S. 1265, introduced June 13 by Sen. Jon Corzine (D-N.J.), would also limit the applicability of the annual updates, so that they "shall not apply to a student to the extent that updates will reduce the amount of federal student assistance for which a student is eligible."
- S. 1268, introduced June 16 by Sen. Ted Kennedy (D.-Mass.), would "provide for a study to ensure that students are not adversely affected by changes to the needs analysis tables, and to require the Secretary of Education to consult with the Advisory Committee on Student Financial Assistance regarding such changes."
NASFAA's Recommendations
In its reauthorization recommendations, NASFAA proposed that lawmakers "replace the Treasury Statistics of Income file with the data and tax model used by the Institute of Taxation and Economic Policy for the updating process."
That recommendation means that the Secretary of Education would use a model for the basis of the current state and local tax table that "more sensitively" recognizes the variance in state tax structures.
According to NASFAA's recommendations, the tax information used in the most recent change 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 severely understates 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."
The full text of NASFAA's Higher Education Act Reauthorization Recommendations to Congress can be accessed on-line.
By Elizabeth B. Guerard
NASFAA Assistant Director of Communications
Posted June 19, 2003 on
www.NASFAA.org, the Web Site of the
National Association of Student Financial Aid Administrators (NASFAA).
Copyright 2003. Redistribution to non-NASFAA institutions is prohibited
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