Reducing the required income data on the FAFSA to Adjusted Gross Income (AGI) and IRS exemptions wouldn't notably affect the eligibility of low-income students, according to a recent report submitted by the Department to Congress. The Department published the report in response to a congressional inquiry about the logistics of simplifying the FAFSA.
According to the report, requiring less information and using a different eligibility formula presents an opportunity to increase the quality of information conveyed to students and their families concerning their aid. Using this simplified process would make the types and amounts of federal student aid, as well as payment expectations, immediately available to students and their families. The Department is hopeful that families-with this specific information in hand-will be empowered, and work with States, institutions, and private groups to assemble an aid package for college.
Less required data on the FAFSA equates to less of a burden for students and families. The purpose of simplifying the FAFSA is to create an eligibility formula that is simpler, understood, and more easily verifiable. But for this to happen, changes to current laws must take place.
Summary of Congressional Inquiry
Below are the questions from Congress along with the Department's responses.
1) How can students' EFC be calculated using substantially less income and asset information?
The statutory need analysis formula must be changed as well as how those calculations are used. Having analyzed several years of applicant and recipient data, it's clear that much less data from students with low-income backgrounds is needed than currently required. Subsidized federal aid can be determined using only the families' AGI and number of exemptions. There is no longer a need for questions about taxable income, untaxed income, or assets. Policy makers would determine how AGI and IRS exemptions can be used to establish the criteria for eligibility for subsidized federal aid. One example is provided by the College Board, which would give the maximum Pell award be given to those whose income level is 150% of the poverty level or less, and a phase down to zero for those who earn 250% of the poverty level or more. Alternative thresholds may be determined by policy makers.
2) How would reduced income and asset information redistribute of federal grants and subsidized loans, State aid, or institutional aid?
The impact of reductions will directly correspond with eligibility criteria set by policymakers, which should aim to achieve specific, predetermined goals. It will be the responsibility of the State or the institution to make these determinations and meet their funding and policy objectives. If States and institutions find that they are not provided with all the information they need, there are data sharing technologies available whereby information can be obtained without jeopardizing the simplification process.
3) To what extent will the Department's alternative approach rely on information in disclosed on the 1040, the 1040EZ, and the 1040A?
Limited data will be needed-data (AGI, for example) which can be obtained from completed IRS forms. Independent students' needs are based on their (and their spouses, if applicable) federal tax return. Dependent students' needs are based on their parents' returns. The data can be verified manually or electronically. In cases where no returns are filed, the student will report comparable amounts for his or her AGI and number of exemptions.
4) How can the IRS provide the Department income and other data needed to compute an EFC, and when in the application cycle the data can be made available?
The Department suggests that the IRS should provide information needed for the student to complete the FAFSA in real time-electronically-or to verify the information on a FAFSA hard copy. The Department is working with the IRS to implement a consent mechanism that would appear on tax forms and allow the applicant's data to be shared with the Department (spouses and parents also, when applicable). Currently, work that is similar to what the Department is suggesting is being performed in order to rectify "improper payments." The Department is searching for additional ways of simplifying the process, focusing on data pre-population.
There are logistical issues with filing the FAFSA; tax information from the current year isn't available in the fall of the same year. Estimations ultimately lead to improper payments. The use of "prior-prior" tax year information would address these types of issues, but determinations must be made as to whether this is feasible, and if so, for which group of students.
5) How can the data provided by the IRS be used to (i) pre-populate the electronic version of the FAFSA with student and parent taxpayer data; or (ii) generate an EFC without additional action on the part of the student and taxpayer?
The Department is continually working with the IRS to devise a system for data matching, but there are technological hurdles that must be overcome in order to put a comprehensive system for pre-population in place. Even when this system is in place, it will not be exhaustive; there will be the need for an applicant to provide additional information, as the IRS does not maintain all that is necessary. The additional information needed will be basic and should be easily obtained by applicants.
6) How would using income data from two years prior to a student's planned enrollment date change the EFC, and what potential adjustments to the need analysis formula, if any, would minimize these changes?
Further data analysis is required by the Department, but it is probable, that using "prior-prior" income data would have little effect on dependent students from low-income families. It's unclear how this "prior-prior" data will affect the eligibility of other groups, such as single or independent students. Policymakers will be largely autonomous in creating criteria for eligibility.
7) How can data elements collected on the FAFSA that are needed to determine eligibility for student aid or to administer the federal student aid programs, but are not needed to compute an EFC, be reduced without adverse effects?
The sample FAFSA form would address this question specifically. Only questions concerning eligibility and information that would determine the type or amount of aid a student will receive. The alternative application suggested by the Department contains less than 30 questions.
Additional Policy Issues Addressed
Exclusion of Untaxed Income
There are several exclusions in the current need analysis formula, such as veteran's educational benefits and welfare benefits. Due to the College Cost Reduction and Access Act (CCRAA), untaxed income items such as income tax credits and certain social security benefits have been eliminated. The Department's suggested approach limits the categories of untaxed income required to satisfy the needs analysis formula.
Exclusion of Assets
Applicants must report the net value-the market value on the day they file-of their assets on the FAFSA. Department data determines that an excess of 90 percent of current Pell recipients would be unaffected by the exclusion of assets from the EFC formula.
Two verifiable income figures-AGI and IRS tax exemptions-would be used to determine eligibility and aid amounts (which would be verifiable and predictable) while adhering to the fundamental goal of simplification.
The original report can be read in its entirety online.
Posted 01/27/09 to www.NASFAA.org. Redistribution to non-NASFAA institutions is prohibited. Please submit Web Site questions or comments to Web@NASFAA.org.
