NASFAA Higher Education Act Reauthorization Priorities — Accomplished Recommendations

August 2021

Despite the absence of a comprehensive bipartisan Higher Education Act Reauthorization (HEA) proposal, there have been signs of bipartisan cooperation in recent years. The National Association of Student Financial Aid Administrators (NASFAA) is pleased to report that between August 2019 — the last time NASFAA updated its HEA priorities — and August 2021, several of NASFAA's recommendations have been accomplished.

  • Reimbursement for institutions for unfunded Perkins Loan cancellations.
    Under the now-expired Federal Perkins Loan Program, Congress provided for the cancellation of outstanding balances for some borrowers, including those working in public service or serving in the armed forces, but has not appropriated funds for these cancellations since fiscal year (FY) 2010. In response to advocacy efforts by NASFAA and others, the Department of Education (ED) determined in 2019 that it has the authority to permit institutions to retain funds that they would otherwise be returning to the federal government as part of the Perkins liquidation process as reimbursement for their share of cancellations.

  • Simplify the Free Application for Federal Student Aid (FAFSA).
    The passage of the FAFSA Simplification Act as part of the Coronavirus Response and Relief Supplemental Appropriations Act (CRRSAA), 2021 will greatly simplify the FAFSA by eliminating irrelevant and unnecessary questions. Building off models like the one NASFAA developed in 2015 and taking advantage of Internal Revenue Service (IRS) data sharing provisions from the Fostering Undergraduate Talent by Unlocking Resources by Unlocking Resources for Education (FUTURE Act), it will make the aid application process easier for all students, eligibility more predictable for the neediest students, and improve program integrity. The new need analysis and FAFSA simplification provisions are to be implemented fully by award year 2024-25, and include the following:

    • Eliminate the dislocated worker criterion as an automatic qualifier for the auto-zero EFC.
      Under the College Cost Reduction and Access Act of 2007, a parent or parents of a dependent student, or an independent student, or their spouse, who identify as a "dislocated worker" on the FAFSA could become eligible for an automatic zero EFC or Simplified Needs Test. Use of the dislocated worker criterion to qualify for an auto-zero EFC has unintended effects, distorting and significantly reducing the EFC for families where the income of the dislocated worker may not be representative of the family's finances, and can permit a family with extremely high levels of assets to qualify for a zero EFC. The FAFSA Simplification Act removes the dislocated worker criterion altogether as a factor in determining aid eligibility. 

    • Reform and rename the "Expected Family Contribution."
      The term "Expected Family Contribution" is a misnomer that misleads and confuses students and families. Rather than representing a financial contribution by the applicant, the result functions more as an index that ranks applicants according to their financial strength. The FAFSA Simplification Act renames the EFC the "Student Aid Index" (SAI) a more appropriate name to describe the result of the Federal Methodology (FM) formula.

    • Include all foreign income in need analysis.
      Today, the federal income tax code allows qualified individuals to exclude certain forms of income earned in another country when filing federal income tax. The FM formula does not utilize this "excluded" foreign income; however, the primary purpose of need analysis is to determine a family's financial strength and ability to contribute to educational expenses. In many instances, income earned in another country may be the individual's major or only source of income. Excluding it presents an inaccurate picture of the family's financial strength relative to other FAFSA applicants. The FAFSA Simplification Act adds excluded foreign income into the family's total income for a more accurate analysis of their financial strength.

    • Expand the IRS Data Retrieval Tool (DRT).
      Passage of the FUTURE Act obviates the need for the IRS Data Retrieval Tool, while at the same time greatly expanding the amount of IRS data available on the FAFSA. Combined with the FAFSA Simplification Act, which limits income questions to only those that can be obtained from the IRS, applicants will now be asked no income questions on the FAFSA. 

    • Eliminate the small business exclusion.
      NASFAA supports counting business assets regardless of the number of employees, and the FM formula already adjusts business equity downward on a sliding scale to protect the income-producing capacity of the asset. The FAFSA Simplification Act removes the small business exclusion from the FM formula.

    • Eliminate the exclusion of farm value from assets.
      The nature of family farms has changed and is more akin to a business. If assets from "small" businesses are reinstated in the need analysis as recommended above, so should farm assets.  Farm assets (other than investment farms) are adjusted in the same way as business value, using the same sliding scale (one table is used for both in the EFC formula). The FAFSA Simplification Act removes the farm exclusion from the FM formula.

    • Use IRS rules for claiming dependents on the tax return for determining household size.
      There has historically been a mismatch between who can be counted in household size in the FM versus who can be claimed as a dependent for tax purposes. The FM has allowed children to be counted in household size as long as they live with the applicant's parents and the parents provide more than 50% support. Thus, children who are independent students can be counted in the parent's household size for a dependent sibling, and older non-student children living at home, regardless of employment status, can be counted if the parents claim they provide more than half support. Verification of household size can only be accomplished by collecting a signed statement from either the parents in the case of a dependent student or from the independent student, generally relying on those individuals to determine what "half support" means.

NASFAA believes that the determination of "dependent" should be more standardized and verifiable. Children who are receiving financial aid as independent students should not be counted in the household size used to determine aid for other children who are dependent. With regard to siblings who are not students, especially adult children, there should be a defined cut-off point for the expectation that those siblings can still increase the size of the parents' household with regard to aid determinations for dependent applicants. The IRS test to claim an individual as an exemption provides a more defined approach to assessing what constitutes half support. The FAFSA Simplification Act changes how family size is determined for FM purposes by instead using IRS criteria, which will allow household size to flow to the FAFSA directly from the IRS under the expanded data sharing made possible by the FUTURE Act. 

    • Eliminate the tie between student eligibility and drug convictions.
      NASFAA believes that financial aid should not be used to enforce social policies. A federal or state drug conviction can disqualify a student for federal aid if it occurred during a period of enrollment for which the student was receiving federal student aid. Many, if not most, schools currently have admissions and student conduct rules that address drug use. The FAFSA Simplification Act eliminates the tie between federal student aid eligibility and drug convictions. 

    • Eliminate the provision requiring institutions to monitor and enforce Selective Service registration.
      To be eligible for federal student aid, male students must have registered with the Selective Service System before the age of 26; however, in some cases, some students inadvertently miss registering. From a simplification perspective, the addition of the Selective Service component, which is completely outside the domain of financial aid, adds hurdles to the student aid process. In addition, financial aid officers should not be shouldered with the burden of resolving discrepancies over a student's registration status, when they could be better using that time to counsel students and families. The FAFSA Simplification Act eliminates the tie between federal student aid eligibility and registration with the Selective Service System. 

  • Remove loan servicer branding from communication with borrowers.
    As part of its process moving toward finalizing the Next Generation Financial Services Environment (Next Gen), the Department of Education is streamlining its servicing operations into a single unbranded portal where all borrowers will be able to manage and pay their federal loans, regardless of servicer. 

  • Eliminate the 150% limit on the interest subsidy.
    Effective July 2013, Congress limited the time that a student could borrow federally subsidized loans to 150% of "normal time" of a program. Simply put, students in a four-year program are not eligible to borrow after six years regardless of whether they have reached the cumulative borrowing cap for subsidized loans of $23,500. The provision is particularly punitive for transfer students. The administrative complexity required to implement this requirement has taken away significant time and resources financial aid administrators could spend counseling students and families. Satisfactory academic progress rules and aggregate loan limits already provide adequate incentives for students to complete in a timely manner. The FAFSA Simplification Act repeals the 150% lifetime limit on subsidized loan eligibility.

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Publication Date: 9/14/2021

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