NASFAA Higher Education Act Reauthorization Priorities — Accomplished Recommendations

January 2023

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 since August 2019, when a NASFAA working group last refreshed its HEA priorities —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 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 family 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. Additionally, the Consolidated Appropriations Act of 2022, which finalized fiscal year 2022 spending levels, amended the Public Health Service Act, the authorizing legislation for the Health Professions Student Loans (HPSL) programs, which previously required that borrowers be registered with the Selective Service System in order to be eligible for the programs. The spending package removed this requirement, aligning the HPSL criteria with the changes to Title IV student aid eligibility. 

  • 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.

  • Allow access for a second scheduled Pell Grant award for less-than-half-time students. In 2016, Congress restored access to a second scheduled Pell Grant award in the same award year (also known as "year-round Pell" or "summer Pell"), a change applauded by NASFAA. The change, however, limited students' opportunity to pursue additional coursework outside of the traditional fall and spring semester framework because it required students to be enrolled at least half time to receive the additional Pell Grant funds. NASFAA advocated for the elimination of the requirement in order to provide all students with more flexibility and to improve student retention and graduation. The FAFSA Simplification Act removes the half-time enrollment requirement for students to receive the additional scheduled Pell Grant award.

  • Codify the use of prior-prior year data on the FAFSA. In October 2015, President Barack Obama and the ED announced their intention to use their authority under the HEA to use income information from two years' prior — the prior-prior year (PPY) — for the purpose of need analysis. The change, supported by NASFAA, provided ED with the ability to make the FAFSA available starting October 1, instead of January 1. The shift to using PPY data represented a first step in simplifying the federal aid application process; however, to solidify this progress, NASFAA advocated for Congress to codify the PPY change into statute, which was accomplished in the FAFSA Simplification Act signed into law in 2020. NASFAA continues to advocate for Congress to codify the October 1 FAFSA release date, which is currently at ED's discretion but is not required by law.

  • Allow institutions to include average loan fees in the COA, rather than the actual cost charged to each student. The FAFSA Simplification Act prescribed more specificity for how several existing COA components can be determined by institutions, including a requirement that allowed for the use of only actual loan fees, rather than average loan fees. Use of average loan fees, which was permissible under current law prior to the passage of the FAFSA Simplification Act, allows institutions to avoid making changes to a student's COA, often amounting to only a few dollars, every time a student's loan amount changes. Changes to loan amounts are common when the student's level of need increases or decreases due to changes on the FAFSA, COA, or the student's other aid. The Consolidated Appropriations Act, 2022, which authorized funding for fiscal year 2022 Pell Grants and made technical changes to the FAFSA Simplification Act, included a provision allowing institutions to use either the actual or the average cost of loan fees in the COA.

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Publication Date: 2/6/2023

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