NASFAA’s Reauthorization Task Force Recommends Changes To Need Analysis

 Reauthorization - Masthead  

Late in March, a task force of 17 NASFAA members forwarded to NASFAA’s Board of Directors an initial list of 61 recommendations for changes to the Higher Education Act via the upcoming reauthorization. The Board accepted most of those recommendations, although it was requested that some be further developed. This article is the eighth in a series highlighting the accepted recommendations, and the first of two articles on Need Analysis. NASFAA members are encouraged to suggest additional areas where legislative change is needed. For comprehensive coverage of all reauthorization topics, please refer to NASFAA’s HEA Reauthorization Web Center. 

Prior-Prior Year Data 

NASFAA’s Reauthorization Task Force (RTF) recommends that Congress implement the use of income data from the second prior year, commonly referred to as prior-prior year (PPY), as the basis for calculating expected family contribution (EFC).

PPY data provides more accurate income data in greater detail, with a higher likelihood of availability from the IRS download. The use of PPY data can thus enhance verification efforts. Earlier availability of income for need analysis allows earlier notification to, and planning by, students and their families. Schools would retain professional judgment (PJ) authority to treat individual circumstances.

NASFAA has conducted a study to determine whether basing need analysis on prior-prior year data rather than immediately prior year data would significantly affect the distribution of federal student aid funds. The results of this study will be available within the next few weeks.

Auto Zero 

The RTF recommends eliminating the dislocated worker criterion as a qualifier for the auto-zero computation. Use of the dislocated worker criterion to qualify for a zero EFC distorts and significantly reduces EFC for families where the income of the dislocated worker is not representative of the family’s finances. The appropriate vehicle for consideration of reduced income and the impact of the reduction is the professional judgment discretion of the financial aid administrator.

The RTF further recommends adding the receipt of SSI, TANF or General Relief benefits as sole qualifiers for an Auto 0 EFC determination. Students or parents who receive or received these need-based benefits would not have to complete any questions on the FAFSA regarding income or asset information.

Simplified Needs Test 

The RTF recommends eliminating the simplified needs test. Determination of eligibility is complex enough to confuse applicants, especially with regard to tax forms that could have been filed. In some cases, the exclusion of substantial assets redirects aid that could be targeted at needier applicants.

Cost of Attendance 

The RTF believes that Congress should clarify institutions’ authority to reduce non-tuition cost of attendance (COA) components for less than full-time enrollment. Current statute refers to enrollment status distinctions only in the tuition and fees category of COA components. The law excludes certain categories of cost components altogether for less than half-time enrollment. This specificity in some areas and lack of it in others has left institutional discretion to determine allowances appropriate to student characteristics in question. Consequently, students enrolled at half-time or above, but less than full-time may receive maximum annual loan amounts while making slow progress towards completion, potentially over-borrowing in terms of their capacity to repay their loans from future earnings.

Clarifying institutional authority to set allowances allows an institution to establish policies that are relevant to its student demographics and mission. Professional judgment could still be used to increase the COA for those students legitimately needing the maximum resources while enrolled less than full-time.

Independent Student Definition Related to Homelessness 

The RTF recommends moving homelessness from the definition of independent student status to an example of override authority under PJ. Financial aid administrators have expressed concern that the complexity of establishing homelessness under various laws has resulted in misunderstanding and inaccuracies in the answers to the FAFSA dependency question. The plight of truly homeless students needs to be addressed by cooperative efforts and cross-training between student aid administrators and professionals who work with homeless individuals and families.

Study the use of regional cost of living in Income Protection Allowances (IPA) 

Currently the amount of offset to income meant to cover basic living costs for a given family size and number in college is a nationwide figure, with no consideration of the great variation in cost of living across the U.S. The RTF recommends that Congress direct ED to study, and report back to Congress on, the possibility of adjusting the IPA on a regional basis with periodic cost of living adjustments (COLA) based on regional variations in the COLA. A GAO report (GAO-09-825) on this issue states that the effect of such variations on “a family’s ability to pay for college is unclear, in part because no official measure of geographic cost-of-living differences exists.” However, the report also acknowledges that incorporating regional variations “could also further complicate the process for calculating and administering federal student aid.”

Foreign Income Exclusion 

The RTF recommends including the amount of foreign income excluded for federal tax purposes as untaxed income on the FAFSA (and include in the IRS data retrieval tool).

Treatment of Business Losses/Capital Losses/Other Losses and Negative Adjusted Gross Income

The RTF recommends adding back into income any business, capital, and other losses that are tax benefits but that do not represent a real loss of income when determining the parents’ and student’s income for FM need analysis purposes. The IRS data retrieval tool should be expanded to identify that income.

The primary purpose of need analysis is to compare a family’s financial strength and ability to contribute to educational expenses to that of other families applying for the same limited aid. “Paper” losses allowed as part of the IRS tax code artificially reduce income, and as a result, artificially reduce EFC. ED would need to determine, in consultation with IRS and with representative schools that have experience in this practice, which losses should be included in income and how to capture that information through the IRS data retrieval tool.

Business and Farm Assets 

The RTF recommends eliminating the small business exclusion and requiring all business owners to report business equity as an asset regardless of the number of employees (the threshold for defining a “small” business is 100 employees). Similarly, the RTF recommends eliminating the exclusion of farm value from assets. The value of a family home situated on a farm should continue to be excluded.

FM already adjusts business equity and farm equity downward on a sliding scale to protect the income-producing capacity of the asset. The adjustment might need to be reviewed to ensure that it is adequate.

The next article in this series will describe the remaining need analysis recommendations put forth by the task force.


Publication Date: 6/24/2013

Denise D | 6/24/2013 10:33:17 AM

I disagree with doing auto zero for people with welfare benefits. Here in Michigan, we've had several cases where people receiving welfare benefits had significant gambling winnings (usually from the lottery) yet continued to collect welfare benefits.
I also noticed that if parents of a dependent student qualified for auto zero, the FAFSA didn't even ask for the student's income and asset information, and I have seen many times when a student makes significantly more than the parents.
My feeling that to get a fair and equitable assessment of a family's ability to pay, all income must be included. Why should some types of money count and not others? Social Security income can be significant, as can co-op earnings. And we should add back in the above-the-line tax deduction for educational expenses so as to make the AGI equitable between students who do and who do not take that deduction. Depreciation should be added back into the AGI. And I think we should look at home equity again (and should have for the last several years, with people underwater on their mortgages) as well as pension funds or the lack thereof. Finally, I think that veterans' benefits should either fully count as resources against the COA or that veterans be given their own program. As it is, if a vet has a basic housing allowance, we have to exclude the room portion of the COA from the budget, regardless whether the budget amount is higher or lower and regardless whether other vets get as much or more in their living budgets from the VA. In addition, with all the VA benefits being excluded, vets can get loans to cover costs already paid by the VA.

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