By NASFAA Policy & Federal Relations Staff
The 2021 Consolidated Appropriations Act contained significant changes to the Federal Methodology (FM) formula for determining federal student aid eligibility through the FAFSA. One particular change to the formula, however, has received more attention than others — the removal of taking into account the number of the applicant's family members who are enrolled in college. While this is a change that NASFAA supported, it is important to address concerns and to understand its rationale, projected impact, and tradeoffs.
Under the current formula, the total expected family contribution (EFC) — renamed the Student Aid Index (SAI) under the new formula — is currently divided among the number of the applicant's family members who are enrolled in college. The idea behind the split is that if a family has been determined able to pay a certain dollar amount for a year of college, the amount they're able to pay in that year doesn't increase when another family member also enrolls in college. For example, a family's EFC is $10,000 but they have twins enrolled in college; each twin's EFC is $5,000, whereas if only one twin enrolls, their EFC would be $10,000. The new formula does not take into account a family's number in college, neither in this final step of the calculation nor in the Income Protection Allowance (IPA), which currently decreases as the number of household members in college increases.
The main concerns with this change focus around which families will be negatively impacted by the new calculation and will lose Pell Grant or other Title IV aid eligibility as a result, and how to explain the change to families who currently benefit from the divided EFC. To address these concerns, it is first necessary to consider what the EFC is. The term “expected family contribution” is misleading and difficult to explain to families because it is not, in actuality, an indication of what a family can, should, or will pay for college in a given year. It is, rather, a ranking mechanism for allocating federal dollars. Part of the reason for the name change from EFC to SAI is to reflect this fact.
The rationale behind eliminating number in college from the calculation is rooted in both simplification and equitability. As it relates to simplification, the goal was not to increase the amount families have to pay when they have more members enrolled in college. It was, rather, a means toward creating simple lookup tables for families to be able to estimate Pell Grant eligibility. Sen. Lamar Alexander (R-Tenn.), who co-chaired the Senate Health, Education, Labor, and Pensions (HELP) committee until his 2020 retirement, held a vision of a greatly shortened and simplified FAFSA — with as few as two questions — that would encourage more students to apply for federal student financial aid by making the process more predictable, and less complex and intimidating. The lookup tables will allow students to estimate their Pell Grant eligibility by knowing only their household size, their own or their parent(s) marital status, and adjusted gross income (AGI). Retaining the question about the number in college would have made an easy, simple look-up table unworkable.
From an equitability standpoint, we must consider that paying for college is not an annual expense. Families finance a postsecondary education by drawing on past earnings (savings), current earnings, and future earnings (loans). As such, it makes little sense to offer two-for-one pricing to families with closely-spaced children and, as Sandy Baum argues, creates horizontal inequities between those families and others with children spaced further apart. For example, a family with twins is treated much differently than a family with two children who are five years apart, despite the fact that both families will face the cost of financing two college educations. The argument over the fairness of removing the number in college EFC split can easily be flipped to ask whether the split was ever fair in the first place.
A separate issue is which families will lose aid eligibility as a result of the new formula. It is important to consider that the very neediest families will not be impacted at all by this change. Department of Education (ED) estimates based on 2021-22 FAFSA data anticipate that 81% of Pell Grant recipients will qualify for the maximum Pell Grant award under the new formula, up from 63% currently. Students who qualify for the maximum Pell Grant award are either automatically assigned or have a calculated SAI of zero. Because zero cannot be divided, students in this category would never have experienced an EFC change based on the number of their family members enrolled in college, and so will not be impacted by the change to the treatment of multiple family members in college in the SAI calculation.
Data provided by ED also estimate that 93% of families with incomes below $40,000 will receive a maximum Pell Grant (up from 78% currently), and 48% of families with incomes between $40,000 and $70,000 will receive some amount of Pell Grant (up from 14% in that income range currently). Overall, more than half a million families will gain Pell eligibility and 1.7 million more will receive the maximum award. It is also estimated that only 4% of current Pell Grant recipients will lose more than $10 in Pell Grant eligibility under the new formula. From a public policy standpoint, the net increase to the number of Pell Grant eligible students is an acceptable tradeoff for the potential loss of Pell eligibility for some families that may result from the change in the treatment of number in college.
It is also worth noting that, among Pell Grant-eligible students under the current formula, having more family members enrolled in college does not always result in a lower EFC due to the fact that the Income Protection Allowance (IPA) decreases as the number in college increases. Low-income students can see their EFC increasing and Pell Grant eligibility correspondingly decreasing when a sibling enrolls in college. IPAs in the new SAI are not tied to the number in college, so this counterintuitive effect will not be observed under the new formula.
Families with incomes below 275% to 400% of poverty who lose out on Pell Grant eligibility via the SAI formula will now automatically qualify for the minimum Pell Grant award amount. The poverty multiplier ensures a minimum Pell Grant award for families whose incomes fall just above the mean income for the middle-income quintile or even the low end of the fourth income quintile. For instance, using poverty guidelines and income quintiles for 2018, a family of four with a two-parent household, and income below $69,025 would qualify for the minimum Pell award, as would a student with two children of their own whose income was below $83,120. This could potentially capture lower- and middle-income families with multiple children in college whose incomes alone might have put them just outside of Pell Grant eligibility without the number-in-college EFC split.
Certainly there will be some families that currently qualify for a Pell Grant solely due to having multiple family members in college who will lose Pell Grant eligibility under the new formula. These families will likely be confused and upset, and the burden of explanation will fall to financial aid administrators. However, this is already a common occurrence as other family members enter and leave college, so the FM formula change doesn't create a new problem.
It's also important to keep in mind that not every family with more than one member in college receives a Pell Grant under the current formula. Higher-income families' federal aid eligibility often does not change at all when the EFC is divided among the number in college because their EFC was high enough to start that even splitting it by two or more doesn't result in need-based aid eligibility. Also, unlike now when different families lose Pell Grant eligibility each year and aid administrators must explain again and again the nuances of the FM formula, the impact of the SAI formula change will take place in a single award year.
A final consideration is what institutions will do with their own aid dollars. Will they continue to divide the SAI for multiple family members in college, or default to the FM treatment? The decision is theirs to make, and, fortunately, the data on the number in college will continue to be available to them on the FAFSA, since that question was purposely retained in statute as a required data item on the FAFSA because Congress anticipated that states and schools might still have need for this information.
In its simplest form, public policy is a series of choices, and these choices inevitably force tradeoffs that create winners and losers. The process requires lawmakers and advocates alike to thoughtfully consider both the positive and negative impacts that may result from proposed legislation, and work to maximize the desirable outcomes and minimize potential harm. In this case, eliminating the number-in-college factor is not without impact, but it is a worthy tradeoff for a simpler, more equitable formula that ensures grant aid is maximized for our country's lowest income students.
Publication Date: 1/28/2021
Stuart P | 7/28/2022 9:56:36 AM
I think it's the parent contribution (PC) that's divided by the number in college, not the EFC.
Michael H | 1/29/2021 8:52:04 AM
Very helpful and thorough article, it helped change my way of thinking. When presenting at financial nights and trying to explain this I did use the example of twins/triplets vs. a family that had kids spaced 4 years apart. It doesn't seem fair in hindsight. I am excited for these new changes to come into effect (especially decoupling Selective Service from TIV eligibility!).
David S | 1/28/2021 11:6:16 AM
Appreciate the thorough analysis and explanation.
This is an idea whose time had come. The # in college has had an enormous impact on eligibility for many, despite the fact that it is a snapshot piece of information that can change instantly. And on top of that, it is wholly inconsistent with the way we advise families to approach college, which is as a long-term financial commitment that to the extent possible involves saving in advance, and for those parents who borrow PLUS or similar loans, continuing to pay for it afterwards. Best illustration, something many of us have encountered. Parents have 2 in college a year apart, have borrowed PLUS loans. Older kid graduates, need-based aid for the other kid, now a senior, goes down or is gone. We tell them "your financial circumstances have changed because you only have one kid in college now." They, very rightfully, tell us "You suggested we take out PLUS loans, which we'll still be repaying for years. Our financial circumstances haven't changed one bit." The example of one family with twins and another family with two kids 5 years apart illustrates the inequities of what we're all used to as well.
I hope colleges and states move in this direction for their aid as well, not only because it's a better way to measure need, but also for the sake of consistency between different sources of need-based aid.
Rebecca S | 1/28/2021 10:21:18 AM
A nuanced, thoughtful review. Thanks!
Ben R | 1/28/2021 10:20:02 AM
The removal makes sense, since EFC has always been based on "household", not individual contribution (even when there is only one member of the household) and nobody that I know (schools or students) takes EFC literally in terms of expectation to pay that amount. The EFC is interpreted as a score, based on "ability", not a requirement, to contribute, where "high score=no grants" and "low score=get grants". It only makes sense therefore to align the value with household, not per student, contribution and take "expectation" out of the name.
Helen F | 1/28/2021 10:10:14 AM
Thank you for presenting this so thoughtfully and thoroughly.
Julie A | 1/28/2021 9:33:25 AM
This article is an excellent read and worthy of sharing. Thank you!
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