NASFAA’s proposal to simplify the FAFSA would have a taxpayer cost lower than most other FAFSA simplification proposals, according to a report from The Urban Institute.
The report -- “Simplifying Federal Student Aid: How Do the Plans Stack Up?” -- provides detailed analysis of NASFAA’s proposal and seven other proposals to simplify federal student aid and Pell eligibility, looking at the cost of implementing each proposal and any changes to Pell eligibility that may result. Overall, the proposals analyzed in the report would shift Pell Grants to students with lower reported incomes by increasing participation and/or grant levels. The costs of the proposals range from being budget neutral to increasing annual spending by $1.7 billion. NASFAA’s proposal is estimated to cost $.73 billion more than the current cost of the program.
After reviewing the eight proposals, the report’s authors conclude that a “hybrid system” which determines Pell eligibility with a look-up table, but also maintains the expected family contribution (EFC) for other programs via a simplified FASFA, would be best for most financial aid applicants. The simplified application process would also include a “check-the-box” feature on tax returns, whereby a tax filer can indicate on their tax return that they wish to apply for federal student aid. According to the authors, this system “would require additional information for applicants whose tax returns suggest they have assets and less need than what might be expected solely looking at their income levels.”
Thus, the hybrid model would separate Pell calculations from the rest of the application process for financial aid. For students who are eligible for a maximum Pell Grant, “having a zero EFC could carry over to other types of aid,” according to the report. “Separating Pell [G]rant calculations could also limit the cost of the federal Pell program without generating higher EFC’s that would unduly burden middle- and higher-income families by limiting their eligibility for aid from states and institutions.”
The proposal from NASFAA analyzed by The Urban Institute comes from a NASFAA working group report that was released in July. The group’s proposal included a recommendation to create a three-level application process where, after answering demographic and dependency status questions, applicants would be steered down one of three paths based on their responses to screening questions.
As explained in previous coverage from NASFAA, the three-level application offers applicants a customized set of questions, rather than sticking with a “one- size- fits- all” approach. The tiered application would identify applicants who – according to their existing means-tested benefits and tax filing status – have low presumed financial resources. It would present them with the bare minimum number of FAFSA questions as opposed to making them read through several other questions that may not apply to their circumstances or affect their aid eligibility. Families with more complex financial circumstances would have a more complicated federal application, but the use of PPY and an expanded Internal Revenue Service (IRS) Data Retrieval Tool (DRT) would permit more information to be directly imported from the IRS.
The three pathways are:
According to the Institute’s analysis, NASFAA’s proposal would simplify federal student aid most for the applicants with the most need. The proposal would increase Pell Grant costs by $0.73 billion and result in an additional 69,090 students receiving Pell Grants. In addition, the average Pell Grant would increase by $59 from the baseline.
While there would be an increase in the average award amounts across the income distribution, there would be a decrease from the baseline in the number of Pell recipients with incomes below $30,000. The Institute notes that the increase in Pell recipients is “concentrated” among those in higher-income brackets, with students or parents with adjusted gross incomes (AGIs) of $50,000 or more accounting for over 50 percent of the increase in cost.
Still, NASFAA’s proposal “remains at least as generous across the income distribution for almost all baseline recipients,” according to the analysis, which noted that under the proposal, “only 3 percent of baseline recipients have Pell amounts that are smaller by $500 or more.” The analysis also noted that the cost under NASFAA’s proposal is “likely to be smaller” because of the adding back of losses to income to students in the third FAFSA path, which the modeling was unable to estimate, as well as a “finer examination and possible disqualification” for some students in the first path who appear eligible in the Institute’s model, but may not be eligible under the actual proposal.
The Institute’s analysis also looked at how EFC levels under NASFAA’s proposal would differ from those under the current methodology. EFC levels for each pathway under NASFAA’s proposal are as follows:
According to the analysis, the NASFAA EFC is on average $109, or two percent, less than the baseline for EFC for the whole sample used by the Institute, and 89 percent of the sample has NASFAA EFC values within $500 of their baseline EFC, which is “fairly consistent” across all income groups.
The goal of NASFAA’s FAFSA simplification proposal is to simplify the FAFSA process while still ensuring program integrity and accurate targeting of federal funds. To the extent that a simplified FAFSA would increase FAFSA completion rates, there will be an associated taxpayer “cost”. The Urban Institute’s cost estimate was unable to incorporate a significant component that would help to mitigate the cost, the disallowance of negative numbers on the front of the 1040, making it more difficult to accurately estimate the cost of NASFAA’s proposal. However, the rough cost estimate is helpful as we move toward reauthorization in an environment highly focused on deficit reduction.
Publication Date: 11/18/2015