News: Financial Aid

NCAN Conducts First Comprehensive Review of Impact of Verification on Pell Grant Awards

Monday, August 10, 2020  
Posted by: Carrie Warick, Director of Policy and Advocacy
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From the student perspective, the burden of the Free Application for Federal Student Aid (FAFSA) verification process is well-known. But the big-picture impact across all FAFSA filers completing verification has been more difficult to ascertain. However, never-before-released federal data have shed light on several questions regarding verification.

For the 2018-19 academic year, 22% of FAFSA filers were selected for verification, and over 70% of them saw no change in their Pell Grant award. With these facts now available, a discussion of the following questions is now possible:

  • How do Pell Grant awards change for FAFSA filers who complete verification?
  • Verification’s stated purpose is to prevent improper payments. How well does it do that, and how often are Pell Grant awards increased or decreased through the process?
  • What have been the effects of the U.S. Office of Federal Student Aid’s (FSA) recent changes to the FAFSA verification process?

NCAN’s new brief, “Exploring Ways to Enhance FAFSA Efficiency: Exploring the Relationship Between FAFSA Verification and Pell Grant Award Change,” explores these questions. Released as one of 10 papers in a series on simplifying the financial aid application process from the National Association of Student Financial Aid Administrators (NASFAA), this brief is the first comprehensive review of the impact of FAFSA verification on Pell Grant awards.

While FSA has worked in recent years to improve the process, FAFSA verification strikes some advocates, NCAN included, as too aggressive compared to similar processes. FSA develops verification selection criteria annually and, as of award year 2019-20, employs a model of machine learning to best target the applications deemed most likely to have inaccurate information.

From 2011-12 to 2017-18, the percentage of FAFSA filers selected for verification ranged from 30% to 38%. While the 22% verification rate noted above is an improvement, it is vastly higher than the overall IRS audit rate for 2017 of 0.5%.

The goal of both IRS audits and FAFSA verification is the same: to prevent improper payments in government programs. For taxes, it’s ensuring the taxpayer did not pay too much or too little. And for the FAFSA, it is to ensure that the government is not awarding too high or too low an amount of a Pell Grant.

These new data, provided by FSA to NCAN for this brief, allow an examination of whether the burdensome process students must undergo to verify their FAFSA actually changes the amount of the Pell Grant they received. NCAN’s research shows that:

  • In the two most recent award years, slightly more than 70% of students who completed verification prior to Nov. 1 experienced no change in their Pell Grant award.
  • Among students whose Pell Grant award did change, Pell Grants were twice as likely to decrease rather than increase after verification.
  • Applicants with an auto-zero EFC, i.e., applicants from low-income households who met the tax filing and income requirements to complete a shorter FAFSA and receive a maximum Pell Grant Award, overwhelmingly retained that award after verification.

  • Taxpayers experienced net savings of $404 million and $428 million in award years 2018-19 and 2019-20, respectively, from prevented improper payments on Pell Grant disbursements made prior to Nov. 1.
  • Comparing students who completed verification prior to Nov. 1 of the most recent award year to their 2018-19 counterparts, FSA selected fewer students for verification but prevented a higher dollar amount of improper overpayments compared to the same time period the previous year. The change in savings represents a 6% increase.

Verification is a necessary evil of the federal government’s investment in higher education through need-based financial aid. The process is necessary to prevent fraud and abuse in the system and to prevent egregious mistakes, but the cost to the taxpayer must be balanced with the burden placed on students and institutions.

The improvements between these two cycles — fewer students selected with a higher number of dollars recovered — is a step in the right direction for both taxpayers and students. Because verification can never be completely eliminated, it is vital that FSA continue striving to further reduce the burden while maintaining their fiduciary responsibility to taxpayers.

With the recent passage of the FUTURE Act by Congress, FSA has just the opportunity to continue moving in this direction. This law amends Section 6103 of the Internal Revenue Code to allow the IRS to share Federal Taxpayer Information (FTI) directly with ED via FSA. This change will make the FAFSA verification process easier by pulling students’ and parents’ (if needed) FTI from the IRS, where it will already be considered verified data. This change in the FAFSA process should lead to a significant reduction in applications selected for verification of income-related fields and a corresponding reduction in the associated burden experienced by students and institutions.

NCAN eagerly monitors this implementation and encourages other advocates and stakeholders in the field to do the same.

In the interim, NCAN recommends that FSA:

  • Explain why verifying 22% of all FAFSA filers is the most appropriate percentage. Providing that information without sharing proprietary information about the specific factors included in selection for verification is possible and appropriate.
  • Consider substantial changes to verification of financial information based on the implementation of the FUTURE Act, given the much higher percentage of FAFSA filers that will have information directly reported from the IRS. FSA must consider closely whether any of these individuals’ applications warrant financial information verification.
  • Select an even smaller proportion of auto-zero EFC applicants for verification, given this group’s very low rate of post-verification changes to Pell Grant award size demonstrated in the evidence from award years 2018-19 and 2019-20. FSA should instead focus on other applicants whose characteristics better align with groups more likely to have award changes.

The future of FAFSA verification has reached a critical point of inflection. The available evidence shows considerable costs balanced against benefits that measure in the hundreds of millions of dollars. Beyond those considerations lay postsecondary pathways for millions of students, which they could more easily access with the support of federal financial aid, especially Pell Grants.

Although the verification process does not change the Pell Grant amount for the vast majority of eligible FAFSA filers, some do see a change while others drop out of the process entirely. Policymakers and financial aid practitioners should continue to actively find ways to reduce obstacles that impede students’ ability to improve themselves through postsecondary pursuits.

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