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The FAFSA effectively serves as the gateway to higher education for millions of students each academic year. However, the complex and extensive nature of the FAFSA has resulted in significant underutilization of federal aid. In fact, just 61% of high school seniors complete the application by the time they graduate, leaving $24 billion in federal aid unclaimed. Moreover, a significant portion of students initially file an application, but fail to enroll in a higher education institution.
As illustrated in the below figure, only 31% of low-income students enroll in higher education with the assistance of a Pell Grant, suggesting that this issue disproportionately affects low-income students. NCAN's research demonstrates that this is indeed the case. Thus, the evidence is clear: Federal policymakers must simplify the FAFSA as a means to expand access to higher education.
Progress to Date: Prior-Prior Year and FUTURE Act
For the 2017-18 FAFSA cycle, the FAFSA became available on Oct. 1, instead of Jan. 1, and employed prior-prior year tax data to allow filers to use their already completed tax forms. This change reversed a four-year decline in FAFSA filing. During the 2017-18 FAFSA cycle, FAFSAs filed by all applicants through June 30 were up 6% over the last year. For high school seniors – the primary target of the new policy to open the FAFSA three months earlier, in October instead of January – the number of FAFSAs filed increased 9%. This improvement brought the FAFSA completion rate for the high school class of 2017 to 61%, up five percentage points from the 56% logged by the class of 2016.
The FUTURE Act, passed in December 2019, will remove 22 questions from the FAFSA form by allowing the IRS to directly transfer data to the FAFSA form. This is different from the current IRS Data Retrieval Tool (DRT) because nearly all FAFSA filers will be eligible to have their data transferred. These changes are currently scheduled to take place for the 2023-24 FAFSA, which will be available on Oct. 1, 2022.
There are three key steps left to simplifying the FAFSA: 1) removing unnecessary questions, 2) simplifying the eligibility requirements for the Pell Grant, and 3) improving the verification process.
Streamlined FAFSA: A Path to Greater College Access
NCAN’s simplified FAFSA model, the Streamlined FAFSA, is NCAN's original proposal to simplify the FAFSA and focuses on removing unnecessary questions. This approach
to FAFSA simplification has been proven to improve filing outcomes. This tested model minimizes burden for students, meets the needs of institutions, eliminates excess, and maintains universality. The FUTURE Act discussed above achieves the recommended
improvements to the IRS Data Retrieval Tool. Most importantly, including the user experience in the simplification approach along with fewer questions. Through user testing, this model has been proven to:
Senate Hearing: "Time to Finish Fixing the FAFSA" (September 2020)
NCAN Executive Director Kim Cook testified before the U.S. Senate Health, Education, Labor and Pensions (HELP) Committee in a hearing focused on FAFSA simplification. Her testimony acknowledged the major improvements that Congress and the Department of Education have made to the FAFSA filing experience over the last seven years, and it also laid out NCAN's three key recommendations for further FAFSA simplification: eliminating unnecessary questions, simplifying the Pell Grant eligibility formula, and improving the verification process.
Simplifying Pell Eligibility Requirements
Students from low-income backgrounds deserve financial and emotional relief when preparing for college. As part of FAFSA simplification, NCAN recommends transitioning the Pell eligibility formula to be based on the percentage of poverty level for their family size. This transition will allow for a simpler FAFSA filing process, as well as lay the groundwork for future investment in the Pell Grant program. Further, as outlined in the Streamlined FAFSA report, families receiving means-tested benefits should receive an Expected Family Contribution of $0, resulting in a maximum Pell grant.
Read more here about NCAN's proposal for the Pell Grant program.
The combination of these proposals will allow more students to access the aid for which they are qualified and send a message for early awareness letting students know they are eligible years in advance of filing the FAFSA.
Verification: A Key to Streamlining the FAFSA Process
Each year, after completing the FAFSA, millions of students are flagged for an audit-like process known as verification, in which they must submit additional documents to prove the accuracy of the information included in their financial aid application. This process aims to reduce improper payments made by the federal government.
But verification unintentionally and quietly wreaks havoc on financial aid applicants, particularly low-income students. While the federal government flags about 30% of all aid applicants for verification, it selects roughly half of all low-income applicants. And low-income students are frequently stymied by the verification process. Some obstacles include obtaining and completing different forms if they are applying to multiple schools, long waits for mailed IRS documents, and painful visits to records offices for death certificates. These barriers lead to "verification melt," or a failure to complete the verification process that derails a student’s receipt of a Pell Grant and other financial aid.
Only 56% of Pell-eligible students selected for verification are able to actually complete this review process and go on to receive a Pell Grant. In comparison, among Pell-eligible students not selected for verification, 81% ultimately receive a Pell Grant. This represents a 25 percentage-point melt.
To learn more about verification, check out "FAFSA Verification: Good Government or Red Tape?" which outlines what verification is, who is selected for verification, and the consequences selected students may face. It also offers a number of policy recommendations to lessen the negative effects of FAFSA verification and help more students access financial aid.
The Department of Education can take steps to drastically reduce the burden FAFSA verification places on students by, for instance, allowing students to submit a tax return instead of a tax transcript to verify income data, eliminating the need for non-tax-filers to provide proof of their non-filing status, and publishing an annual report about verification to increase transparency around the process.
Congress could implement the Streamlined FAFSA discussed above, allowing for a more seamless process less in need of verification than the current FAFSA, or Congress could change the Internal Revenue Code to allow for direct information sharing between the Departments of Treasury and Education.