The Free Application for Federal Student Aid (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 the significant underutilization of federal aid.

In fact, just 58% of high school seniors complete the application by the time they graduate, leaving $24 billion in federal and state aid unclaimed.

Additionally, a significant portion of students apply for aid but do not enroll in a higher education institution. Only 38% of students from low-income backgrounds enroll in higher education with the assistance of a Pell Grant, suggesting that this issue disproportionately affects students with fewer financial resources. NCAN's research demonstrates this is indeed the case.

For more information on the importance of FAFSA completion, please see "Why Invest in Increasing FAFSA Completion?"

Congress passed the crucial FAFSA Simplification Act to improve the process of applying for federal student aid. Part of the Consolidated Appropriations Act of 2020, the FAFSA Simplification Act achieves two of NCAN’s primary goals for FAFSA simplification. The law will:

1. Significantly reduce the number of questions on the FAFSA form (from 108 to a maximum of 36, according to congressional talking points).
2. Uses a new measure for Pell Grant eligibility that will allow younger high school students to learn whether they will qualify for need-based financial aid. This early awareness can help make college seem like a more feasible option for students.

These changes will also result in an expansion of Pell Grant eligibility, increasing the number of students qualifying for the maximum Pell Grant and restoring eligibility to students with drug convictions and individuals who are incarcerated.

A summary of the changes contained in the FAFSA Simplification Act is below, with a full description available here.

Simplifying the FAFSA

The Office of Federal Student Aid (FSA) will:

• Replace the Expected Family Contribution with a new “Student Aid Index” in determining the exact size of a student’s Pell award.
• Reduce the overall number of questions on the FAFSA form by removing unnecessary questions and automatically transferring IRS data for a wider swath of financial aid applicants.
• Expand the group of students who are exempt from reporting their (or their family's) assets.

Improving Early Awareness

• FSA will be required to develop consumer-tested tools to promote Pell eligibility.
• New maximum and minimum Pell-eligibility thresholds will make determining Pell eligibility more straightforward.

Expanding Pell Eligibility

The FAFSA Simplification Act:

• Creates maximum and minimum Pell-eligibility thresholds based on a family's adjusted gross income (AGI), family size, and the federal poverty level.
• Restores Pell Grant eligibility for students with drug convictions and students who did not register with the selective service.

Implementation Date: In March 2022, Congress approved legislation that postpones implementation of the major aspects of the legislation until 2024-2025, which takes effect with the October 1, 2023 FAFSA release.

Progress Building to the FAFSA Simplification Act

The FAFSA Simplification Act is the culmination of many steps forward in improving the process to access financial aid.

FUTURE Act

The FUTURE Act, passed in December 2019, will remove 22 questions from the FAFSA 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 scheduled to take place for the 2023-24 FAFSA, which will be available on Oct. 1, 2022.

The FAFSA Simplification Act passed in December 2020 was written to be implemented in tandem with the FUTURE Act.

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 students from low-income backgrounds. The federal government has historically flagged over 30% of students for verification, but in recent years it has made steps to lower this number. For the academic year 2020-21, only 22% of students were flagged. Federal Student Aid set a goal of selecting 18% of students for academic year 2021-22. These decreases are a step in the right direction.

But we must provide relief specifically for students from low-income backgrounds, half of whom have historically been selected for the verification process. Students from low-income backgrounds are frequently stymied by the verification process. Some obstacles include obtaining and completing different forms if students 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 student's inability to complete the verification process that derails their receipt of a Pell Grant and other financial aid.

Further, NCAN analysis of data from Federal Student Aid over academic years 2018-19 and 2019-20 shows that:

• Slightly more than 70% of students who completed verification 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 Expected Family Contribution, 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.

Reducing the Burden of Proof: FAFSA Verification and Improving Access to Federal Financial Aid
NCAN and the National Association of Student Financial Aid Administrators (NASFAA) surveyed financial aid administrators and college access and success advisers on the impact of verification on their students and their work within the landscape of verification relief and scrutiny. The resulting paper offers recommendations to decrease the burden verification places on students and financial aid administrators alike. Please see here for an on-demand webinar of the research (recorded on Nov. 8, 2021): The Burden of Proof: Impact of and Solutions for FAFSA Verification. View the webinar slides here.

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.

Proposed Solutions for Verification

The Department of Education (ED) can take steps to drastically reduce the burden FAFSA verification places on students. NCAN's recommendations include:

1. Allow 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, a change that should be made permanent.
2. Publish an annual report about verification to increase transparency around the process.
3. Better leverage existing federal data. This can be achieved through the implementation of the FUTURE Act and FAFSA Simplification Act, which allow direct IRS-to-ED sharing of data for all FAFSA filers, including using the transfer to confirm non-filer status in lieu of requiring a non-filing statement. Given the current implementation timeline, ED should also adjust the IRS Data Retrieval Tool to verify nontax-filing status for the 2023-24 award year.
4. Modify the verification selection algorithms to target FAFSA filers with likely EFC changes. Exclude filers who either transfer information directly from the IRS, or successfully completed verification in the previous year with no significant change to their EFC, remains continuously enrolled, and their EFC in the subsequent year does not change significantly. Additionally, building on evidence that students who qualify for an automatic zero EFC are unlikely to have a change in their Pell Grant award size, these students should no longer be selected for financial verification.

The implementation of automatic data transfer from the FUTURE Act and the reduced number of questions on the new simplified FAFSA should improve the verification process for students. NCAN will continue to closely monitor verification until, and throughout, the implementation of these two significant FAFSA changes.