New Fafsa Changes Will Bring Unintended Consequences for Colleges

The college-selection process has always seemed backward: Colleges encourage students to apply without regard to costs, and delay revealing the final net price (that is, expenses minus grant aid) until March of the senior year, or sometimes later. The process has resulted in confusion, broken hearts, and many college searches that end with unpleasant surprises.

Until now, the federal student-aid process has always served as a convenient excuse for doing things that way.

But this week, President Obama took executive action allowing students and their parents to use prior-prior year income information when completing the Free Application for Federal Student Aid, commonly known as the Fafsa. This new policy is likely to shift the behavior of both applicants and colleges, shaking up admission practices that have changed little in the last half-century.

Starting for the fall 2017 admissions cycle, students applying for financial aid can complete the Fafsa as early as October 1, 2016, using 2015 federal tax data rather than waiting until early January 2017 to complete the Fafsa using 2016 tax information.

In short, a great deal of the current uncertainty about selecting a college may vanish overnight.

Consider that parents may now have access to “EFC” (the calculation of their Expected Family Contribution, the most mysterious element in the financial-aid “black box”) as early as mid-October of a student’s senior year of high school. Admissions officers may no longer encourage everyone to apply while leaving the discussions about net price until the end by heaving those difficult conversations onto the financial-aid office. It’s likely that parents will expect financial aid to be at the front of the process, side by side with admissions, answering questions about academic fit and affordability at the same time.

There will probably be changes farther back upstream as well, as students begin to think about which colleges to apply to. It’s fairly clear that some students are now applying to more colleges than they might otherwise, hedging their bets in order to get the best price somewhere. But many students could abandon that safari mentality and instead zero in on the handful of colleges in which they’re genuinely interested, and — most important — that they are now more certain they can afford.

The result could be that most colleges, many of which count success as ever-increasing application numbers, will have to deal with a shrinking applicant pool for the first time in a long time. For the most-selective institutions, discerning “demonstrated interest” — or which students truly want to attend — will also be harder, since more applicants will be choosing colleges they are genuinely interested in. Even the process of projecting how many students to admit, a critical component for institutions that pride themselves on very low admission rates, will be difficult, because predicting yield — the percentage of students admitted who enroll, a number that has recently been falling rapidly — also will become more complex. In addition, colleges are likely to no longer get much information about what other institutions students applied to, thanks to other proposed changes in the Fafsa.

Whether this is good or bad for all parties involved is yet unclear. High net prices may be easier to reject early in the process, before students have too much opportunity to fall in love with their dream school, and that could be troublesome for private universities. On the other hand, better information about aid could make students more likely to approach colleges that seem out of reach based on sticker price, and some may be pleasantly surprised that a college is more affordable than it seems.

Ultimately, the changes give forward-thinking colleges the opportunity to begin delivering packages, or perhaps very solid estimates (far better than the current Net Price Calculators can deliver), to students even before deadlines have approached. It’s hard to argue that this won’t be good for most students.

At the same time, however, a sensitive subject — the admissions office’s consideration of ability to pay — may take a more prominent role, thereby having the exact opposite effect on low-income students as the policy intended. What’s more, colleges may come to dread this day if parents and students simply see the changes as an expansion of the bargaining season, one in which they get more ammunition early as they try to extract a better price from colleges at a time of rising tuition and decreasing college-participation rates that are affecting enrollment nationwide.

As good as this new approach is, it fails to fix the fundamental problem with aid, namely the formula that calculates eligibility for aid, and the one that leads to silly, bifurcated definitions of “need based” and “merit based” aid. Despite those remaining flaws, it’s a good and important step in the right direction.

Those who have been clamoring for disruption in higher education may not be aware that it has just arrived. And no one who recognizes that it has is able to tell with any precision how it will all play out. Regardless, it seems time to make an effort — even a small one — to help parents and students consider and select college in a more rational way.