Student-aid programs that require a complicated application process or that involve multiple programs with different eligibility criteria, different eligible expenses, and unpredictable award levels are less effective than those that are transparent, predictable, and easy to access. Despite strong evidence that simple programs are more likely to increase college enrollment and success, there is considerable resistance to simplification. Understandably people worry that collecting less information on which to base the allocation of grant aid will make it more difficult to distribute the funds to those who need them most.
A new College Board report should help ease the concerns.
There is a tradeoff between targeting and simplicity. If we don’t know that one family has hundreds of thousands of dollars in the bank, while another family with the same annual income has no assets, we won’t know to be more generous to the latter family. But collecting information on all assets requires asking many questions, most with responses that are impossible to verify. Over time, the federal government has eliminated questions about some assets from the Federal Methodology, the formula it uses to allocate financial aid. No one has to report the major locus of wealth for many families — the equity in their homes. Most families with incomes below $50,000 don’t have to report assets at all. Retirement assets are notoriously difficult to measure and have never been included. We are left with a formula that asks a lot of questions, but targets only an arbitrary subset of assets.
The federal government, recognizing the importance of simplifying the system, has recently removed some questions from the Free Application for Federal Student Aid (Fafsa) and implemented skip logic that allows applicants filling out the form online to avoid seeing questions not relevant to them. Of particular importance, it is now possible for filers to import data from their federal tax forms to the Fafsa, removing the need for them — and for the institutions attempting to verify their information — to coordinate the data. Congress recently came close to passing legislation that would have removed from the Fafsa all financial questions not available from tax forms.
Many state officials worry that if the Fafsa collects less information, they will not be able to appropriately allocate their state grant funds. But the new evidence indicates that simplification would not significantly change eligibility for either federal or state grant aid. The report, produced with funding from Lumina Foundation for Education and the College Board, offers a detailed analysis of the impact on state grant aid in five states of removing assets from the need-analysis formula, as well as of relying on only a few data elements available from the IRS.
The study’s authors, Sandy Baum, Kathie Little, Jennifer Ma, and Anne Sturtevant, collected detailed financial-aid application data from Kentucky, Minnesota, Ohio, Texas and Vermont and, with the assistance of researchers from the University of Michigan, simulated the changes in expected family contributions (EFC’s), Pell grants, and state grants from simplifying the formula. They found that no more than 2 percent of applicants would become newly eligible for aid in any of these states, and that increases in grant amounts for which students would be eligible were very small. These formula changes would have the largest impact on the EFC’s of students from families with incomes too high to qualify for either federal or state grant aid.
The authors provide examples of small changes to the formula that could make the changes revenue neutral while maintaining simplicity. They also recommend that more IRS data be used to determine eligibility for institutional grant aid and for state grants awarded farther up the income scale.
The findings of this study should quiet the concerns of policy makers worried about the trade-off between simplicity and equity. Maintaining a complicated application process for federal and state grant aid discourages students and adds to the cost of administering aid programs. It does not significantly affect decisions about how grant aid should be allocated among low-income students.
