Let me start by saying that this post has nothing to do with the 2009-10 FAFSA changes I outlined in my last two posts. This is something that is being considered by a study group made up of higher education professionals and experts.
If you've ever filled out the Free Application for Federal Student Aid (FAFSA), you know what a pain it is! I hear families say they'd rather have surgery than fill out the paperwork. There is a driving motivation to simplify the whole financial aid process, and the idea is gaining popularity with legislators and financial aid administrators. However, there are still many questions yet to be answered. I have my own reservations.
Why the change, you ask? The major premise is to provide more access to low-income students. The main objective is to funnel more Pell Grant eligibility to low-income students rather than expand eligibility to middle-income families. In addition, the changes would provide for tax incentives and federal savings accounts to low-income families planning for college.
So what's the change? To put it simply, the FAFSA would be extinct. The proposal is that families will apply for financial aid by filing a federal tax return. Only the Adjusted Gross Income and household size would be used to determine eligibility. There would no longer be the Expected Family Contribution that schools use to determine eligibility. And families can use the IRS fiancial aid results as a planning tool for their students as they progress through K-12 grades.
Drawbacks? Of course. Will IRS take on this task? The IRS will provide an index to states in awarding state funds, but the concern is how all 50 states will use this index and if there will be any type of conformity. There is still some support of eliminating tax credits and funneling those savings directly to increasing the Pell Grant program.
My thoughts:
- Tax credits are okay, but they don't help that first-year student who is struggling to pay for college since the credit doesn't apply until the end of the tax year.
- How many families will actually use a tax refund (via credits) to apply toward next year's college expenses?
- If only the IRS information is used, how does that apply to families who cannot claim all of their children? For example, it's very common in divorced cases to split children as a tax credit even though they may be living under one parent's roof. This would give a false household size and most likely hurt a family's outcome for financial aid.
- Adjusted Gross Income on a tax return is subjective, especially for business owners. A family could have a huge business/net worth asset in which to tap for college expenses, but show a negative income on the tax return due to business write-offs.
- What if the family doesn't file a tax return? What if they have to file an extension beyond the April 15 IRS deadline? Does that mean no aid?
While I'm all for simplifying the financial aid process, I am one of those who would rather see a simplified version of the FAFSA rather than using a tax return to decide my child's financial aid eligibility. Undoubtedly, there will be a lot more discussion and rationalizing before this proposal ever takes a strong foothold.