There’s a Much Better Way to Apply for Student Aid*

FAFSA’s troubled roll-out raises questions about both the form and process.

The new version of the Free Application for Federal Student Aid (FAFSA) took more than three years to prepare. Yet, the rollout has been plagued by major problems. Normally the FAFSA is available October 1. This year, the Education Department (ED) didn’t fully implement the new FAFSA until later in mid-January, throwing the process for applying for student aid into chaos.

Sure, this streamlined FAFSA eliminated 62 of 108 former questions, which is helpful. But when the new and improved FAFSA was finally released, we soon found out it neglects inflation and this miscalculates the expected family contribution. No word yet on when that will get fixed.

The rocky rollout begs for a better way to have students and their parents apply for student aid. It’s proving counter-productive to continuously tweak a system that is fundamentally flawed.

A better student aid application process would start by letting parents and financially independent students apply for aid simply by giving the IRS permission to share their income tax submissions with ED’s Office of Federal Student Aid (FSA). Under the new law, FAFSA applicants must already give such permission, but that only allows them to automatically pre-populate several fields. They are still obliged to complete the full complex form.

FSA could then use the income-tax information to estimate the relative ability of families to contribute to college costs. Students from families who do not file federal income taxes and are eligible to receive federal public support such as welfare, Medicaid, or SNAP would be automatically eligible for the maximum Pell Grants (currently, undergraduates are eligible to receive $7,400 per year in Pell grants) as well as tens of thousands of student loans. (We argue separately that Pell should be disentangled from tuition and used instead for monthly living expenses while enrolled in school.)

A new system could use the tax information to determine families’ relative ability to pay for college while ensuring that students with the least family resources college would be eligible for the greatest amounts of federal aid. Currently, FSA goes through the pretense of calculating a precise dollar amount for the expected contribution. FSA could instead place applicants into tiers based on their relative ability to pay, perhaps with levels broken into $200 segments. Two similarly situated students would each be expected to pay, say, $400, rather than $442 and $387 respectively.

IRS filings also provide sufficient information for more affluent families. Concerns that wealthy families would be able to hide assets and other resources that should be used for tuition are misplaced. The reality is that income tax filings provide ample information to assess parents’ relative ability to pay. The information gained from collecting asset information can be replaced by taking into account passive income, capital gains and business losses from tax returns.

Lessons from History: Applying for and Calculating Student Aid

The question of how much families should be expected to contribute to their children’s college education stretches back at least to the 1972 legislation that created Basic Grants, now known as Pell Grants. That legislation specified that parents and financially independent students would be required to provide financial and other family information to apply for federal aid. It also required the federal government to determine a precise dollar amount for how much applicants could be expected to contribute to their college expenses. In response, the Office of Education promulgated regulations setting up an application process. And families typically charged modest fees when they submitted federally-approved forms to apply for aid.

Two decades later, in 1992, Congress created the FAFSA, requiring all applicants for federal student aid to use it while making it free. Since then, the FAFSA has been periodically tweaked in hopes of making it more streamlined and effective. In 2010, applicants were first able to retrieve IRS data to help complete their FAFSAs. In 2018, the online FAFSA replaced the paper version.

In December 2020, Congress passed the FAFSA Simplification Act as part of broader bill appropriating a wave of COVID relief. The FAFSA provisions meant to expand access to federal aid by simplifying the form and revising the calculation for the expected family contribution. In particular, it was supposed to make the aid application process less challenging and intimidating for students from families with modest resources.

The Biden administration estimates that more than one million additional low-income students will benefit from Pell grants thanks to the new, streamlined FAFSA. But the reality is that most of the increased number of recipients will be a function of the altered eligibility calculations, not the altered FAFSA form.

A Different Approach is Needed

Congress should learn from the thirty year history of FAFSA, especially this latest episode. Tweaking the flawed FAFSA-based process is too complicated and will always struggle to become efficient, equitable, and error free.

A better approach would consist of three steps. First, to ease the administrative burden imposed by FAFSA, parent and financially-independent students would apply for federal student aid simply by giving the IRS permission to share their filings with ED. Second, students from families who don’t pay income taxes but receive various forms of public support would be judged eligible for maximum financial aid. Finally, in a step that would make the process more understandable for families and institutions, ED would use the IRS information to determine the relative ability of families and students to contribute to their college expenses, break them into tiers, and then provide the most aid to the neediest students.

Not only would this process be easier on students and families, but it would also be helpful to postsecondary institutions. The current system requires institutions to audit the information provided by parents of their students, which is both burdensome and very awkward. Since the public benefit and tax information has already been verified by the government, there is no reason for the institution to duplicate it. Similarly, applicants would no longer be subject to penalties for providing incorrect information in applying for aid, likely increasing college access.

No group has been harmed more than low-income students by the FAFSA’s complexity and FSA’s delays and inept management of it. While the FAFSA is used to determine aid eligibility for all students, it is especially critical for determining which students qualify for Pell grants.

The pain for low-income families will not end even if FSA is ever able to implement the FAFSA with fidelity. Regrettably, program experience indicates that Pell eligible students will continue to be least likely to complete the FAFSA. These students in particular should no longer be subjected to the unnecessary process. It’s time for Congress to truly simplify and streamline the federal student aid application process.

• A version of this article coauthored by Jim Blew and me appeared in Inside Higher Ed on 12 February 2024.