Growing recognition of inequality as a national problem is calling more attention to higher education as a potential equalizer. Yet, there are large gaps in postsecondary access and success rates across students from different socioeconomic backgrounds. High-achieving, low-income students lag behind their more affluent peers. Though costs can be a factor, often students don’t even know how much they will have to pay because they are intimidated by the complexity of the federal student aid application process.
The Free Application for Federal Student Aid (FAFSA) has grown more and more complex as officials have sought ways to ensure they are providing aid to those who need it, but only to those who need it. The FAFSA calculates an expected family contribution (EFC), or how much families are expected to pay. Pell grants are then calculated as the difference between maximum Pell and the EFC. Though the $5,775 Pell grant is enough to pay the cost of attendance at many community colleges, many students—especially low-income students—fail to apply.
In a report and a policy brief out today, we examine eight different proposals for simplifying the FAFSA and application for Pell grants, allowing comparisons that will help observers and policy makers make better choices about how to move forward. The proposals, which come from policy analysts and advocates, highlight the trade-off between vastly simplifying the process of awarding Pell grants so more potential students will apply, and ensuring federal dollars go to the students who need aid most. Most of the proposals would increase aid to low-income students, sometimes through increased expenditures, but also through redistribution of existing dollars.
Five of the proposals vastly simplify the determination of eligibility for Pell grants, replacing the current form, which involves more than 100 questions, with a system based on two or three pieces of information. These simplified proposals would allow students to calculate how large a Pell grant they are eligible for well before applying for college by providing information on income and family composition. A college scholarship program in Kalamazoo, Michigan demonstrates the benefits of predictable aid: knowing that college would be free led to more low-income students preparing for and attending college. Our interactive allows users to enter income and family composition and see how much federal grant aid would be awarded under each of these five proposals.
We also review three proposals that would base Pell grants on a formula, similar to the current system. These proposals would simplify the process for calculating EFC using information already provided through the income tax system. Recent changes passed by the administration to use income tax information from two years earlier already means that more applicants can access data directly from the IRS, however there are still many questions that need to be answered for the FAFSA. These more complex formulas would provide a basis for determining both Pell and other types of financial aid, including federal loans and awards from states and institutions. The drawback, however, is that even with far fewer questions than the current FAFSA, the complexity and lack of transparency could still keep students from applying.
Given the advantages of both approaches, we think the best approach would be assigning Pell grants using a simple two- or three-factor model and then using a longer, optional FAFSA for awarding of other aid. This system would let applicants know their calculated Pell grant amounts first, and then ask if they filed taxes and if their tax return information can be accessed. This may make students more likely to continue the process. Families that are not required to file taxes could automatically be given an EFC of zero and would be done with the process after just a handful of questions.
The specifics of such a system, including the maximum Pell grant and how quickly Pell amounts decline with income, would be set by federal policy. Decoupling Pell awards from the EFC would prevent changes in Pell policy from directly affecting eligibility for other forms of aid. At the same time, states and institutions would have the information they need to award a total aid package. Indeed, independent systems would be a return to the way things were in the past. Before 1992 the Pell grant formula and the Congressional Methodology—the precursor to the FAFSA—were separate.
While encouraging more students to participate will raise the cost of the Pell grant program, proposal details can be adjusted to meet desired cost targets. The actual simplification plan adopted undoubtedly would differ from the ones we modeled here, but understanding the costs and trade-offs of different changes will make simplification easier. And having policy makers wrestle with these tradeoffs and continue on the simplification path can lead to a smoother process and, ultimately, more applications from low-income students.
In this testimony before the House Education and the Workforce Committee, Sandy Baum states that federal student aid has made college a reality for millions of students, but the programs can be improved for both students and taxpayers.