Higher education administrators say a change in the federal student aid formula could mean lower levels of financial aid for children whose parents run family farms or small businesses, and they want Congress to take action.
Currently, a family with an adjusted gross income of $60,000 and a farm worth $1 million would be expected to contribute $7,626 annually for college. But under the new federal financial aid formula that will launch later this year, that same family would be expected to contribute $41,056, the Iowa Student Aid Commission found in a recent report.
“It makes people look richer than they actually are,” said Mark Wiederspan, executive director of the commission.
Currently, the net worth of farms or businesses with fewer than 100 employees is exempt from the formula. However, the recent law that overhauled the federal student aid system known as the FAFSA Simplification Act removed that exemption. (Families that make less than $60,000 won’t have to answer questions about assets.) The changes from the act, which includes a simplified version of the Free Application for Federal Student Aid, will go into effect for the 2024–25 academic year. The new application is supposed to launch in the fourth quarter of this year, though some are skeptical the Education Department will meet that deadline.
Some experts are doubtful that Congress will make any changes before the new application rolls out, and the farm and small business exemption will likely be considered in future years.
Wiederspan and others are concerned that the change will add another barrier to completing the FAFSA by making the process more complicated for some families and requiring more guidance from the Education Department. He noted that farms and businesses are different from other assets that could be sold for cash to pay for college.
“The net worth includes everything,” he said. “It includes the combine, the grain silos and the land. That’s a physical investment, and it’s completely different from a liquid investment that you can quickly cash in.”
Wiederspan wants Congress to restore the exemption.
“If the intent of the FAFSA simplification was to get more people to be aid eligible, we can still achieve that without having to hurt farmers,” he said.
The U.S. Department of Agriculture considers a family farm to be any farm where most of the business is owned by the operator or family members. About 98 percent of the country’s farms fall under this category. Family operations that make less than $350,000 in gross income account for about 89 percent of all U.S. farms. A small business, for the purposes of the FAFSA, is one with fewer than 100 employees.
The Iowa Student Aid Commission found similar aid eligibility for families when the farm or business’s net worth is less than $250,000, but families are eligible for less aid than under the current system when the net worth exceeds $500,000.
“We anticipate that many family farms in Iowa with a net worth exceeding $500,000 are likely to be impacted, as research from Iowa State University found that the average net worth of farms in Iowa was approximately $1.9 million in 2021,” the commission’s report states.
Wiederspan added that the issue of whether to include the value of family farms in the financial aid calculation is not new.
“This has always been an issue in the past, and Congress rectified it, and it’s never been a problem,” he said. “But all of a sudden, now it is.”
Thomas L. Harnisch, vice president for government relations at the State Higher Education Executive Officers Association, said removing the exemption is a “step backward for students and families,” especially at a time of declining enrollment in rural areas.
“The vast majority of family farms and businesses are small, and this provision will introduce some new complexity into a process that was supposed to be simplified,” he said. “We were concerned that this could act as a barrier to students from a family-farm or small-business background to access higher education.”
Harnisch said the change could create financial and administrative challenges for family farms and small businesses.
“I’m from a small farming town in Wisconsin, and I can tell you that the vast majority of these farms are not mega-enterprises,” he said. “These are working-class students, and the assets that they have on those farms are not something that they can easily translate into money to finance their higher education.”
Congress is showing signs that it is listening to those calls. A bipartisan group of House lawmakers, led by Kansas representative Tracey Mann, a Republican, and California representative Jimmy Panetta, a Democrat, introduced a bill to bring back the exemption. The bill has been referred to the House Committee on Education and the Workforce. In the Senate, a bipartisan group sent a letter to Education Secretary Miguel Cardona seeking more information about the issue, particularly about the department’s plans to provide families with more guidance.
“These farm families, whose businesses are vital to our states’ communities and economies, need prompt and tailored guidance that considers their unique business model and will help families better understand how implementation of the FAFSA Simplification Act will affect their participation in federal financial aid programs,” Iowa senator Chuck Grassley wrote in the letter.
Senator Joni Ernst, the other Iowa Republican, and two Democrats—Colorado senator Michael Bennet and Wisconsin senator Tammy Baldwin—also signed on to the letter.
The Education Department has not responded to the senators’ letter and did not comment by press time.
Frank Ballmann, the director of federal relations for the National Association of State Student Grant and Aid Programs, said a key challenge with including the value is determining what the net worth of the farm or small business is. So far, the Education Department has not provided guidance on how a family could calculate the net worth of a family farm or business.
Appraising the value of a farm or business, he said, is “an art, not a science.”
“No one’s going to know what number to put in there,” he said.
Ballmann said the only way to address the issue is for Congress to act and change the law, though he doesn’t think a full repeal is likely. Instead, he suggested that Congress find different metrics, such as the gross income of a farm, as a cutoff for the exemption.
“What I find particularly heartening is that both the House bill and the Senate letter are bipartisan,” he said. “I think there’s a fair amount of interest on both sides of the aisle. It’s good to see the momentum building.”
Ballmann said the issue needs to be fixed before the new FAFSA launches, but he’s not sure if the bill could pass on its own or as part of some must-pass legislation such as the appropriations bills, which are typically on the docket in September.
“But we really can’t wait till September to fix this, because there’s supposed to be a new FAFSA coming out, whether you think it’s Oct. 1 or Jan. 1,” he said. “It’s going to kind of blow up that process if this gets fixed in September … Anything that makes it harder to fill out the FAFSA is just an incredibly bad unintended consequence.”
Karen McCarthy, vice president of public policy and federal relations for the National Association of Student Financial Aid Administrators, said it’s difficult to estimate the effect of removing the exemption.
“Because we weren’t asking the question before, we don’t really have any good way of estimating how many FAFSA filers do have a small business or a family farm that would now be required to report on the FAFSA,” she said.
McCarthy said NASFAA has heard from members in farming communities who are concerned about the change. In a recent survey of financial aid administrators, 39 percent said the provision would place a greater burden on financial aid offices, and 25 percent said more guidance was needed.
She said that she doesn’t know what the Education Department has planned for the question on the net value of a family farm or small business. More information is expected when the department unveils the draft FAFSA, which she said should be later this month.
McCarthy said that it’s getting late in the development of the new FAFSA to make significant changes.
“Our primary goal is to have a clean, smooth implementation,” she said.