There’s a Better Way to Apply for Student Aid

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

Sure, this streamlined FAFSA cuts the maximum number of questions students have to answer from 108 to 46, which is helpful. But when the new and improved FAFSA was finally released, we soon found out it neglects inflation and miscalculates students’ aid eligibility. Colleges have been told not to expect information on students’ federal aid information until March at the earliest.

The rocky rollout begs for a better way to have students and their parents apply for aid. An improved process would start by letting parents and financially independent students apply for aid simply by giving the Internal Revenue Service permission to share their income tax submissions with the Education Department’s Office of Federal Student Aid (FSA). FAFSA applicants already give such permission, but that only allows them to automatically prepopulate some FAFSA 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 Medicaid or food stamps would be automatically eligible for the maximum Pell Grant (currently about $7,400 per year), as well as tens of thousands of dollars in federal grants and loans. (We argue separately that Pell should be disentangled from tuition and used instead for monthly living expenses while enrolled in college.)

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 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 on the FAFSA can be replaced by taking into account passive income, capital gains and business losses from tax returns.

Since Congress first created the FAFSA, in 1992, the form has been periodically tweaked in hopes of making it more streamlined and effective, efforts that culminated with Congress passing the FAFSA Simplification Act in December 2020 as part of a broader appropriations bill. The FAFSA provisions meant to expand access to federal aid by simplifying the form and revising the calculation for the expected family contribution (now renamed the Student Aid Index). In particular, the law 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 the maximum Pell Grant thanks to the new, streamlined FAFSA. But the reality is that most of the increased number of Pell recipients will be a function of the altered eligibility calculations, not the updated FAFSA form.

Congress should learn from FAFSA’s flawed 30-plus-year history: replacing the FAFSA with a process driven by the IRS and federal benefit filings would not only 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. But since the public benefit and tax information has already been verified by the government, there is no reason for the institution to duplicate that work. 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. Regrettably, program experience indicates that low-income students will continue to be least likely to complete the FAFSA, leaving the Pell Grants they would be eligible for unclaimed.

The pain for low-income families will not end even if FSA is ever able to implement the FAFSA with fidelity. These families in particular should no longer be subjected to an unnecessary process. It’s time for Congress to truly simplify and streamline the federal student aid application process.