Report to Congressional Committees

United States Government Accountability Office

GAO 

October 2009 FEDERAL STUDENT 

AID 

Highlights of a Study 

Group on Simplifying 

the Free Application 

for Federal Student 

Aid 

GAO-10-29 

This report was revised on December 3, 2009, to 

correct how some legal information is 

characterized. The text on pages 16 through 18, 

on both the Web and printed versions, has been 

revised to reflect a statutory provision that 

authorizes the Secretary of Education, as of July 

1, 2010, to use income data one year older than 

is currently used to determine student aid 

eligibility. 
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

October 2009

FEDERAL STUDENT AID

Highlights of a Study Group on Simplifying the Free 

Application for Federal Student Aid 

Highlights of GAO-10-29, a report to 

congressional committees 

Federal student aid is intended to 

play an integral part in fulfilling the 

promise of greater academic access 

and success for less affluent 

students. However, many experts 

have expressed concern about the 

length and complexity of the Free 

Application for Federal Student Aid 

(FAFSA) and the statutory need 

analysis formula used to determine 

aid eligibility. The Higher 

Education Opportunity Act 

required GAO to form a study 

group to examine options and 

implications in simplifying the 

financial aid process. The study 

group focused on (1) identifying 

ways to shorten the FAFSA and 

make it less burdensome to 

complete, (2) identifying changes 

to the statutory need analysis 

formula that would reduce the 

amount of financial information 

required by the FAFSA without 

causing significant redistribution of 

federal and state student aid, and 

(3) determining how any changes 

to the FAFSA and the statutory 

need analysis formula could be 

implemented. To address these 

questions we convened an expert 

panel on May 7, 2009, and 

conducted additional interviews 

with experts. This summary 

captures the ideas and themes that 

emerged at the panel and during 

interviews. It does not necessarily 

represent the views of GAO or of 

the organizations whose 

representatives participated in the 

study group. 

GAO makes no recommendations 

in this report. The Departments of 

Education, Treasury, and the 

Internal Revenue Service had no 

comments on the draft report. 

Study group participants said using federal income tax data that the 

government already collects and revising the form could shorten the 

application process, making it easier on students and their families. Many 

participants proposed that relevant federal income tax data be directly 

transferred to the appropriate answer fields on each applicant’s online 

FAFSA, an approach that the Department of Education (Education) plans to 

pilot for some applicants in January 2010. Such a change could decrease the 

amount and complexity of some of the financial questions on the application. 

In addition, many participants proposed changes to the design and contents of 

the form to clarify and streamline the application. Education has recently 

taken steps to shorten and reorganize the online form and has plans for 

further improvements. 

Participants said changing the federal formula to reduce required financial 

information would ease applicants’ burden, but such a shift would likely result 

in some change in the distribution of aid. Many study group participants 

supported changing the need analysis formula to rely solely on a family’s 

income and number of tax exemptions to determine aid eligibility. These 

changes would greatly reduce the number of complicated financial questions 

on the FAFSA. However, reducing the amount of financial information 

collected could change the distribution of federal, state, and institutional aid, 

prompting some concern about this approach. Education’s recent legislative 

proposal to limit the formula to financial information available through tax 

forms would eliminate 26 financial questions, including those on assets. 

Participants said technology and public outreach efforts could improve the 

federal student aid application process, but successful implementation of 

changes hinges on the ability of federal and state agencies to address several 

challenges. While it is feasible to electronically transfer tax data directly from 

the Internal Revenue Service (IRS) to the FAFSA by using income data one 

year older than what is currently required, participants expressed some 

concern about the potential implications of such a change. Specifically, using 

older tax data might result in increased aid eligibility for some applicants 

whose data may not reflect their current economic needs. In addition, it may 

be more difficult for applicants who do not file taxes to provide sufficient 

documentation of their income from two years earlier. Education and the IRS 

have begun developing a plan to allow some applicants to electronically 

access their tax data when they apply for aid online. However, because 

taxpayers can submit their data as late as April 15, these data will not be 

available in time to accommodate most aid applicants. Many participants also 

called for linking state aid Web sites to the online federal application to 

mitigate the potential effects of federal formula changes on state aid. 

Education plans to offer this option to states in January 2010. In addition, 

participants said that efforts to simplify the application process should be 

accompanied by a public outreach strategy aimed at increasing knowledge of 

the availability of federal student aid. Education plans to undertake a public 

outreach campaign beginning in fall 2009.

View GAO-10-29 or key components.

For more information, contact George Scott at 

(202) 512-7215 or scottg@gao.gov. 
Page i GAO-10-29 Federal Student Aid 

Letter 1

Background 3 

Participants Said Using Federal Income Tax Data and Revising the 

FAFSA Could Reduce Applicants’ Burden 9 

Participants Said Reducing the Financial Information Required by 

the Need Analysis Formula Could Ease Applicants’ Burden, but 

Some Aid Redistribution Is Likely 13 

Participants Said Technology and Public Outreach Are Central to 

Implementing Changes, but Several Challenges Must Be 

Addressed 16 

Concluding Observations 20 

Agency Comments 21 

Appendix I Expert Panel Agenda 22 

Appendix II Expert Panel Participants 23 

Appendix III GAO Contact and Staff Acknowledgments 25

Figure 

Figure 1: Student Aid Application Process 6 

Contents 
Page ii GAO-10-29 Federal Student Aid 

Abbreviations 

AGI adjusted gross income 

COA cost of attendance 

EFC expected family contribution 

Education Department of Education 

FAFSA Free Application for Federal Student Aid 

HEA Higher Education Act of 1965 

IRS Internal Revenue Service 

This is a work of the U.S. government and is not subject to copyright protection in the 

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without further permission from GAO. However, because this work may contain 

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Page 1 GAO-10-29 Federal Student Aid 

October 29, 2009 

The Honorable Tom Harkin 

Chairman 

The Honorable Michael B. Enzi 

Ranking Member 

Committee on Health, Education, Labor, and Pensions 

United States Senate 

The Honorable George Miller 

Chairman 

The Honorable John P. Kline 

Ranking Member 

Committee on Education and Labor 

House of Representatives 

Federal student aid is intended to play an integral part in fulfilling the 

promise of greater academic access and success for less affluent students. 

In fiscal year 2008, the Department of Education (Education) delivered 

about $96 billion in federal student aid through grant, work-study, and loan 

assistance to almost 11 million postsecondary students and their families. 

Additionally, the College Board estimates that states and postsecondary 

institutions provided approximately $37 billion in grant aid to students in 

the 2007 to 2008 academic year.1

 Completion of the Free Application for 

Federal Student Aid (FAFSA) is the first step in securing federal financial 

assistance, such as need-based grants and loans, for postsecondary 

education. Federal aid is currently awarded based on a formula specified 

in the Higher Education Act (HEA), as amended, that takes into account 

such factors as income, assets, and tax expenses that students and their 

families report. Many state and postsecondary institutions rely on the 

information provided in the FAFSA and the federal statutory need analysis 

formula to calculate their own aid awards. However, many experts, both 

within and outside of government, have expressed concern about the 

length and complexity of the FAFSA and the formula used to determine 

aid eligibility, including the possibility that the application process itself 

may discourage some students from applying. Education estimates that 

nearly eight million college students never apply for federal aid, and 

further contends that most of these students would be eligible for some 

 

1

The College Board, Trends in Student Aid 2008 (2008). 

 

United States Government Accountability Office

Washington, DC 20548 
Page 2 GAO-10-29 Federal Student Aid 

type of assistance if they applied.2 In addition, another study estimates that 

of the students who did not apply for federal aid in the 2007 to 2008 

academic year, 2.3 million would have qualified for Pell Grants, which are 

targeted at low-income students.3

 Although the potential impact of FAFSA 

simplification on the number of applicants is unknown, many experts 

presume that it would increase the number of applicants for federal 

student aid. Despite a general consensus on the need to simplify and 

streamline the student aid application process, there are varying views on 

how best to achieve this aim. 

The Higher Education Opportunity Act4

 required GAO to form a study 

group to examine options and implications for simplifying the financial aid 

process. In convening this group, we focused on the following objectives: 

(1) identifying ways to shorten the FAFSA and make it less burdensome to 

complete, (2) identifying changes to the statutory need analysis formula 

that would reduce the amount of financial information required by the 

FAFSA without causing significant redistribution of federal and state 

student aid, and (3) determining how any changes to the FAFSA and the 

statutory need analysis formula could be implemented. 

To form a study group, we convened an expert panel and conducted 

interviews to examine options for simplifying the student aid application 

process. The panel, held on May 7, 2009, was composed of 20 experts from 

the Departments of Education and Treasury, the Internal Revenue Service 

(IRS), the Office of Management and Budget, the Congressional Budget 

Office, postsecondary institutions, state executive offices of higher 

education, and other experts, as required by the Higher Education 

Opportunity Act. We selected these participants to represent a range of 

views on the issues. See appendix I for the panel agenda and appendix II 

for a list of participants. To gain a better understanding of issues related to 

FAFSA simplification, we conducted interviews with officials from the 

Departments of Education and Treasury and the Congressional Budget 

Office. As part of the study group, we also interviewed representatives 

from four higher education professional associations, seven state aid 

agencies, and financial aid administrators from eight 2-year and 4-year 

 

2

Department of Education, Report to Congress on Efforts to Simplify the Free Application 

for Federal Student Aid (FAFSA) (Jan. 16, 2009). 

3

Kantrowitz, Mark, Student Aid Policy Analysis: Analysis of Why Some Students Do Not 

Apply for Financial Aid (Apr. 27, 2009). 

4

Pub. L. No. 110-315, § 483(f)(3). 
Page 3 GAO-10-29 Federal Student Aid 

postsecondary institutions, including public, private not-for-profit, and 

private for-profit institutions. In addition, we reviewed relevant federal 

laws and regulations. Following Education’s June 2009 announcement of 

its plan for simplifying the aid application process and conducting 

outreach, we provided study group participants—both those who attended 

our expert panel and several people we interviewed—with the opportunity 

to comment on the plan. 

This summary captures the ideas and themes that emerged at the panel 

and during interviews. This summary does not necessarily represent the 

views of GAO or of the organizations whose representatives participated 

in the study group. Panel participants reviewed a draft of this summary, 

and their comments were incorporated where appropriate. We conducted 

this engagement from November 2008 to October 2009 in accordance with 

all sections of GAO’s Quality Assurance Framework that are relevant to 

our objectives. The framework requires that we plan and perform the 

engagement to obtain sufficient and appropriate evidence to meet our 

stated objectives and to discuss any limitations in our work. We believe 

that the information and data obtained, and the analysis conducted, 

provide a reasonable basis for any findings and conclusions. 

The HEA, as amended, specifies a formula, known as the federal need 

analysis methodology, to determine students’ eligibility for federal needbased student aid. A student’s need for financial aid is calculated using a 

formula that subtracts a student’s expected family contribution (EFC) 

from the student’s cost of attendance (COA). The EFC represents the 

applicant’s household financial resources that are considered available to 

help pay for postsecondary education expenses and is calculated by 

reducing the financial resources reported by applicants by certain 

expenses and allowances, including state and other tax allowances. 

The factors used to calculate the EFC differ based on whether students are 

classified as financially dependent on their parents or are independent. 

For dependent students, the EFC is based on such factors as the student’s 

and parents’ income and assets, as well as family size and whether the 

family has other children enrolled in college. For independent students, 

the EFC is based on such factors as the student’s and, if married, spouse’s 

income and assets and whether the student has any dependents other than 

a spouse, as well as the number of family members enrolled in college. 

Background 

Federal Need Analysis 

Methodology 
Page 4 GAO-10-29 Federal Student Aid 

The COA at a postsecondary institution includes tuition, fees, books, and 

living expenses. If the COA is greater than the EFC, the difference between 

the two represents the student’s financial need. For example, if a 

postsecondary institution has a COA of $10,000 and a student has an EFC 

of $4,000, the student is eligible for up to $6,000 of federal need-based aid. 

If the EFC is greater than the COA, the student is not eligible for federal 

need-based aid but may qualify for aid that is not need-based. 

In the 2007 to 2008 academic year, more than 12 million prospective 

students applied for federal student aid. Education requires student aid 

applicants to complete the FAFSA to collect students’ data for the federal 

need analysis formula. Although the primary purpose of the FAFSA is to 

help Education distribute federal student aid, the form also accommodates 

the needs of state and institutional aid programs that rely on the FAFSA 

data for their own eligibility calculations. Prior to the creation of the 

FAFSA, separate application forms were required to apply for various 

types of federal, state, and institutional aid. As required by law, in 1992, 

Education streamlined the student aid application process by 

consolidating many of these forms into a unified FAFSA. Since then, 

Education has undertaken periodic efforts to modify the form’s design and 

instructions and reduce data elements required of applicants. In addition, 

several amendments to the HEA have also modified the FAFSA by adding, 

for example, some new questions to the application. 

The 2009 to 2010 FAFSA consists of more than 100 questions that collect 

information ranging from basic contact information to the current value of 

assets. While less than half of the questions ask for financial information, 

many of these questions require applicants and the parents of dependent 

applicants to search for information located on tax returns as well as 

bank, business, and investment records. 

While both online and paper versions of the FAFSA are available, 

Education recommends that applicants file online to take advantage of 

features that are not available on the paper form, such as skip-logic, which 

allows applicants to skip questions that do not pertain to them. For 

example, independent students are not asked for their parents’ financial 

information. The online FAFSA can also detect many errors prior to 

applicants’ submission and allow the applicant to make corrections. If 

such errors are made on the paper form, they may take weeks to resolve, 

delaying financial aid eligibility notification from Education. According to 

Education, 98 percent of FAFSA applications are submitted online. 

Education’s student aid application processing cycle covers an 18-month 

The Financial Aid 

Application Process 
Page 5 GAO-10-29 Federal Student Aid 

period. For example, applicants seeking federal aid for the 2009 to 2010 

award year can submit a FAFSA from January 1, 2009, through June 30, 

2010; however, most states and institutional aid programs have earlier 

FAFSA deadlines. 

After Education processes an applicant’s FAFSA, a report is sent to the 

applicant or made available online. This report includes the applicant’s 

EFC, the types of federal aid for which the applicant qualifies, and 

information about any errors—such as questions the applicant did not 

complete—that Education identified during FAFSA processing. Colleges 

send applicants award letters after admission, providing students with 

types and amounts of federal, state, and institutional aid, should the 

student decide to enroll (see fig. 1). 
Page 6 GAO-10-29 Federal Student Aid 

Figure 1: Student Aid Application Process 

Source: GAO analysis of Department of Education procedures.

3

3

Social Security number

Current bank

statements

Business and

investment

records

Federal Tax Return

(plus spouse’s if married

or parents’ if dependent)

Applicant answers more than 100 questions

on at least 29 pages of the FAFSA Web site. 

Data from

FAFSA site sent

to Education

State Aid Office

sends a state aid

eligibility report

State Financial

Aid Office

Colleges

send award

letters

Education

sends reports

with expected

family contribution

W-2 Forms and other income records

2

1

4

3

5

Driver’s license number (if licensed)

DRIVER’S LICENSE

Required Information

Colleges

selected by 

applicant on 

FAFSA

information supplied by some applicants

Education requires colleges to verify

http://www.fafsa.ed.gov
Page 7 GAO-10-29 Federal Student Aid 

Title IV of the HEA, as amended, authorizes the following federal aid 

programs. 

Grants. Generally, grants do not need to be repaid unless the recipient 

withdraws from school and owes a refund. They include the following 

types: 

• Pell Grant. Grants to low-income undergraduate and certain 

postbaccalaureate students who are enrolled in a degree or certificate 

program and have federally defined financial need. For the 2009 to 2010 

award year, the maximum award is $5,350. 

• Supplemental Educational Opportunity Grant. Grants to undergraduate 

students with federally defined financial need. Priority for this award is 

given to Pell Grant recipients. In general, an annual award may not be less 

than $200 and may not exceed $4,000. 

• Academic Competitiveness Grant. Grants to Pell-eligible students 

enrolled at least half-time in their first or second year of study who 

completed a rigorous secondary school program of study. First year 

students may receive up to $750, and second year students who have at 

least a 3.0 cumulative GPA at the end of the first year of study may receive 

up to $1,300. 

• National Science and Mathematics Access to Retain Talent (SMART) 

Grant. Grants up to $4,000 per year to Pell-eligible students in their third 

or fourth year of study (or fifth year of a 5-year program) majoring in 

certain subject areas with at least a 3.0 cumulative GPA. 

• Teacher Education Assistance for College and Higher Education 

(TEACH) Grant. Grants to undergraduate, postbaccalaureate, and 

graduate students who are taking or will be taking course work necessary 

to begin a career in teaching. TEACH provides up to $4,000 per year to 

recipients who agree to teach full-time in a designated teacher shortage 

area for 4 years, or the grant will be converted to a loan that must be 

repaid with interest. 

Work-study. Work-study is employment in on-campus or certain offcampus jobs for which students who have federally defined need earn at 

least the current federal minimum wage. The college or off-campus 

employer pays a portion of their wages, while the federal government pays 

the remainder. Work-study is awarded based on a student’s need minus 

other aid awarded. Colleges participating in the program administer the 

funds and make award decisions based on the student’s financial need. 

Federal Aid Provided 

under Title IV of the HEA 
Page 8 GAO-10-29 Federal Student Aid 

Loans. These are funds that are borrowed and must be repaid, with 

interest. 

• Perkins Loan. Low interest—5 percent—loans made through participating 

schools to undergraduate and graduate students. Interest does not accrue 

while the student is enrolled at least half-time in an eligible program. 

Priority is given to students who have exceptional federally defined need. 

Undergraduate students can borrow up to $5,500 annually, and graduate 

students can borrow up to $8,000 annually. 

• Stafford and Plus loans. Loans made by private lenders and guaranteed by 

the federal government (Federal Family Education Loan Program) or 

made directly by the federal government through a student’s school 

(Direct Loan Program). 

• Subsidized Stafford Loan. A loan made to students enrolled at least 

half-time in an eligible program of study and have federally defined 

financial need. The federal government pays the interest costs on the 

loan while the student is in school. The amount students can borrow is 

based on their year in school and whether they are classified as 

financially dependent on their parents or independent. 

• Unsubsidized Stafford Loan. A nonneed-based loan made to students 

enrolled at least half-time in an eligible program of study. Although the 

terms and conditions of the loan (i.e., interest rates, etc.) are the same 

as those for subsidized loans, students are responsible for paying all 

interest costs on the loan. 

• PLUS Loan. A nonneed-based loan made to credit-worthy parents of 

dependent undergraduate students enrolled at least-half-time in an 

eligible program of study, and credit-worthy graduate and professional 

degree students. Borrowers are responsible for paying all interest on 

the loan, and can borrow up to the cost of attendance minus any 

financial aid the student receives. 

Currently, dependent students may borrow combined subsidized and 

unsubsidized Stafford loans up to $5,500 in their first year of college, 

$6,500 in their second year, and $7,500 in their third year and beyond. 

Independent students can borrow combined subsidized and unsubsidized 

Stafford loans up to $9,500 in their first year, $10,500 in their second year, 

and $12,500 in their third year and beyond. There are aggregate limits for 

an entire undergraduate education of $31,000 for dependent students and 

$57,500 for independent students. Graduate and professional degree 
Page 9 GAO-10-29 Federal Student Aid 

students can borrow combined subsidized and unsubsidized Stafford loans 

up to $20,500 per year, and their aggregate limit for undergraduate and 

graduate education generally cannot exceed $138,500. 

Many study group participants said using federal income tax data the 

government already collects on annual income tax forms could shorten 

the application process, making it easier on students and their families. 

Specifically, these participants proposed that relevant federal income tax 

data be directly transferred to the appropriate answer fields on each 

applicant’s online FAFSA. With answers to as many as 20 FAFSA questions 

already collected on federal tax forms, such a change could decrease the 

quantity and complexity of the financial questions for the majority of 

applicants who complete the FAFSA with information from tax returns. 

Several participants said the FAFSA questions that take the longest to 

complete tend to be those that require applicants to search their tax forms 

for answers, such as questions on combined income and untaxed portions 

of retirement accounts. One participant noted that directly populating the 

FAFSA with tax data could particularly ease the burden on many firstgeneration college students and their parents, who may have less 

familiarity with the application process. Several participants also 

suggested that the use of federal income tax data could increase the 

number of applications completed, because fewer applicants would be 

discouraged by the number of questions they had to answer. One 

participant referred to her research showing that, by electronically 

populating an applicant’s FAFSA with IRS data, an independent applicant 

could complete the online FAFSA in less than 10 minutes, on average. 

Another participant noted that financial questions are the source of most 

errors on the FAFSA, resulting in students and colleges spending 

additional time making corrections and verifying information. Currently, 

Education requires colleges to verify that up to 30 percent of their federal 

aid recipients provided accurate financial information. This process 

Participants Said 

Using Federal Income 

Tax Data and Revising 

the FAFSA Could 

Reduce Applicants’ 

Burden 

Obtaining IRS Tax Data 

Could Decrease the 

Burden on Applicants 
Page 10 GAO-10-29 Federal Student Aid 

involves the school’s financial aid office comparing an applicant’s or his 

family’s information on the FAFSA to supporting documentation, including 

tax returns that the student must provide to the school. 

Although 98 percent of applicants submit the FAFSA electronically, a few 

participants noted that some low-income applicants may not have reliable 

internet access in their homes. These participants said that applicants 

without such access would be more likely to complete a paper FAFSA and 

would not benefit from an electronic transfer of IRS data. 

Many study group participants proposed changes to the design and 

contents of the FAFSA that could help streamline the form and make the 

application process less daunting for prospective students. 

Instructions. Although Education has worked to clarify the online and 

paper FAFSA instructions in recent years, some participants said the 

length and complexity of the instructions continue to confuse applicants 

and should be further reduced and clarified. Beginning in January 2010, 

Education plans to improve instructions for the online FAFSA by 

customizing the directions for each question based on information the 

applicant has already provided. For example, if applicants enter their 

marital status as single, the directions for each question will only provide 

information pertinent to single FAFSA applicants. 

Tone. A few participants raised concerns about the tone of some 

questions on the FAFSA—saying they conveyed the wrong message to 

applicants—with one participant likening the application to a “beware of 

dog” sign instead of a welcome mat. For example, two participants 

recommended rewording a question that asks if applicants will attend 

college full-time or part-time, saying the question erroneously gives 

applicants the impression that they must commit to one of these options in 

order to apply for aid. However, this question is not used to determine 

federal aid eligibility, and students do not have to make this decision until 

they decide to enroll in college. Education has recently announced plans 

to make changes to the online FAFSA that are designed to encourage 

applicants to complete the application process. For example, in January 

2010, Education plans to begin providing status indicators throughout the 

application that will inform students of their progress in completing the 

FAFSA. 

Skip-logic design. Several participants praised the online FAFSA 

feature—known as skip-logic—which allows applicants to bypass some 

Changes to the Design and 

Contents of the Form 

Could Streamline the 

Application 
Page 11 GAO-10-29 Federal Student Aid 

questions that are not relevant to their student aid eligibility, based on 

their answers to previous questions. 

Education’s recent expansion of skip-logic now allows applicants to 

bypass 

• a selective service registration question unless they are male and younger 

than 26, 

• most dependency questions if they are at least 24 years of age or married, 

• three homeless determination questions unless they are 21 years of age or 

younger and answered yes to a question asking if they are homeless or at 

risk of being homeless, and 

• all parental data for dependent applicants who only wish to apply for an 

unsubsidized loan if their parents refuse to provide their data on the 

FAFSA and refuse to provide financial support to the applicant. 

In addition, upcoming enhancements planned for January 2010 will allow 

applicants to skip 

• asset information if they have low incomes and assets are not required to 

determine their eligibility; 

• drug conviction questions if they are first-time college students, as federal 

aid eligibility is not affected by drug convictions that occur prior to college 

enrollment; and 

• the state of legal residence and date of residency question if they confirm 

that, for at least the previous 5 years, their state of legal residence is the 

same as the state on their mailing address. 

Two participants recommended improving the skip-logic for financial 

questions by grouping together all questions requiring applicants to 

reference their tax forms and reordering the FAFSA questions to match 

the order in which data are collected on tax forms. Another participant 

noted that while skip-logic may be helpful for online applicants, it does not 

benefit the approximately 2 percent of individuals who complete the paper 

FAFSA. 
Page 12 GAO-10-29 Federal Student Aid 

Content. Many participants offered recommendations to streamline the 

FAFSA’s contents. A few participants suggested it would be helpful to 

know the extent to which each question is used in determining eligibility 

for federal, state, and institutional aid, since the value of information 

gained from particular questions may be outweighed by the potential loss 

of applicants due to the form’s length. In addition, a few participants 

recommended significantly shortening the FAFSA by removing all 

questions not used to determine federal eligibility or financial need. For 

example, some states consider the highest level of education an 

applicant’s parents have completed in targeting aid. However, some 

participants expressed concern that eliminating such questions from the 

FAFSA may cause states and colleges to develop additional forms in order 

to get the data they need, which could in turn increase the overall burden 

on applicants. One participant added that it might be difficult for colleges 

to get a comparable response rate if they tried to collect nonfinancial data. 

However, another participant suggested that colleges could collect this 

information on the acceptance form students submit after receiving letters 

of admission. Two participants also suggested eliminating questions 

currently asked on the FAFSA to determine aid eligibility—such as those 

regarding selective service registration and drug convictions—that are not 

used to calculate financial need. 
Page 13 GAO-10-29 Federal Student Aid 

Many study group participants supported changing the need analysis 

formula to require less financial information from federal student aid 

applicants. Because the formula is specified by federal statute, any 

modifications would require legislative change. In discussing the need for 

a simpler formula, several participants noted both the sheer number of 

questions required to compute aid eligibility and the relative difficulty of 

answering the financial questions. For example, one participant stated that 

applicants have a far easier time answering questions about their marital 

status than they do complicated questions about their assets. In particular, 

participants discussed the merits of relying solely on a family’s income—

as measured by adjusted gross income (AGI) on federal income tax 

forms—and the number of tax exemptions to determine aid eligibility. 

Similar proposals have been suggested previously.5

 Such a shift would 

greatly reduce the number of financial questions asked on the FAFSA—

from more than 45 items to only 2—which several participants said could 

decrease the burden applicants face in completing the form. Nevertheless, 

a few state aid administrators we interviewed said they saw no need to 

 

5

The Rethinking Student Aid Study Group, The College Board, Fulfilling the Commitment: 

Recommendations for Reforming Federal Student Aid, (September 2008);,Susan M. 

Dynarski and Judith E. Scott-Clayton, The Hamilton Project, College Grants on a Postcard: 

A Proposal for Simple and Predictable Federal Student Aid (February 2007); and The 

National Association of Student Financial Aid Administrators, The National Conversation 

Initiative on Access and Aid for Student Success in Postsecondary Education: 

Preliminary Recommendation, (Washington D.C., Apr. 21, 2009) 

Participants Said 

Reducing the 

Financial Information 

Required by the Need 

Analysis Formula 

Could Ease 

Applicants’ Burden, 

but Some Aid 

Redistribution Is 

Likely 

Using Less Financial 

Information to Determine 

Eligibility Could Reduce 

Burden on Applicants 
Page 14 GAO-10-29 Federal Student Aid 

change the current formula, and one added that the online form’s skiplogic keeps the formula from being too burdensome for most applicants. 

Several participants also noted that a simpler formula could increase 

applicants’ awareness of their potential financial aid eligibility, and 

perhaps increase the probability that they will go to college. For example, 

if eligibility were determined solely by AGI and number of tax exemptions, 

Education could publish a reference table that would allow students to 

estimate their aid eligibility far earlier in the aid application process and 

plan accordingly. Supplying applicants with earlier, more precise 

information on eligibility could ultimately render the EFC unnecessary, 

replacing the estimate of an applicant’s or family’s contribution to the cost 

of education with a direct calculation of federal aid eligibility. Several 

participants said that providing this type of early information could lead to 

an increase in the number of financial aid applications submitted and 

could encourage prospective students to apply for aid earlier in the cycle. 

In addition, participants said that reducing the financial information 

required by the formula could in turn simplify the verification process for 

financial aid administrators and applicants. If fewer financial items were 

included in the formula, financial aid administrators would have to collect 

and verify less information, and students selected for verification would 

similarly be relieved of the burden of providing large amounts of 

documentation. 

Many participants said that although it would make the application 

process easier on prospective students, reducing the amount of financial 

information collected would likely result in some change in the 

distribution of federal, state, and institutional aid, and would create new 

winners and losers among the pool of aid applicants. Participants differed 

in their assessment of whether the benefit of simplifying the formula 

outweighed the potential cost in how federal aid is distributed among 

applicants. For example, several participants were concerned that 

eliminating asset information from the federal formula could result in 

some applicants with high-value assets, such as large bank accounts or 

trust funds, receiving more need-based aid—such as Pell Grants—than 

they would under the current system. By potentially increasing the pool of 

applicants who qualify for need-based aid, eliminating assets could result 

in a smaller award amount for each Pell Grant recipient, as the maximum 

amount of the grant depends on program funding and can change each 

year. 

Reducing the Amount of 

Financial Information 

Collected Could Result in 

Redistribution of Federal 

and State Aid 
Page 15 GAO-10-29 Federal Student Aid 

Several other participants, however, asserted that simplifying the formula 

would be beneficial to applicants—particularly those with the greatest 

need and those who do not currently apply—and is therefore worth the 

potential cost of a shift in who receives federal aid. One participant’s 

research suggests that redistribution at the federal level would be 

relatively small if the formula included only AGI and number of tax 

exemptions. Specifically, she said she has found that approximately 85 to 

90 percent of the variation in how the Pell Grant is awarded can be 

explained by those two factors.6

According to participants, formula changes could also affect the 

distribution of state and institutional aid to varying degrees, as many states 

and institutions use the eligibility determinations from the FAFSA to 

allocate their awards. Consequently, some participants were concerned 

that—much like with federal aid—the removal of asset data from the 

formula could increase the overall pool of eligible award recipients, and in 

turn reduce the size of state and institutional financial aid awards available 

to the neediest applicants. Some participants asserted that, while a change 

in the formula may not greatly affect Pell-eligible students, state and 

institutional need-based aid reaches into middle income ranges where the 

implications may be far greater. One of these participants added that when 

her state modeled what would happen to its aid program if it eliminated 

assets from the eligibility formula, it found that expenditures would 

increase by 12 percent. Because her state, like many others, has a program 

in which all eligible applicants are entitled to receive aid, she explained 

that such a change would result in the state either having to cover 

additional costs or providing less money to each eligible student. For a few 

participants, concerns over how formula changes might affect state aid 

extended to the way in which family size is calculated. These participants 

said that the number of tax exemptions is a poor measure of the 

household size of an applicant or applicant’s family. For example, some 

children or other family members may live with an applicant but not be 

listed as dependents on tax forms. However, other participants countered 

that household size is already difficult to measure accurately under the 

current formula. Several participants recommended further analysis on 

how and to what extent applicants for both federal and state aid would be 

affected by possible changes to the federal formula. 

 

6

Dynarski, Susan M. and Judith E. Scott-Clayton, College Grants on a Postcard: A Proposal 

for Simple and Predictable Federal Student Aid, The Hamilton Project (February 2007). 
Page 16 GAO-10-29 Federal Student Aid 

Many participants stressed that, as federal aid does not cover the entire 

cost of education for most students, the information needs of states and 

institutions must be addressed in any plan to simplify the federal formula. 

Two participants, however, maintained that it was not reasonable to 

expect a single application to serve the needs of both the federal aid 

program and programs from all states and institutions. 

Education’s recent proposal to limit the federal formula to financial 

information available through federal income tax forms would eliminate 

26 financial questions—including those on assets—while retaining up to 20 

financial questions that could all be answered with federal income tax 

data. Although such a formula would decrease the burden on applicants, 

one participant noted that it would not be concise enough to allow for a 

simple reference table that prospective students could use to estimate aid 

eligibility, as it would if it were limited to AGI and tax exemptions. 

Proposed legislation passed by the House of Representatives and under 

consideration in the Senate would simplify the student need analysis 

formula by setting an asset cap for some aid programs and eliminating 

assets from the need analysis of students whose families do not equal or 

exceed the cap.7

While many study group participants noted the potential benefits of using 

IRS data to populate the online FAFSA, some raised questions about the 

feasibility and limitations of this approach. Applicants currently complete 

the FAFSA with income information from the tax year prior to the 

beginning of the school year for which they are applying for aid. For 

 

7

Student Aid and Fiscal Responsibility Act of 2009, H.R. 3221, 111th Cong. (2009). 

Participants Said 

Technology and 

Public Outreach Are 

Central to 

Implementing 

Changes, but Several 

Challenges Must Be 

Addressed 

Using IRS Tax Data to 

Populate the Electronic 

Form Is Feasible, but 

Presents Challenges 
Page 17 GAO-10-29 Federal Student Aid 

example, an applicant who completed the FAFSA with the intent of 

beginning college in fall 2009 is required to use 2008 income information. 

However, Education officials said that because the tax calendar permits 

most tax filers to file their income taxes for the prior calendar year as late 

as April 15, the IRS could not make tax data electronically available to 

student aid applicants until July. Some participants said that besides not 

giving students sufficient time to plan for college costs, completing the 

FAFSA this late would cause many students who plan to enroll in the fall 

to be ineligible for aid from states and colleges. 

Acknowledging these limitations, Education officials said making the 

electronic transfer of IRS tax data to the FAFSA feasible for fall college 

applicants would likely require the use of income data that would be one 

year older than the information Education currently uses to determine 

financial aid eligibility. For example, under this scenario, an online 

applicant who completed the FAFSA in March 2009 with the intent of 

beginning college in August 2009 would be required to use income tax data 

from 2007. As of July 1, 2010, the Higher Education Opportunity Act 

authorizes the Secretary of Education to allow such older data to be used 

in calculating applicants’ aid eligibility.8

However, some participants expressed concern that by using older data—

often referred to as prior-prior year data—there is an increased risk that 

the data may no longer reflect an applicant’s current economic need. For 

example, a college applicant could have a higher or lower income than 

they did two years prior to attending college. Currently, school financial 

aid officials can use professional judgment to change an applicant’s 

eligibility for aid upon an applicant’s request, if they determine that there 

are special circumstances. For example, applicants may request 

professional judgment if they think their financial aid award does not 

match their current economic need. Participants said that while 

professional judgment may be used to increase or decrease an applicant’s 

financial aid, it is unlikely that applicants with an improved economic 

status will ask their colleges to use professional judgment to decrease 

their student aid award. Therefore, some participants said they think that 

this will lead to increases in the numbers of applicants eligible for federal 

and state aid. However, one participant noted that although the 

implementation of using prior-prior year tax data would likely cause an 

 

8

Pub. L. No. 110-315, § 473(a)(1). 
Page 18 GAO-10-29 Federal Student Aid 

initial increase in applicants qualifying for aid, the cost might level off in 

subsequent years. 

In addition, some participants expressed concern about the possible 

effects of using prior-prior year data on applicants who are not required to 

file income taxes. According to Education, about 6 percent of dependent 

applicants’ parents and about 13 percent of independent applicants who 

completed the FAFSA in the 2008 to 2009 academic year did not file taxes. 

One participant said that although it may be challenging for tax-filing 

applicants who submit paper forms to find tax forms from up to 2 years 

earlier, it would likely be particularly difficult for applicants who do not 

file taxes to provide information on their income from 2 years earlier. A 

few participants also expressed concern that Education had not offered a 

plan to simplify the FAFSA for applicants not required to file income 

taxes. Education’s recent proposals do not address how changes would 

affect these applicants. 

Education plans to begin providing applicants who both complete the 

FAFSA and enroll in college between January 1 and June 30, 2010, with the 

option of electronically transferring IRS data into the online FAFSA. 

Education officials said this pilot is feasible since spring 2010 applicants 

are required to use income tax information from 2008, which the IRS can 

make available electronically. Education officials stated that during the 

spring 2010 online FAFSA sessions, a question on the screen will ask if 

applicants would like to electronically retrieve their IRS tax data—or their 

parents’ data if they are dependents—to answer financial questions. If the 

applicants agree, they will be taken to an IRS Web site to confirm their 

identity and obtain tax information that they can electronically transfer 

into the appropriate FAFSA fields with a single push of a button. After 

piloting this electronic transfer of tax data with spring applicants, 

Education plans to make it available to all students who apply online for 

aid between July and December 2010. Some study group participants said 

Education’s plan to pilot the electronic transfer of IRS tax data to the 

FAFSA is a good initial step. Eventually, should Education elect to use its 

new statutory authority to allow the use of prior-prior year data, the option 

of electronically transferring IRS data into the online FAFSA could be 

made available to all applicants year-round. One participant said that 

additional piloting will be needed if Education ultimately decides to base 

student aid eligibility on prior-prior year tax data. 
Page 19 GAO-10-29 Federal Student Aid 

Many participants noted ways in which other technology could facilitate 

additional improvements to the application process. One such possibility 

would be in better linking the electronic applications for federal and state 

aid. In 2001, Education began piloting a link between the online FAFSA 

and New York’s online state aid application. Currently, New York 

residents who submit the online FAFSA are immediately provided a link to 

the New York state aid Web site. Once New York applicants register and 

receive a personal identification number from the state student aid office, 

they may begin the online application process for state aid. The New York 

online application is automatically populated with FAFSA data that are 

sent electronically from Education. Applicants are asked to verify that the 

populated information is correct, and may be asked for additional 

information not collected by the FAFSA, such as their spouse’s social 

security number. Many participants said linking the FAFSA to other state 

application sites could prevent the possible negative effects on state aid 

programs of changing the federal need analysis formula by allowing states 

to ask additional questions that are not available on the FAFSA. One 

participant further noted that providing states with this option could make 

it feasible for Education to eliminate all FAFSA questions not needed to 

determine federal student aid eligibility without affecting the needs of 

states. However, a few participants expressed concern that such a change 

could lead to states adding a large number of additional questions on their 

applications, jeopardizing Education’s efforts to streamline the overall 

application process for students. Other participants said that the cost of 

setting up state online applications could create a barrier that would 

prevent some states from linking to the FAFSA. Beginning in January 2010, 

Education plans to offer this type of connection to all states, but the costs 

to states—and whether Education will provide financial assistance to 

states to facilitate this change—are not yet known. 

In addition to technological improvements, participants suggested that 

efforts to simplify the application should be accompanied by a strategy to 

increase public outreach efforts. For example, one study group participant 

suggested that Education should reach out to students from middle school 

through high school to help raise awareness about the affordability of 

college and the process of applying for financial aid.9

 Some participants 

 

9

GAO has previously recommended that Education develop a strategy to increase 

awareness of the Academic Competitiveness and National Science Mathematics Access to 

Retain Talent (SMART) grants among states and high schools. See GAO, Federal Student 

Aid: Recent Changes to Eligibility Requirements and Additional Efforts to Promote 

Awareness Could Increase Academic Competitiveness and SMART Grant Participation, 

GAO-09-343 (Washington, D.C.: Mar. 25, 2009). 

Technology and Public 

Outreach Could Help 

Streamline Applications 

and Increase Awareness of 

Federal and State Aid 
Page 20 GAO-10-29 Federal Student Aid 

also suggested that Education provide monthly updates to states and 

colleges by zip code about how many students have completed the FAFSA. 

They said that this could help officials better target certain geographical 

areas with low FAFSA completion rates to raise awareness about student 

aid eligibility. Other participants suggested that Education send parents 

with children in middle school through high school annual estimates of 

their child’s current eligibility for student aid. Education has announced its 

intent to launch public outreach efforts that are designed to inform high 

school students about the availability of federal aid for college beginning 

in fall 2009. 

In creating an application process to distribute student aid, the federal 

government has had to consider multiple competing demands to promote 

college access and affordability: developing a formula precise enough to 

ensure that resources reach the target population, collecting enough 

information to assist states and institutions in administering their own aid 

programs, and making the application process easy to use and transparent 

for applicants. This last issue has proven particularly challenging, and the 

complexity of the application form and underlying formula has become a 

pain point for students and their families. The prospect that the 

application itself may discourage students from applying for aid—and 

perhaps to college—is especially troubling in light of current economic 

conditions, as postsecondary access and affordability become more 

challenging for some students. Our study group participants proposed 

various options for mitigating some of the complexity in the application 

process, and Education has proceeded with the early phases of its new 

plan for simplification, which includes a public outreach component. 

While most of these changes will result in streamlining the application 

process and will not affect eligibility for federal, state, and institutional 

aid, some— as is often true of policy and process changes—come with 

trade-offs. In particular, any changes to the formula used to compute 

eligibility may result in new winners and losers among aid applicants. 

Because the formula is complicated and no means of calculating 

eligibility—including the current method—is a perfect prediction of 

financial need, the effects of potential modifications on the pool of eligible 

applicants must be weighed against the goals of federal student aid. The 

issue to be considered is whether the benefit of simplifying the formula 

outweighs the potential loss in the precision of how aid is targeted, and 

depends not only on how great the overall change in the distribution of 

federal aid is, but on how much various types of applicants gain or lose. 

Concluding 

Observations 
Page 21 GAO-10-29 Federal Student Aid 

We provided a draft of this report to the Department of Education, 

Department of Treasury, and the Internal Revenue Service for review and 

comment. These agencies had no comments on the draft report. 

We are sending copies of this report to relevant congressional committees, 

the Secretaries of Education and Treasury, the Commissioner of Internal 

Revenue, and other interested parties. In addition, this report will also be 

available at no charge on GAO’s Web site at http://www.gao.gov. 

If you or your staffs have any additional questions about this report, please 

contact me at (202) 512-7215 or scottg@gao.gov. Contact points for our 

Offices of Congressional Relations and Public Affairs may be found on the 

last page of this report. GAO staff who made key contributions to this 

report are listed in Appendix III. 

George A. Scott 

Director, Education, Workforce, and 

 Income Security Issues 

Agency Comments 
Page 22 GAO-10-29 Federal Student Aid 

Simplifying the Federal Student Aid Application Process 

A Government Accountability Office Expert Panel 

May 7, 2009 

AGENDA 

 

8:30-9:00 Breakfast available in the room 

 

9:15-10:15 Approaches to shortening the form and changing the application process

What are some approaches to shorten the Free Application for Federal Student Aid or 

otherwise make it less time-consuming to complete? How do states and institutions 

use the data collected on the current application form? What are the possible risks of 

simplifying the application form? 

10:15-10:30 Break 

 

10:30-11:30 Approaches to changing the statutory need analysis formula

How could the statutory need analysis formula be changed to reduce the amount of 

financial information collected, without causing significant redistribution of federal 

grants and subsidized loans? What are the possible risks of simplifying the need 

analysis formula? Following any modifications to the need analysis formula, what 

are the best means of addressing the needs of states and institutions that rely on the 

federal application to administer their own aid program? 

 

11:30-12:45 Working lunch with presentations from other GAO engagements related to student 

financial aid issues 

 

12:45-1:45 Operationalizing changes to the application form and underlying formula

What is the feasibility of the IRS providing individuals’ financial data directly to the 

Department of Education for the purposes of determining aid eligibility? How can 

changes to the application form and underlying formula be operationalized? 

 

1:45-2:45 General Discussion

 

2:45-3:00 Concluding remarks 

 

3:00 Adjourn 

Appendix I: Expert Panel Agenda 
Page 23 GAO-10-29 Federal Student Aid 

Deena Ackerman Financial Economist 

Office of Tax Analysis 

Department of the Treasury 

Nabeel Alsalam Senior Analyst 

Health and Human Resources Division 

Congressional Budget Office 

Lauren Asher Acting President 

The Institute for College Access and Success

Sandy Baum Professor of Economics 

Skidmore College, and 

Senior Policy Analyst 

The College Board 

Jim Dumais Executive Advisor 

Office of Deputy Commissioner 

Internal Revenue Service 

Susan Dynarski Associate Professor 

Gerald R Ford School of Public Policy and 

 School of Education 

University of Michigan 

Sherry Fox Director of Grants and Scholarships 

New Jersey Higher Education Student 

Assistance Authority 

Michael Friedberg Program Examiner 

Education Branch 

Office of Management and Budget 

Lois Hollis Senior Advisor to the Deputy Commissioner 

 for Business and Finance 

Texas Higher Education Coordinating Board

Justin Humphrey Budget Analyst 

Budget Analysis Division 

Congressional Budget Office 

Pat Hurley Associate Dean and Director of Financial Aid

Glendale Community College 

Appendix II: Expert Panel Participants 
Page 24 GAO-10-29 Federal Student Aid 

Derek Kindle Director of Financial Aid 

Howard University 

Bridget Terry Long Professor of Education and Economics 

Graduate School of Education 

Harvard University 

Dan Madzelan Acting Assistant Secretary 

Office of Postsecondary Education 

Department of Education 

Michael S. McPherson President 

Spencer Foundation 

Dan Rosenbaum Senior Economist 

Office of Economic Policy 

Office of Management and Budget 

Jeanne Falstrom Ross Attorney-Advisor 

Office of the Tax Legislative Counsel 

Office of Tax Policy 

Department of the Treasury 

Julie Rushin Director 

Business Modernization Office 

Wage and Investment Division 

Internal Revenue Service 

Robert Shireman Deputy Undersecretary 

Department of Education 

Tammy Wyand Director of Financial Aid 

ECPI College of Technology 
Page 25 GAO-10-29 Federal Student Aid 

George A. Scott, (202) 512-7215 or scottg@gao.gov

Debra Prescott, Assistant Director; Rebecca Woiwode, Analyst-in-Charge; 

and James E. Lloyd III made significant contributions to this report in all 

facets of the work. In addition, Jean McSween and Luann Moy assisted in 

design; Sheila R. McCoy and Doreen Feldman provided legal support; Mike 

Brostek, Dave Lewis, and Ron Fecso lent subject matter expertise; 

Susannah Compton provided writing assistance; and James Bennett 

provided help with graphics. 

Appendix III: GAO Contact and Staff 

Acknowledgments 

GAO Contact 

Staff 

Acknowledgments 

(130907) 
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