Federal Student Aid: Highlights of a Study Group on Simplifying the Free Application for Federal Student Aid
Published: 2009-10-29T00:00:00

Fast Facts:

Highlights:
section_title: Why GAO Did This Study
paragraphs: 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.
section_title: What GAO Found
paragraphs: 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.

section_title: Letter
paragraphs: 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. 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  type of assistance if they applied. 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. 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 Act 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  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.
subsections: section_title: Background
subsections: section_title: Federal Need Analysis Methodology
paragraphs: The HEA, as amended, specifies a formula, known as the federal need  analysis methodology, to determine students’ eligibility for federal need- based 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.
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.
section_title: The Financial Aid Application Process
paragraphs: 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  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).
section_title: Federal Aid Provided under Title IV of the HEA
paragraphs: 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 off- campus 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.
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  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.
section_title: Participants Said Using Federal Income Tax Data and Revising the FAFSA Could Reduce Applicants’ Burden
subsections: section_title: Obtaining IRS Tax Data Could Decrease the Burden on Applicants
paragraphs: 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 first- generation 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  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.
section_title: Changes to the Design and Contents of the Form Could Streamline the Application
paragraphs: 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  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    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    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.
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.
section_title: Participants Said Reducing the Financial Information Required by the Need Analysis Formula Could Ease Applicants’ Burden, but Some Aid Redistribution Is Likely
subsections: section_title: Using Less Financial Information to Determine Eligibility Could Reduce Burden on Applicants
paragraphs: 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. 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  change the current formula, and one added that the online form’s skip- logic 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.
section_title: Reducing the Amount of Financial Information Collected Could Result in Redistribution of Federal and State Aid
paragraphs: 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.
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.
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.
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.
section_title: Participants Said Technology and Public Outreach Are Central to Implementing Changes, but Several Challenges Must Be Addressed
subsections: section_title: Using IRS Tax Data to Populate the Electronic Form Is Feasible, but Presents Challenges
paragraphs: 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  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.
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  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.
section_title: Technology and Public Outreach Could Help Streamline Applications and Increase Awareness of Federal and State Aid
paragraphs: 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. Some participants  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.
section_title: Concluding Observations
paragraphs: 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.
section_title: Agency Comments
paragraphs: 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.
section_title: Appendix I: Expert Panel Agenda
paragraphs: Simplifying the Federal Student Aid Application Process  A Government Accountability Office Expert Panel  Breakfast available in the room 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?  Break 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?
Working lunch with presentations from other GAO engagements related to student  financial aid issues 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?
section_title: Appendix II: Expert Panel Participants
section_title: Appendix III: GAO Contact and Staff Acknowledgments
subsections: section_title: GAO Contact
section_title: Staff Acknowledgments
paragraphs: 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.