The Complexities of Simplification
There is almost unanimous consent that the process used to determine a student's financial need or expected family contribution (EFC) to pay for higher education is overly complicated.
The drawbacks of the current complex system and the potential benefits of a simplified system are well known. It has been documented that the complexity of the current system and forms like the Free Application for Federal Student Aid (FAFSA) discourage students-especially those from low-income, minority, and first-generation-college families-from applying for aid. Students may also opt for more expensive private loans in order to avoid the complex process of applying for aid.
A simpler system could encourage earlier awareness and planning for college, as students and parents would have a better idea about how much aid they are likely to receive to help pay for college.
Under the current system, students and their families can't estimate the amount of eligible aid.
The problem is getting people to agree on how to simplify the system.
To address this issue, the Advisory Committee on Student Financial Assistance-an independent committee created by Congress to advise on student aid policy-has launched a project to determine the feasibility of radically simplifying the models used to determine EFC.
The committee is using a random sample of more than 300,000 Pell Grant recipients to answer several basic questions about EFC simplification, including:
Why is it that determining EFC is so complex?
Is this complexity necessary?
What are the intended benefits of simplification?
What are specific ways applicant data can be analyzed to assess the feasibility of radically simplifying EFC determination to ease the burden on students and families?
What is the feasibility of radically simplifying EFC determination for different categories of students, like dependent and independent students?
How would adverse effects of simplification on program costs, redistribution of benefits, program integrity, and delivery of federal, state, and institutional financial aid be assessed?
How can simplification be implemented to minimize adverse effects?
Sandy Baum, professor of economics at Skidmore College (N.Y.) and senior policy analyst for the College Board, is serving as a consultant on this project. She outlined some of her initial goals and concerns about EFC simplification at an advisory committee hearing held in late September.
At the hearing, Baum noted that there is much interest and concern about the EFC formula, so it must be addressed carefully. She said any revision to the current system will shift the distribution of aid, benefiting some while hurting others.
"Any change to the formula will create winners and losers," Baum said.
Baum added that she will focus on how simplification would impact redistribution of aid. Using the 300,000 Pell recipients, she plans to compare how changes made to the system will impact various student cohorts.
Ultimately, a simplified system would create more winners if it helped raise early awareness about the amount of aid a student would likely receive, increased application for aid among underserved students, and distributed aid equitably.
Panelists at the hearing said the current system is so complicated and confusing for students and their families that they can't estimate how much money they are eligible for.
Baum plans to research the possibility of creating an easy-to-use table that allows students and families to estimate how much aid they are eligible to receive.
Perhaps the most obvious place to start when considering simplification is removing questions from the FAFSA.
Laurie Wolf, executive dean of student services at Des Moines Area Community College (Iowa) and former chair of NASFAA's Higher Education Act (HEA) Reauthorization Committee, told advisory committee members that 34 questions could be removed from the current FAFSA. Others argue that removing questions is not as simple as it sounds.
Baum questioned if removing FAFSA items would require more states and institutions to use separate applications to gather needed information, creating a system that is ultimately more complex for students. A single long form would be easier for students and parents than many shorter forms, she contended.
Additionally, Congress has added many questions to the FAFSA. Removing these would require Congressional action, which can be a long, complicated process. Just ask anyone who has followed Congress' attempt to reauthorize the HEA.
Removing questions does not necessarily guarantee a simpler need determination system. Behind those questions is a complex, statutory formula used to determine need. Any change to the FAFSA form would necessitate a change to the formula. Thus, deleting questions would not necessarily make the formula less complex and could in effect make that formula more complex.
Finally, removing questions could limit the form's ability to effectively determine student need.
Panelists at the advisory committee conference also suggested using existing databases to collect and verify information as a method to simplify the system. Wolf mentioned that there are obvious databases, like tax data kept by the IRS, that could be used to help determine need.
Joe Paul Case, director of Office of Financial Aid at Amherst College (Mass.), agreed that other data sources could help simplify the system, but cautioned that IRS data has limitations. He said that using this data to identify low-income families with substantial resources and untaxed income could be problematic.
George Chin, director of student financial assistance at the City University of New York, agreed, arguing that IRS "data is skewed by tax shelters and ways to manipulate the tax system to make it appear like you have less money."
Chin also argued that while making a simpler system for everyone would be an arduous task, it may be easier to simplify the process for some, but not others.
"It is clear that there are some families that don't have any discretionary money for higher education," he said. "We should make it easier for these families first."
Speakers at the hearing were optimistic that changes could be made to simplify the system and simultaneously create a system that distributes aid more equitably. Panelists emphasized the faults and inequalities inherent in the current system to demonstrate the enormous room for improvement.
Wolf argued that the current EFC formula does not address trends in today's student populations, highlighting the recent growth of nontraditional students.
"Some families ... don't have any discretionary money for higher education. We should make it easier for these families first."
-George Chin, City University of New York
"The current formula is still based on a system created when eight tracks were used," Wolf pointed out. "We need to come forward in time."
Chin stated that the current EFC favors those with more resources; recent changes to the system have benefited higher-income students and not needy students. Case agreed, saying a better formula would consider home equity, farms, and family businesses and pension assets, which he said were probably the largest assets of middle and high income students' families.
"Although people with home equity, which is more liquid today than when the EFC was created, are clearly better off than those without it, this is not considered by the EFC," Chin noted. "The values imbedded in the system need to be evaluated. ... Are we building this for the poor, middle class, or rich?"
While redesigning the system may be complicated, it will certainly be easier than selling a new system to the higher education leaders, policy makers, and the public.
As part of her research, Baum said she plans to explore how the financial aid community would react to redistribution of student aid resources and how the committee would communicate changes to the higher education community and to the public.
Baum argued that while simplification should be handled carefully, leaders should not be immobilized by the potential hazards of simplification.
Panelists unanimously agreed that the redistribution of financial aid due to simplification would be politically difficult because it would create some "losers." However, they argued that if aid is distributed more equitably, it would make changes easier to swallow. "If the outcome is a fairer EFC, then there would be broad support," Case predicted.
Chin agreed, adding that the committee should emphasize a new system's contribution to the good of the whole over the good of individuals. He noted, "We have to be clearer about the goals of the formula and communicate those goals to the public."
Haley Chitty is assistant director of Communications for the National Association of Student Financial Aid Administrators (NASFAA).