Postsecondary students and their schools were dealt a sound blow recently when lawmakers failed to prevent a change in the way financial need is calculated. Experts believe this change will result in approximately 80,000 to 90,000 current Pell Grant recipients losing their awards entirely and more than a million Pell recipients experiencing reduced eligibility.
The trigger was the December 23 publication by the Department of Education of an update to the state and other tax tables used in the Federal Need Analysis Methodology. This need analysis formula determines who is eligible to receive federal aid, how much they will be eligible to receive, and what contribution for educational costs is required from the students or their family.
Members of the higher education community--including the National Association of Student Financial Aid Administrators (NASFAA)--believe the change will lead to an increase in a student's expected family contribution, or EFC. As a student's EFC increases, his or her eligibility for need-based financial aid decreases. Higher education advocates have argued that the tax tables update reflects a predownturn U.S. economy and unjustly deprives needy students of federal funds for higher education.
NASFAA President Dallas Martin sent a letter last December to then-Secretary of Education Rod Paige, urging him not to publish the updated state and other tax tables. Martin wrote, "This is not the time to reduce the federal commitment to financially needy citizens, especially with the other student aid program eliminations (Perkins Federal Capitol Contributions) or across-the-board cuts contained in the recently approved FY 2005 Omnibus Appropriations bill."
Students in most states will experience some decrease in Title IV eligibility, but the magnitude of such a loss in eligibility is difficult to estimate due to the interactive nature of certain need analysis elements, the packaging philosophies of different student aid offices, and the possible use of professional judgment by aid administrators.
Further, many higher education financial aid experts believe the entire methodology used by the Department of Education, which is based on IRS data, is seriously flawed. Among their objections to the way the tax tables were designed are the following:
The tax tables do not account for all the state and other taxes paid, such as sales, excise, or property taxes (for some groups of students)
The department's use of only two income bands (0-$15,000 and $15,001 and above) does not adequately reflect families' tax burden at different income levels
The IRS data inadequately assesses the full effect of state and local taxes because it includes only people who itemize their deductions
"Regrettably," said Martin, "the Education Department's decision to proceed with the revisions to their federal need analysis state and other tax tables means that many needy students will be forced to go deeper into debt to pursue their postsecondary education plans in the next academic year. Further, the revisions are in direct violation of the statutory deadlines required by the Higher Education Act's master calendar schedule."
The master calendar requires that the department issue updates by June 1 of the preceding year, to ensure that the delivery process is not disrupted, postsecondary institutions can meet their responsibilities, and Congress can perform its oversight responsibilities to review need analysis and delivery system decisions. This means that changes for award year 2005-2006 should have been adopted by June 1, 2004.
The changes may also affect students and institutions in ways other than Pell Grant eligibility. "The real concern here is that the change will have a significant trickle-down effect because many states and colleges use the federal formula when awarding need-based aid," said Brian Fitzgerald, formerly of the Congressionally appointed Advisory Committee on Student Financial Aid.
The proposed tax tables update has been the source of ongoing heated controversy and partisan infighting. In 2003 an amendment sponsored by Sen. Jon Corzine (D-N.J.) was passed to prevent the Department of Education from implementing tax table updates for award year 2004-2005.
Higher education officials were hopeful that lawmakers would extend the amendment through this year, but during last November's conference committee deliberations on the fiscal year 2005 Omnibus Appropriations bill, lawmakers voted to reject a new Corzine amendment that would have postponed the tax tables update for an additional year.
"Despite objections from NASFAA and many others about how these changes are being made, it appears that there is little likelihood of sufficient congressional support to stop this implementation," Martin said. "The only scenario I can envision to forestall these changes would be for a person or persons with standing--who are negatively impacted by the change--to take legal action against the department for not publishing these deadlines by the required June 1 deadline."
House Democrats--who have led the charge in recent months to prevent an update to the tax tables--were quick to respond to the publication of the new Pell charts.
Rep. George Miller (Calif.), the senior Democrat on the House Education and the Workforce Committee, lambasted Republicans and noted that the Bush administration, "despite pleadings from governors, university presidents, and student groups, is finalizing a shift in student aid tax policy that will cut more than $300 million in financial aid for low- and moderate-income college students during the 2005-2006 school year."
Republicans have painted a different picture of the change, however. Education and the Workforce Committee Chairman John Boehner (R-Ohio) posted a memo to editorial writers noting, "If opponents succeed in forcing the administration to continue using the outdated tables, it would likely mean wrongly adding hundreds of millions of dollars to the current Pell Grant budget shortfall--which in turn means it becomes harder than ever for Congress to increase the maximum Pell Grant award for the poorest students in the nation down the road."
In the first week of the new 109th Congress, Reps. Tim Bishop (D-N.Y.) and Rush Holt (D-N.J.) introduced legislation to protect students from the change, and Corzine is expected to introduce a similar bill in coming weeks.
Whether or not Congress or a federal court overturns the Department of Education's tax table decision, one issue is clear. The debate on tax tables specifically, and the federal need analysis methodology more broadly, will continue as Congress works to reauthorize the Higher Education Act this year.
Elizabeth Guerard is the assistant director for communications, National Association of Student Financial Aid Administrators (www.nasfaa.org).