1. Simplifying Student Aid: What It Would Mean for States May 2012

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4. Why Simplicity Matters An effective federal and state student aid system is key to meeting college completion goals Low- and moderate-income students are more likely to prepare academically if they understand financial aid More likely to believe college is in their future Simple, predictable, well-targeted student aid system will lead to more efficient use of taxpayer dollars Current system is complex

5. Simplification: Progress to Date HR 3221 passed but never considered by Senate Only data available from IRS used to determine federal aid eligibility; families with assets above legislated cap ineligible for federal aid Administration committed to further FAFSA simplification IRS data retrieval process is a big step in the direction of process simplification

6. National Evidence on Simplifying the FAFSA 2009 report from the Executive Office of the President: Relying on IRS data would have minimal impact on Pell eligibility for independent students but generate increases for about 1/3 of dependent students. Simplifying would remove some questions included for states. States needed information about budgetary and distributional impact. College Board proposed state simplification study to Lumina Foundation

7. State Simplification Study: Goals Help states understand impact of a simplified federal aid process on state grant programs Support institutions’ ability to plan for a simpler FAFSA Build state support for a simplified process to ensure that students will benefit Evidence about benefits of simplifying the application and increasing predictability of grant aid is compelling Help states advocate for streamlined system that will enable them to distribute need-based aid equitably and efficiently May require changes to underlying Federal Methodology

8. Our Approach Selected a representative group of pilot states based on criteria for eligibility & aid determination Kentucky Minnesota Ohio Texas Vermont Using state’s 2007-08 or 2008-09 FAFSA and award data, simulated impact of potential federal data and formula changes on Pell and state grant eligibility

9. Mean Income and Assets of 2007-08 FAFSA Filers State Average Parents’ Income (Dependent) Average Parents’ Assets (Dependent) Average Income (Independent Without Dependents) Average Income (Independent Students with Dependents) Kentucky$59,278$29,558$18,405$23,732 Minnesota$69,329$45,563$21,315$27,682 Ohio$37,279$17,793$15,267$21,451 Texas$41,236$21,647$10,771$15,634 Vermont$63,638$58,847$18,629$28,113

10. State Grant Program Characteristics 2007-08 Kentucky College Access Program First-come first-served; centralized awarding FM EFC cutoff $4,110 Minnesota State Grant Designed for shared responsibility; centralized awarding Award = cost less student and family share, less Pell Grant Ohio College Opportunity Grant First-come first-served; decentralized awarding FM EFC cutoff $2,190 (2008-09) TEXAS Grant (for students enrolled in public institutions) First-come first-served; decentralized awarding FM EFC cutoff $4,000 Students must enroll within 16 months of h.s. graduation Must be enrolled at least ¾-time Vermont Grant Remaining need based on VSAC methodology; centralized awarding Supplemental information required; information verified Full-time enrollment required; may enroll out-of-state

11. Our Methodology: Multiple Simulations 1. Remove Worksheet A items (new baseline for comparison) — previously eliminated in 2009-10 FM Earned Income & Additional Child Tax Credits Welfare benefits Untaxed Social Security benefits 2. Eliminate all assets (assets not considered today for many filers) 3. Use only IRS data (similar to HR 3221 language) No employment allowance FICA based on AGI/total earnings IRS data included AGI, taxes paid, number of exemptions Number in college from FAFSA

12. What if FAFSA Worksheet A Had Been Eliminated in 2007-08? EFCs would have declined and grant eligibility would have increased Increased % of filers eligible for Pell Grants by about 1% in each state Average state grant eligibility increase per filer ranged from $2 (MN) to $50 (OH public 4-year) Total state grant eligibility increases ranged $300K in MN to $5.4M in Ohio 4-year Little discussion nationally because impact confounded by economic downturn Worksheet A simulation results served as baseline for comparison in study

13. Impact on EFC of Removing Assets: Dependent Applicants Average EFCs decline for all applicants Largest declines among dependent applicants from highest income households (more likely to have significant assets) State Average EFC Decline per Filer (Recipient) Lowest Income <$15K Middle Income $45-60K Highest Income $>75K Kentucky-$914 (-$2)-$119-$636-$2,080 Minnesota-$1,350 (-$167)-$242-$814-$2,540 Ohio-$509 (-$11)-$200-$769N/A Texas-$660 (+$2)-$73-$414-$1,946 Vermont-$1,878 (-$199)-$468-$1,164-$3,181

14. Impact on EFC of Removing Assets: Independent Applicants Average EFCs decline more for independent applicants without dependents than for independent applicants with dependents StateWithout DependentsWith Dependents Kentucky-$146-$20 Minnesota-$309-$39 Ohio (public 4-year)-$125-$16 Texas (publics)-$71-$5 Vermont-$358-$71

15. Impact of Removing Assets on State Grant Eligibility per FAFSA Filer $ (in Millions) and % Change in Eligibility Dependent Applicants Independent Without Dependents Independent With Dependents Kentucky $1.1 (+1.2%) +$19+$5+$1 Minnesota $1.1 (+0.7%) +$8+$9+$1 Ohio (public 4-yr) $2.9 (+2.7%) +$45+$8+$0 Texas (publics) $1.3 (+1.4%) +$29+$5+$0 Vermont $1.1 (+4.5%) +$64+$9+$2

16. Impact of Removing Assets on % of Students Eligible for State Grant State Base % of Filers Eligible (Current FM, No Worksheet A) % Eligible if Assets Eliminated Kentucky 58.6%59.2% (+0.6%) Minnesota 59.2%60.1% (+0.9%) Ohio (public 4-yr) 55.2%56.4% (+1.2%) Texas (publics) 61.8%62.4% (+0.6%) Vermont 46.8%48.3% (+1.5%)

17. Removing Assets: Considerations Removing assets has greater impact on dependent than on independent students Most independent students have few assets Higher income families are more likely to have significant assets, so reductions in EFC increase as incomes increase Pell Grants and most state grants are targeted at students from low- and moderate income backgrounds Removing assets does not have great impact Share of filers eligible for Pell Grant would increase by between 1 and 3% Share of filers eligible for a state grant would increase by 1 to 2%

18. Impact on EFC of Using Only IRS Data: Dependent Applicants Average EFCs would decline for most applicants Largest impact among those from higher income families; more likely to have complex financial situations State Average EFC Decline per Filer (Recipient) Lowest Income <$15K Middle Income $45-60K Highest Income $>75K Kentucky-$993 (+$52)-$150-$532-$2,515 Minnesota-$1,650 (-$95)-$304-$840-$3,323 Ohio-$289 ($0)-$236-$555N/A Texas-$891 (+$70)-$99-$515-$2,756 Vermont-$2,379 (+$5)-$604-$1,269-$4,294

19. Impact on EFC of Using Only IRS Data: Independent Filers Independent students without dependents would benefit more than independent students with dependents Greater incidence of increased EFCs as a result of elimination of employment allowance StateWithout DependentsWith Dependents Kentucky-$46+$81 Minnesota-$323+$70 Ohio (public 4-yr)-$48+$126 Texas (publics)-$190+$36 Vermont-$418-$4

20. Impact of Using Only IRS Data on State Grant Eligibility per FAFSA Filer Many students would see decreases in grant eligibility $ (in Millions) and % Change in Eligibility Dependent Applicants Independent Without Dependents Independent With Dependents Kentucky -$400,000 (-0.4%) $0-$7-$10 Minnesota -$800,000 (-0.5%) -$6+$2-$11 Ohio (public 4-yr) -$800,000 (-0.7%) -$5+$15-$49 Texas (publics) $800,000 (+0.9%) +$17+$28-$2 Vermont $800,000 (+3.3%) +$51+$2-$4

21. Impact of Using Only IRS Data on % of Students Eligible for State Grant State Base % of Filers Eligible (Current FM, No Worksheet A) % Eligible if Assets Eliminated Kentucky 58.6%58.3% (-0.3%) Minnesota 59.2%59.4% (+0.2%) Ohio (public 4-yr) 55.2%54.7% (-0.5%) Texas (publics) 61.8%62.0% (+0.2%) Vermont 46.8%48.8% (+2.0%)

22. Using Only IRS Data: Considerations Dependent students benefit more than independent Most independent students have few assets and removing employment allowance has greater effect Higher income families more likely to have complex financial circumstances; reductions in EFC grow as incomes increase Pell Grants and most state grants are targeted at students from low- and moderate-income backgrounds Using only IRS data does not have great impact Many independent students with dependents would see decreases in grant eligibility

23. Minimizing the Impact of Fewer Data Elements Make modest changes to underlying federal need analysis Achieve EFC results closer to current level while simplifying application process for students Modeled impact of changing Adjusted Available Income (AAI) assessment rates Parameters in current formula are arbitrary and not based on economic research Increased marginal tax rates Modified Adjusted Available Income (AAI) bands Achieved EFC levels similar to those in effect in 2007-08

24. Minimizing the Impact of Fewer Data Elements If only IRS data were used to determine federal aid eligibility, why couldn’t more detailed IRS data be provided to institutions and states? Identify tax filers with negative AGI Impute assets based on interest and dividend income Create more effective federal need analysis system than exists today Would require move to “prior prior year” income Would require support from Administration and most likely legislation

25. Implications for Other States Impact of simpler FAFSA on level and distribution of state grant aid would be relatively small overall. Impact would vary from state to state. Differences in eligibility rules for state grant programs Level of funding for state grant programs Variations in incomes and assets of state residents States with more affluent residents would see greatest changes States selected to permit other states to find closest comparison

26. Conclusion Simplifying the FAFSA would lead to small changes in the distribution of federal and state grant awards. Could lead to an eligibility system that is simpler and more predictable for filers Reductions in EFCs could be counteracted through minor changes to the assessment rates in the Federal Methodology. Similar results could be achieved by creating a more robust formula that includes more data elements from the IRS without increasing the application burden for filers.

27. Read the Complete Report http://advocacy.collegeboard.org/simplifying-student-aid