1. Simplicity and Equity…Can it be done? Presentation for NCASFAA November, 2009 Steven E. Brooks Executive Director State Education Assistance Authority ==========================  Recommendations of College Board’s "Rethinking Student Aid"  Recent USED and Congressional Activities

2. Why Does the Federal Student Aid System Need to be Simpler? Detailed information about family’s financial circumstances results in 153 questions on FAFSA o Financial detail and associated complexity result in minimal improvements in targeting aid o Complexity of form has led to a market for private companies that charge families for help System is complex and students can’t predict their aid eligibility prior to enrollment o Multiple programs with different eligibility criteria o Complex need analysis formula FAFSA a hurdle—many enrolled students don’t apply Complexity increases college administrative costs

3. Why Does this Matter? Helping more Americans to become college educated will strengthen our nation’s economy and its civic life and make ours a fairer society. A more coherent, comprehensible, and efficient federal student aid system can contribute significantly to making this happen.

4. Early Awareness and Simplicity: The Evidence Low- and moderate-income students would be more likely to prepare academically if they knew the money for college would be available. A simple, predictable, well-targeted student aid system will make taxpayer dollars go further in increasing educational opportunities and attainment.

5. Basic Principles Federal student aid should be: Targeted to those in need Adequately funded Clear, transparent, well-communicated Predictable

6. Basic Principles (continued) Federal student aid should: Be student focused Support both access and success Use taxpayer funds efficiently

7. Recommendations Comprehensive set of policy recommendations that are research-based and support goals and principles Four general categories o Simplify the student aid system o Improve the federal loan process o Develop a federal savings program for low-income families o Reward institutions that support student success

8. Simplification: Determining Aid Eligibility Eliminate financial information from the federal aid application and obtain needed information from IRS Base Pell Grant awards on family size and adjusted gross income Eliminate need as criterion for Stafford Loans by transferring subsidies from in-school to repayment Make detailed IRS data available to states and institutions for calculating eligibility

9. Simplification: The Application Process Student completes brief online application o Demographic information o Dependency status questions o Colleges to which student is applying o Signed permission to release IRS data to USED, state, institutions USED transmits application data to IRS IRS transmits required tax data to USED USED communicates Pell award to applicant USED transmits more detailed IRS information to state and institutions o IRS provides tax data from 3 most recent years

10. Simplification: Determining Financial Need Same formula applied to all independent students and parents of dependent students o Current FM expects unrealistically high contributions from independent students without dependents Detailed IRS data supports more nuanced calculation of need Opportunity to improve FM allowances and tables

11. Simplification: Early Communication Communicate with families annually about educational opportunity o IRS data to US Dept of Education o Pell Grant award o State grants o Federal loans and tax credits o Average price at public institutions in state o Importance of academic preparation

12. Federal Simplification: Momentum is Building!

13. USED FAFSA Simplification Efforts: It’s a Start 1.Overhaul the online application Since May, USED has provided instant estimates of Pell Grant and student loan eligibility, and a link to more college information Since August, students could skip irrelevant questions Since August, FAFSA provides option for unsubsidized loan only In January, redesign will reduce number of web pages and length of application 2.Eliminate questions through legislation Apply for financial aid with information on tax returns Eliminate questions related to assets, other non-verifiable data 3.Use tax data to complete remaining financial questions In January students applying for spring semester will be able to retrieve tax information from the IRS for easy completion of FAFSA Full implementation in summer 2010 for 2010-11

14. HR3221: Student Aid and Fiscal Responsibility Act Simplifies FAFSA by reducing asset questions  Supports Administration goal of using only IRS data to apply  Eliminates asset questions but sets asset cap of $150,000—if assets exceed cap, student ineligible for Pell Grant and subsidized Stafford loans  Unclear how asset cap would be implemented  May not simplify application, since instructions will be complex  Value of asset varies with time; in volatile market, asset values can swing wildly on a daily basis  Asset cutoff produces eligibility cliff--unfair  Could use asset income (interest, dividends, capital gains, etc.) to implement cap, if cap is desired Could phase out Pell and Stafford eligibility as asset income increases

15. Are Assets Important in Determining Federal Aid Eligibility? Assets currently have little effect on Pell and subsidized Stafford eligibility  Families hold majority of asset wealth in homes and retirement funds  Other assets count only if above threshold that increases with age of parents  85% of dependent students don’t have assets that exceed threshold  No assets considered for families that earn less than $50,000 and are eligible to file a 1040A or EZ Asset cap provides little relevant information  Among dependent students with parent income in the Pell income range, 96% have non-retirement, non-housing assets below $150,000  Among those with parent incomes up to $80,000, 90% have assets under $150,000  Among independent students with incomes below $20,000 (Pell income range), 93% have assets below $150,000

16. Simplification: Next Steps Senate bill, similar to HR3221, in progress  Differences worked out in conference College Board will work with states to support modeling of state grant eligibility under simplified system  Grant funded by Lumina Foundation for Education We’re making progress, but more work to be done  Decision on use of “prior prior” year income  More detailed IRS data to states and institutions  More transparent and predictable Pell Grant  Early communication to families regarding paying for college

17. For More Information on Rethinking Student Aid www.collegeboard.com/rethinkingstudentaid Kathie Little klittle@collegeboard.org

18. Questions and Comments?