This September, President Obama made an announcement that will change the way the college financial aid application process works in the U.S.
What will this mean for aspiring college students? Only time will tell, but most experts in the higher-education communities are hopeful that it will vastly improve the existing system of financial aid. The main problem with the current scheme is its pacing: Students and their families have to make a series of critical decisions about their futures in the frenzied space of about a month. Under the new plan, they will be able to gather their information sooner, complete simpler submission processes, and likely have more time to negotiate and make college choices.
Here's a look at the current process, and how it will change moving forward.
How the FAFSA Works Now
The FAFSA is the mother of all financial aid forms, and it has been a source of stress and anxiety for families of college-bound students for years — this may be especially true for first-generation college students, or families for whom English is a second language. That’s because this one application is the gateway to all forms of federal financial aid, including Pell grants, Stafford loans, federal work-study, and more. And, as can be true of many government forms, its language and question prompts can be confusing. (It’s more than 100 questions long.) Add to these the fact that most state aid programs and school institutional aid decisions are based on the information submitted on the FAFSA, and you’ve got a very high-stakes and opaque process.
In other words, completing this paperwork correctly and in a timely manner is a big deal; it can make or break your eligibility for both federal and state aid.
Over the years, filing online has helped simplify the process somewhat, but there's still the big issue of timing. Traditionally, college-bound students could begin submitting their FAFSA on January 1 of their senior year of high school. All of the income and asset information, however, has to be based on the prior year’s tax returns, and many families don’t file their tax paperwork until much closer to the April 15 deadline.
This gap between January and April has caused many applicants either to delay their applications until after their families have filed the relevant financial information, or to submit the FAFSA using estimated figures. It’s in a student’s best interests, after all, to submit this financial aid paperwork as early as possible. Especially in the case of state aid, it's often the early bird who get the worm, since these funds are disbursed on a first-come, first-served basis.
After filing (at some point after January), students have to wait until late March or early April to receive school financial aid award letters. Colleges usually send these out shortly after their acceptance and rejection letters. It’s only upon receipt of these financial aid award letters that students have any real sense of their expected family contribution (EFC), or of what they are expected to pay out of pocket to attend a given college.
This difficult (not to mention anxiety-inducing) sequence of events has forced many college-bound students into making a quick decision about which school to attend by May 1, the date by which most colleges require applicants to respond to offers of admission. This pacing leaves precious little time — maybe a month or so — for students and their families to negotiate financial aid packages with colleges. Perhaps this is a reason why so few families seem to realize that negotiating is an option at all.
Given President Obama’s recent announcement, it would appear that the government is finally acknowledging that there is a mismatch between the federal financial aid application timeline and that of students’ and colleges’ application and admission schedules. Here’s what will be different beginning for students entering college in fall 2017.
Earlier Starts to Aid Apps
Next year, applicants will be allowed to file a 2017–2018 FAFSA as early as October 1, 2016 (rather than January 1, 2017). In filling out the form, they’ll be able to use information from the family’s 2015 tax returns (in other words, financial records that will have been from nearly two years earlier). These new allowances mean that families no longer face the pressure of rushing into their accountants’ offices as soon as possible after New Year’s Day.
Because families will be allowed to use older tax return information, more applicants will be able to take advantage of the convenient and easy-to-use IRS Data Retrieval Tool (DRT). This tool automatically populates the FAFSA with all of your family’s tax information so that you don’t have to go line by line through the form looking for which fields you’ll have to complete. In addition to reducing the amount of work you’ll have to do, this step will reduce the number of errors you’ll have a chance to make.
One thing to bear in mind when using the DRT is that if your parents live separately, both households will have to contribute their own relevant information.
Less Transparency — For Schools
The current FAFSA allows you to share the finished document with up to 10 colleges to which you’re applying. But the catch is that each school gets to see your entire list. Critics of this arrangement have argued that schools were using the data to make financial aid and admissions decisions. For example, if a given school were listed first, the admissions committee might think it’s an applicant’s first choice and thus award less money to that student based on her perceived interest. Similarly, that school may be more likely to admit the candidate if the admissions office expects that, if admitted, the applicant will attend — and thus help boost the school’s yield rate. Beginning with the rollout of the new FAFSA rules, schools will no longer have access to information concerning which schools candidates are applying to.
Increased Consideration of Assets in Aid Awards
This one is a little more complicated than the points listed above, but it stands to benefit middle-class and low-income families. As it stands now with the FAFSA, a portion of a family’s assets are protected from the government’s consideration. In other words, some savings funds and investments do not affect a student’s eligibility for need-based state or federal aid.
The new system of rules, however, will lower the threshold for savings and investmnet funds that affect aid awards. What this means is that students whose families have more money in investments or savings stand to receive fewer aid dollars because those funds will no longer be protected to the extent that they currently are.
The flip side of this is that more funds will be allocated toward college-bound students whose families have fewer assets. This new plan aims to increase college access to those who might not be able to pursue higher education without financial aid.
Ideally, an earlier FAFSA application will help schools get their award letters out sooner, thus giving all parties ample time to consider their options and make a carefully-considered college decision. This benefit is still hypothetical — and contingent upon colleges speeding up their schedules slightly — but it seems reasonable.
Remember, all of these changes won’t take effect until October 2016 — about a year from now. The first college-bound class to be affected is this year’s cohort of high school juniors. Once the new process is implemented, however, it is poised to ease some of the financial aid headaches that have become a rite of passage for college applicants and their families all across the country.