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Your School Isn’t Ready for the FAFSA Simplification Act

Episode 65

August 3, 2021 31 minutes


EAB’s Kathy Ruby and Sarah Le Duc review the basics of financial aid optimization and explain why FAO is more important than ever to helping colleges meet enrollment targets. The two examine the real-world impacts schools should prepare for when the FAFSA Simplification Act is enacted in 2024.

They also offer tips to help financial aid offices work with campus leaders to begin preparing now and to communicate with families of prospective applicants who are already asking questions about what the new legislation means for them.




0:00:12.8 Speaker 1: Hello and welcome to Office Hours with EAB. Our guests today are experts in Financial Aid Optimization or FAO for those in the know. FAO is a complicated process that when handled skillfully, helps draw more students into college who might not be able to afford it otherwise, while still enabling institutions that are dependent on tuition dollars to keep the lights on. Our experts explain in layman’s terms the biggest changes to Financial Aid policies that schools need to prepare for now, before the FAFSA Simplification Act goes into effect. Thank you for listening and enjoy.


0:00:56.7 Kathy Ruby: Hello everyone, and welcome to Office Hours with EAB. My name is Kathy Ruby, I am a Financial Aid Principal at EAB, and I’m excited to be joined today by my colleague Sarah Le Duc. Hi, Sarah.

0:01:11.3 Sarah Le Duc: Hi, Kathy, thanks for asking me to be here.

0:01:14.9 KR: I’m glad you can be here. So, I wonder if we could start out and you could share with us sort of the elevator speech about what you and our team in Bloomington, Minnesota do for colleges and universities?

0:01:28.7 SD: Sure. So, I’m a Principal like you here at EAB and the Financial Aid Optimization arm of the EAB firm, but obviously, also like you, we both spent a lot of time in Financial Aid Offices previously in our careers, but now what we do is work with colleges and enrollment leaders to really think about their Financial Aid awarding policies and their awarding structure more strategically. We provide customized analytics to drive enrollment results and improve literacy about Financial Aid spending, about Net Tuition Revenue on campuses, both for enrollment leaders themselves, as well as cabinet members and other constituents on campus. So, everyone comes to us with their own sets of experiences and expectations about the products that we have available. So really what we have to do first is listen, which we get really good at doing, so that we can provide a customized experience for our partners.

0:02:40.3 KR: Great, well, thanks, Sarah. Yeah, and Financial Aid Optimization really has never been more important than right now, given the impact of the pandemic, depending demographic with all these things that challenge university presidents and enrollment leaders to the max, so the work we do is… It certainly keeps us busy, very important. So today, what we’re gonna talk about is a major policy development that’s coming down the pike that will have a huge impact on the way that… Ways that universities use Financial Aid to help students and families, but also to hit their enrollment targets and net revenue targets of course. We’re talking about the FAFSA Simplification Act today, which was passed last December. It was originally set to take effect on July 1st of 2023, but recently the department said that they were gonna delay that implementation until 2024, which has provided [chuckle] quite a bit of relief for many people. And so, except for a few sections that are just being implemented in a phased in way over the course of the next year.

0:03:47.2 KR: So, before we turn to the FAFSA Simplification Act specifically. Let’s just talk a little bit about the environment in which it was passed. Sarah, can you just give us some insight into the current recruiting season that’s currently coming to a close in terms of how students and families have been managing the FAFSA process and without the usual in-person support that students rely on to complete the FAFSA and get through the Financial Aid process?

0:04:16.8 SD: Yeah, great question. I think it’s been a really challenging year, well, for all of us certainly, but especially for students that have been in a remote learning environments, it’s been especially challenging. And those tend to be areas that are more urban, the more suburban areas have more likely been in-person than virtual. So that’s been a big challenge, I think, for high school counselors in particular, that tend to work with populations that have a harder time getting through the process, and particularly getting through the FAFSA process. Early in October, things looked much more dire than they look now. FAFSA filing percentages were way down, the National College Access Network now has FAFSA filing percentages down 4.7% from last year, which was behind from the previous year due to the pandemic coming in kind of in March and disrupting FAFSA found behavior. That decline is, as I alluded to earlier, much more disproportionately toward schools that are Title 1 eligible, schools that have a higher percentage of students that are student of color population.

0:05:32.2 SD: So, in recent EAB research, we learned, not surprisingly, that low-income students are much more likely to report that they had difficulty completing the FAFSA this year. They rely really heavily on that high school support and counselor support that’s in the schools, and it’s just a lot more challenging to reach students in this environment.

0:05:55.5 KR: Yeah, so can you elaborate a little bit more on what’s wrong with the current system? So, what’s really broken and really unnecessarily complicated about the FAFSA, and what are the things that needed to be fixed as we talk about FAFSA Simplification?

0:06:11.8 SD: Yeah, I think the Department of Education has made some changes, as you and I both know over the past few years that have made it a little bit easier. And they’ve certainly taken some strides to make it simpler than it has been historically, but it’s still a really long form, it’s still a really complicated form. It still asked for a lot of information that students don’t always have available to them, and they have to report their income. They can usually pull in that income from the data retrieval tool by getting the income on to their FAFSA directly from their tax returns, but it’s still a little bit clunky. It doesn’t always work. It’s tricky to understand. Students don’t always know, so they might need their parents’ help, and the parents aren’t always available when the students are completing it. So it’s just… It’s a lot of questions, it’s overwhelming.

0:07:12.0 SD: Students don’t know how to ask and who to ask for help, and then the students that are the highest need students, the lowest income students, are much more likely to be selected in a process called verification. The Department of Education just kind of waived that requirement, late cycle this year, but basically, it’s asking for students and families to, again, put the information down on a worksheet, the same income information that they provided on the FAFSA. So it’s redundant, it’s confusing, it’s…

0:07:46.2 KR: Prove again how poor you are and how much you need the money, right?

0:07:49.2 SD: Yes, tell us of that. Exactly. So, it’s just awkward and sometimes embarrassing, I think for students to A, fill out the forms, B, fill them out again and then C, come into a Financial Aid Office and ask questions about it ’cause they feel silly for not understanding this ridiculous process.

0:08:09.8 KR: So, lots of barriers.

0:08:09.9 SD: Lots of barriers, exactly. So Kathy, could you explain in this simplification process what is actually being simplified? So, how is it gonna get better for these students, this crazy process?

0:08:24.5 KR: Right. So the FAFSA Simplification Act itself, so it reduced the number of questions on the FAFSA. So it reduced the number from about 108 down to about three dozen. And so, the way it did that primarily was that all… Is that all income questions on the FAFSA will be essentially, any income that is reported and considered on the FAFSA will come from the IRS. So essentially, they’ve eliminated and streamlined the sections of the form where they asked un-taxed income questions, so that the only kind of un-taxed income that’ll have to be reported will be something that shows up somewhere on a tax return. So everything will come from the IRS, it will be much simpler for students to complete. The other big change that happened is that the Expected Family Contribution, which is the output from the FAFSA. So it is the family’s, in theory, ability to contribute. The name of the Expected Family Contribution has changed to the Student Aid Index. So from here on out, we’re gonna be talking about EFC and the SAI. Expected Family Contribution is the current world and SAI is what will be in effect in 2024.

0:09:37.6 SD: But I thought this was supposed to be less confusing. To me it sounds like now it’s more confusing, just kidding. So what’s the difference though? What’s the difference between the estimate… O Or Expected Family Contribution and the Student Aid Index, and what does it mean for school students and their families?

0:09:56.8 KR: Alright, so I think first, it’s a change in name, right? So the Expected Family Contribution, you and I know from our years working in a Financial Aid Office that the Expected Family Contribution is a misnomer, right? It’s not actually the amount of money that any family usually ends up contributing to college. And certainly by calling it the Expected Family Contribution, it led parents to believe, this is what I’m supposed to have to have leftover at the end of every year to hand to a college. So, they’ve changed it to make it clear. So for many years, many have been saying, it should be an index, because that’s what it is. It’s a way that we’re comparing one family’s financial strength to another family’s financial strength, so that’s good, they changed it to an index. And it’s really… I think will be easier for families to understand.

0:10:49.6 SD: So instead of them coming and getting a calculation, getting a number and saying, Okay, $20,000, that’s what I’m on the hook for. And some colleges don’t really cover the rest of the difference between the cost and that $20,000, so that gets confusing. So this will, instead of being called an Expected Family Contribution, we’ll say this is just an index and what colleges are using to cover their cost. Okay.

0:11:19.1 KR: Exactly.

0:11:19.9 SD: So what else? What other information do you have for us on this change?

0:11:26.7 KR: Well, so more importantly, I think even for schools, especially, is that the name changed, but also the formula that is used to calculate what was the EFC that is now the SAI has changed in some fairly significant ways, and also in some fairly insignificant ways. I mean, it changed in a lot of different ways, but there are a few big changes, I think that are gonna have quite an impact on both families and on schools as they’re planning their age strategy. So, I guess, I’m just gonna outline just a couple of the more significant changes. The first is that currently the minimum Expected Family Contribution is zero, but in the new world, in the new SAI world, the SAI can go as low as negative 1500. So, that’s a big change. They also fundamentally change the way that Pell Grant eligibility will be determined going forward. So, right now, if your Expected Family Contribution is below a certain level, if the number is 5847 for this year, you qualify for a Pell Grant and it’s on a sliding scale with a zero EFC, getting a maximum Pell Grant.

0:12:40.3 KR: Now, that’s still going to be true, but in addition to that calculation, eligibility for will also… Is expanded to also take into account if a family falls within certain income parameters based on their household size, the marital status of the parent, and then using US poverty guidelines. If a student falls within certain income bands then they will qualify for a minimum or a maximum Pell Grant. So what that will do is effectively allow schools and the government to clearly explain to students upfront, if your family’s income falls within these parameters, then you’re going to qualify for a Pell Grant, might not share the amount, but you will qualify for either the maximum or minimum Pell Grant. So, it’ll be more transparent. And then finally, I think one of the other large changes here is that when… In the Expected Family Contribution calculation, the parent contribution is divided by the number of students in the household in college, or children in the household in college. And that’s no longer gonna happen.

0:13:54.4 KR: So, that’s gonna make some families less needy, because they expect… The SAI will be higher than what the EFC would have been. So that’s a change there. There are some other things happening within the formula to mitigate that, but there are definitely gonna be some families who have less need than they did. And then finally, there are some changes in what’s being asked, so the information that’s being collected along the edges, some changes and who completes the form in the event of a parent divorce, how un-taxed income is considered? So a couple of small changes. But I’d say the three big ones really are the negative SAI, the change in how Pell Grants are… Eligibility is determined, and then that number in the household in college. So here’s a question for you though, Sarah. So, do you think FAFSA files are actually gonna benefit from these changes?

0:14:51.6 SD: Yes. [chuckle] I do. I mean, even just your point earlier where you said the number of questions are going to be reduced about a third, or two-thirds, it’ll be a third of what it is now. I mean, that’s gonna make it simpler to begin with, and there’s gonna be more students that qualify for the Pell Grant, and they’re gonna know earlier if they’re the type of student that’s going to qualify for the Pell Grant or not. I think the simplicity is big, especially, when we think about those high school counselors, we talked about earlier that are helping students. They have a lot of questions, right? How many times do we meet with families and high school counselors, and we talk about how confusing it is and they’ve been through it, how many different cycles and they still don’t really fully understand it.

0:15:39.9 KR: Yeah.

0:15:40.2 SD: So I think the simplicity will help. I feel like Kathy, we’ve had such a good example of this year in terms of simplifying the college application process with test optional.

0:15:54.3 KR: Right.

0:15:54.4 SD: Because so many schools went test optional this year, it simplified the process of applying to college. And we saw a lot of growth from the student of color population, and a lot of institutions saw a net growth, because I think the process was made simpler.

0:16:15.9 KR: Exactly. And I think we have to remember that this kind of simplification, I mean, this legislation coupled with other policy opportunities for colleges can really do quite a bit to expand access. Fundamentally, we have to remember, this is gonna be a lot of change for schools to manage, but ultimately the goal is a good one. So, let’s talk now about colleges managing these changes. So, after all, you and I are not regulatory experts, right? We’re here really to talk about strategy. So how can… What strategies can colleges employ to start to manage these changes? So, what do you think are the most important strategic questions from… That a college will have to address?

0:17:00.9 SD: Yeah. I think… I mean, that’s why it’s good that we have time, right? On the one hand colleges historically are afraid of change. Is that a secret? Or can we just say that? [chuckle] It’s hard to change, it’s hard for humans to change, I think, our… You know, it’s just a challenging behavioral thing to want to do is to change, but I think it’s a really good opportunity to get real with who you are as an institution. If you want enrolling growth, what are the places based on your location, based on your student population, where you have opportunity? And if your growth opportunity involves students that are lower income, then this Pell eligibility expansion might be a part of your strategic growth plan, right? So, thinking about who you are as an institution, what you use your institutional aid dollars for, is it mostly merit scholarships, is it mostly need-based, is it working? Is it strategic? Are you really taking a look at how you can be the most efficient you can be with your aid policy? Is it helping you to reach your enrollment goals for your institution or your other strategic goals?

0:18:21.7 SD: These are questions that Kathy and I work with partners a lot on to address, and sometimes they’re tricky, right? Because the way you awarded merit scholarships 30 years ago, and you directed almost all of your dollars towards merit aid as a reward for students, not necessarily an award, but a reward that is shifting and changing. And more and more students in schools are getting upfront with their aid dollars in order to attract students in terms of a marketing strategy. So, if you have a desire to do that, thinking of ways that you can be more precise, thinking about what those enrollment goals are, is really helpful.

0:19:06.6 KR: Yes, and then I think also understanding what the changes in the law mean for your particular population, right? So there are many different changes in the need analysis, assessing carefully what… How that will impact your admitted students and your current students, of course, but your admitted students as well, to assess where things might change and then where you might need to respond with a policy. Now, we’re actually working, beginning a project, a data project internally, and eventually we’ll be working with our partners to study their data, to help them identify sort of where their vulnerabilities are when it comes to the changes in the need analysis coming down the pipe.

0:19:52.2 SD: And what changes are the most important ones? Like, if you had to… If someone said, Okay, you have two minutes, give me the top three or something like that, what would you say?

0:20:00.0 KR: Yeah. I’ll give you the top two first and the top two that I think of first are, how are you going to address the additional need that’s gonna be created, right? So we talked about the negative $1500 SAI. Well, that’s another $1500 of need for a student who wouldn’t have had that need before. How will you address it? How are you going to distinguish between a zero EFC student and a negative $1500 SAI student? And then, what are you going to do with more Pell eligible students? So many of our partners and many institutions have Financial Aid programs that are tied to Pell Grant eligibility. So now you’re gonna have a lot more Pell eligible students, how will you plan for that, how will you plan for that from a resource perspective? I think strategically, it’s very important to be thinking about that now and planning for it, even though it’s not gonna happen for a couple of years.

0:20:54.6 SD: Yeah, so institutions have the information, they can run the calculations and determine how much additional it will cost them in order to meet need for students in the same way that they are now, or potentially better.

0:21:09.5 KR: Right. Because ultimately, you need to know so that you can be anticipating what the yield might be on those students and whether you can continue to enroll them. And from a resource perspective, those are conversations that can’t just happen in the Financial Aid Office, right? So it’s an institutional question about what resources will be available to help meet those additional needs. I also wanna talk a little bit about the question of the number of students in the household in college, because I actually think that’s a pretty important question that colleges are gonna have to answer. On the new FAFSA in 2024, the question will still be asked, how many children in the household are still enrolled in… Or will be enrolled in college, but it won’t be counted in the SAI calculation. So, the institution… An institution has to decide how are you gonna treat the answer to that question with your institutional dollars? Of course, federally, it can’t count, but institutionally, what will you do with your dollars?

0:22:16.4 SD: Yeah, ’cause right now the way the estimated family contribution works is it calculates it based on income assets, those inputs, and then basically if you are up to in college at the same time, it takes that… If that EFC is $20,000, it takes and cuts in half if you have two in college, so it’s 10 for each student, right?

0:22:36.8 KR: Yup. And for some families that’s a huge… That’s a big difference, for some upper middle income and even some middle-income families. As I said, there’s some mitigation happening in terms of other calculations in the formula that are gonna resolve some of the difference, but it still will have an impact. And I think… Even though it’s so far off, I think it’s maybe not too early to start thinking about how you’re communicating that to families, right? Because families are planning not just for next year, but for the years after that, right? My… Just a little bit of background on my experience, in addition to being a Financial Aid Administrator for many years, I also worked for about five years counseling families on how to pay for college, and I was counseling families who were receiving my advice as an employee benefit working at big companies all over the country.

0:23:33.0 KR: So I actually, this week, I reached out to a couple of my former colleagues to say, So what are you hearing in the field from families about FAFSA Simplification? What are… Are families paying attention? Did they notice? Did they ask questions? And I would say, unanimously, what I heard back was they’re worried about the number in the household in college. So, they understand enough, and now granted, this is a population of families who are proactively taking advantage of an employee benefit to learn how to apply for Financial Aid, but they understand enough about how Financial Aid works to understand that that’s gonna make a difference. Now, you and I know, and certainly some of our Financial Aid Administrator colleagues know that it may not make as big a difference as they think, but I think the important thing here is that families are perceiving that there’s a problem and that they may not be able to afford certain colleges, if the EFC isn’t cut in two anymore, when they have two kids in college.

0:24:32.1 SD: Yeah. So if we’re thinking about what the colleges do then, either in relation to what you just said or something else, if the FAFSA is getting simplified, maybe colleges also need to think simplified. [chuckle] They need to think about simplifying their communication. We’ve looked at college websites, some are really great, some are a lot, a lot of information, and I definitely worked on college websites when I was on campuses as well, and it’s hard, especially with Financial Aid stuff, ’cause you have to meet all the requirements that the Department of Education says that you must meet in terms of your communication with families, but then make it sound really easy and simple. So, it’s not an easy thing to do, but the starting now on going through and thinking about A, how can I simplify it? B, how can I be completely transparent about how the award to aid and how accessible our Financial Aid is to students? And then just thinking about what policies do we have in place that prevent access or create barriers for students and families, and really reducing those?

0:25:53.4 SD: One thing I know we’ve talked about before, if in particular kind of sticks out, those SAP requirements that are tied, or merit scholarship requirements that are tied to a certain GPA, instead of aligning your merit scholarship requirements with your satisfactory academic progress policy, that might be a place to start if you have something like that in place, registration holds, if you have low balances, putting a hold on a student’s registration for a $50 parking fine or something like that, those kind of things also prevent… Put these barriers in front of students.

0:26:41.1 KR: Yeah, so I think what we’re really trying to say here is that we hope that institutions will take advantage of this opportunity, this piece of legislation that aims to make things more transparent and reduce barriers to sort of do that in their own shop. When it comes back to the number in college question, and all of these questions around the changes that are happening, right now it’s important here, it’s hard to know specifically what to communicate about what your institution is going to do, we fully recognize that, but I do think it’s important to be proactive in your communications and to acknowledge that there could be concern. And that your institution is committed to remaining affordable and providing wonderful value, and that you’re ready and willing to answer questions as families have them, about how these changes may affect them in the future.

0:27:41.1 SD: Yeah.

0:27:41.2 KR: Does that make sense?

0:27:42.5 SD: And maybe start with the internal conversations, right? So that everyone’s on the same page, and then pushing it out to kind of the external, the families and the students, that part of the communication.

0:27:57.4 KR: Yeah. So, let’s just talk this through as we kinda wrap things up here. What do we think are the most important next steps for colleges to take as they get prepared for 2024 when the FAFSA Simplification Act goes into effect? I’ll start out and I’ll just say, first, to figure out what the impact is gonna be at your institution, study whatever data that you need to study. There’s great resources out there now in terms of summarizing what all of the changes are, so that you can identify which populations you might have that will be most affected. NASPA recently, just a couple of weeks ago, published a very extensive chart, the Financial Aid Offices are fully aware of it, I’m sure, but a very extensive chart with all of the changes.

0:28:46.2 KR: I also refer to a Mark Kantrowitz article in Forbes that came out right after the legislation came out. He does a great job of summarizing every little detail. So I think that’s the first step. And again, I just wanna emphasize here we are starting to work on that behind the scenes with our partners, our Financial Aid Optimization partners. What else, Sarah, what do you think?

0:29:09.2 SD: I mean, I think that’s a great first step, and then from there, deciding who needs to be involved going forward, right? Whether it’s starting a committee on campus that says, This is an opportunity we have, this is what’s coming down the pipe, this is how it will impact us institutionally. We have to decide now how much it’s going to cost, or maybe it’s not gonna cost anything, and what we want to do about it? And then, again, making sure that… I mean, higher ed is so siloed, that if you can find a way to kinda bring everyone together and make sure you’re simplifying, making things transparent, taking your institutional strategic goals and aligning it with your website, your communication.

0:30:01.6 KR: Exactly. And I think… It’s so rare, I think that we get an opportunity to sort of leverage some federal legislation to do good things at our institution, right? And they’ve given us plenty of lead time to do that. It’s a big change, it’s an important change, and I think it’s a wonderful opportunity for institutions to take advantage of it. So, I think that’s about all we’ve… We’ve covered what we need to cover, and would really just like to thank you all for listening today, and thank you Sarah for having a conversation with me.

0:30:38.1 SD: Thank you, Kathy. It was really fun.


0:30:48.4 Speaker 1: Thank you for listening. Please join us next week when our guests look at what’s driving all of the mergers and consolidations going on across higher ed. They’ve analyzed several years worth of M&A deals and will highlight the different types of partnerships they’re seeing, as well as the reasons why many of these deals have so far at least failed to deliver the kinds of synergies the interested parties were hoping to capture. Until next week, thank you for your time.


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