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Dive Brief:

  • State financial aid programs may need to adapt to the new Free Application for Federal Student Aid, which is expected to increase Pell Grant eligibility and provide additional aid to more students, according to a report released Monday from the State Higher Education Executive Officers Association.
  • States often rely on federal financial aid data when distributing need-based college funds and base eligibility standards on those used by Pell Grants, SHEEO said. Changes to how the FAFSA calculates a student’s expected out-of-pocket contribution will ripple out to the local levels.
  • A growing pool of students who qualify for aid may push local leaders to consider adjusting which students are grant-eligible and how much assistance they receive, the report said.

Dive Insight:

Congress passed legislation in late 2020 to simplify the FAFSA, an infamously difficult form for students and their families to complete. The updated version will debut in December, according to the U.S. Department of Education.

The new FAFSA will change how it calculates students’ out-of-pocket contributions, which determines Pell eligibility. The form is moving from a calculation called the Expected Family Contribution, or EFC, to one called the Student Aid Index, or SAI.

The SAI formula is intended to be more straightforward and is based on information that may be more readily available to students and their families.

The simplified form will largely benefit students, both for its ease of use and the expected increase in aid eligibility, the report said. Using the SAI formula, about 33% of students are expected to receive a larger Pell Grant, while over 1% can expect a decrease. A majority of students, almost 67%, will see no change.

Around 56,600 Pell recipients would lose their eligibility under the new methodology, representing about 0.6% of students who currently qualify. However, the total number of Pell-eligible students would grow by nearly 220,000, the report said.

These changes could have big impacts on state aid programs. For instance, the shift may require changes to grant calculations. 

States with first-dollar programs — those that grant awards without considering other aid students receive — are the most likely to be affected by the updated FAFSA, the report found. The growing pool of eligible students is likely to strain their budgets.

The effects on last-dollar scholarship programs — ones that award grants after weighing other aid students receive — are harder to predict, SHEEO said. A majority of state grant programs follow this model.  

If larger numbers of students are expected to be eligible for these awards, states may need to raise their qualification thresholds or adjust the cap on their awards. 

State grants based on Pell eligibility would run into the same issues, the report said.

The new FAFSA has some negative effects, which SHEEO said it likely underestimated in its report due to lack of data. 

A closing loophole for families with small farms and businesses may cause some students to lose out on college funding, it said. Under the new calculation, applicants whose families own farms and companies with fewer than 100 employees must report currently exempt business assets.

Students with more than one family member in college face another concern, as expected family contributions will no longer be divided among each person.

The new FAFSA is already posing a challenge to states and institutions, as it’s being released two months later than usual and still does not have a firm implementation date.

Experts say the delay is conflicting with financial aid deadlines set by governments and colleges, and its new reporting requirements are compounding nationwide staffing shortages in financial aid offices.