October 4, 2019
The FAFSA is the Free Application for Federal Student Aid. College applicants that want to apply for federal grants, work study or loan programs must complete the FAFSA. Between 1958 and 1992 federal legislation was passed to ensure that middle- and low- income families had access to loans and grant programs in order to finance the skyrocketing costs of higher education. During this time frame, the federal government developed programs with banking and college institutions, not only to guarantee student loans, but also to match education funding efforts for students in need of financial assistance to fund college attendance. Colleges and universities gathered financial information from applicants, committed to providing financial assistance, and submitted the data on students selected to receive a portion of allocated grant money to the federal government for consideration. By 1992, several factors compelled legislators to create a standardized form for all student applicants to complete and submit directly to the federal government for consideration. In general the decision was driven by skyrocketing costs of higher education, executive branch campaign promises, crippling student loan defaults, a desire to ensure that there was a standardized process amongst all colleges and universities to determine expected family contributions, and an effort to ensure the broadest range of colleges and universities were able to provide and be conduits for federal financial assistance. Instead of the student financial aid offices submitting financial data, the applicants were required to submit the data. This data is delivered directly to the Federal Student Aid Center at the United States Department of Education. Today, every college applicant submits this data via the FAFSA.
About the Expected Family Contribution…
EFC or Expected Family Contribution is the amount of money a family is expected to pay for a student’s higher education. The calculation is used to determine federal need based, state and institutional aid. Ideally, the EFC formula differentiates between families based upon income, number of wage earners, living expenses, assets, dependents, and ages to ensure that most grant and need based scholarship funds get to the families that need the most financial assistance. Early formulae were developed in the 1950s by Ivy League schools, but by the 1970s universities began to see the value in coordinating efforts to award financial aid in an equitable manner. As a result, the College Scholarship Service was formed.
Amongst many other services, The College Scholarship Service offers and maintains an online application, the CSS Profile, to allow college students to apply for state and institutional financial aid. The CSS Profile is more comprehensive than the FAFSA and allows the student to submit information about financial hardships that may affect affordability (job loss, medical bills, loss of child support, etc.) As of October 3, 2019 240 colleges, universities, and scholarship programs use a combination of the CSS Profile and/or Institutional Document Service (collects and distributes financial data to institutions on behalf to student applicants) as part of the financial aid process for some or all of their financial aid applicants. Ultimately, financial data is used to determine eligibility for federal loans and grants and used to determine need at the state and institutional levels. A federal EFC formulation was legislatively mandated in 1992 for federal aid, however individual institutions may use their own EFC calculation based upon the CSS Profile to determine how much the institution will contribute to a student’s financial package. The EFC is typically not the exact amount the student will ultimately pay because the college may not be able to cover all of the applicants needs above and beyond the EFC amount.
“Big Picture” Reasons: Why complete the FAFSA and CSS Profile?
- College is expensive. The Office of Federal Student Aid offers more than $150 billion dollars annually for grants, loans and work study funds. For many families, student loans and grants can be used responsibly to supplement education savings and provide post-secondary education, vocational training, and income class mobility that would otherwise be out of reach. The only way to gain access to federal loan and grant programs specifically designed to provide access to education for middle- and low- income families is to complete the FAFSA. Every prospective student that wants to apply for federal aid must complete the form.
- While it is true that student debt and the cost of attending college has skyrocketed over the past 60 years, financing post-secondary education with federal loans tends to have more favorable interest and repayment terms than financing post-secondary education with private loans. The US Department of Education refers to grants and scholarships as “free money” and “gift aid” because they do not have to be repaid. Grants are based on need; scholarships are based on merit.
- Do not assume that you are not eligible for federal aid. In 1992 when the federal government standardized the EFC formula for federal programs, the swath of families that qualified for federal student aid programs broadened, further benefiting middle income families with higher incomes and asset levels. For many families, a significant portion of net worth is in primary residences and retirement accounts. The FAFSA does not take into consideration parental retirement accounts or equity in primary residences. Consider: For the 2015-2016 time period, an estimated 2 million students would have qualified for the Federal Pell Grant if they had submitted a FAFSA. According to SavingForCollege.com, 60% of the “non applicants” would have received the maximum Pell Grant. That is money left “on the table” of a program developed to provide educational opportunity!
- There are many grant, scholarship, and work-study opportunities at the state or institutional level. It is possible to receive funds for programs that the student does not know exist, but the financial aid representative does know; the profiles are used to build a package based upon the entirety of the information submitted.
- The FAFSA and CSS Profile forms can serve as great conversation starters about cash flow management, debt financing and savings. It is an introduction to the importance of financial planning and investing in “self.” Education is an investment in human capital. Whether you have zero assets, modest savings, or a fully funded 529 College Education Savings account, take this opportunity to discuss money, investing and planning. The truth is that some parents are coming out of retirement and going into debt to pay for their children’s post-secondary education. Social Security and disability benefits are being withheld to repay student loan debt. College funding expectations and responsibilities conversations, as well as the cost of lifestyle are important conversations to have before tuition bills are due…before acceptance letters arrive…before applications are completed. See my post “UTMAs: Are You Ready to Give Them Control? Are They Ready” to read about some of the challenges of turning over assets to young adults.
According to the 2018 Pew Research Report “Early Benchmarks Show Post-Millennials on Track to Be Most Diverse, Best-Educated Generation Yet,” post-Millennials are more likely than earlier generations to be pursuing college.
Across several observed racial groups, and between males and females, there has been an increase in the percentage of 18 to 20-year-olds who are no longer in high school, enrolled in college. The US Department of Education is not the sole resource for college funding, whether it be in the form of loans, grants, or work study programs. Family, community and educational institutions of higher academic and vocational learning are stakeholders in the health and welfare of the post-millennial collective, per se. Let’s give the post-millennials a solid financial education foundation…starting with what will most likely be the first exposure to financial planning decisions that may have long-term financial health consequences. Talk to your financial professionals, your student’s college counselors, and your students.
The 2020–21 FAFSA form became available on Oct. 1, 2019. The 2020–21 award year runs from July 1, 2020 to June 30, 2021. There are deadlines for specific “award years.” It is strongly suggested that applicants complete the FAFSA as early in the application term as possible. Visit the Federal Student Aid Office of the US Department of Education website for helpful checklists and more in-depth information on the FAFSA and types of aid available. The mystery and apprehension about money, debt, and college costs diminish with honest conversation. Arguably, even in-the-midst of deadlines, it is always FAFSA season, because it is never too late to start planning from where you are: here and now.
–Terry
Peace of Mind Waypoints 