What Does the COVID-19 Stimulus Package Mean for Financial Aid?

With most of the focus on stimulus payments, unemployment funding, and the second round of PPP, most mainstream media coverage either completely missed or barely touched upon the fact that the latest stimulus package included major changes to the federal student aid process as we know it.

While some families will celebrate the changes - such as Pell Grant recipients and those whose students have had drug convictions - others may be see their tuition bills rise substantially, including large families with multiple students in college at once, small business owners, and divorced parents. These changes will go into effect in 2023, and will impact families completing the 2023-2024 FAFSA.

Keep reading to learn more about what to expect:

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1. The FAFSA is going to be a whole lot shorter

While the FAFSA form originally contained 108 questions, the new legislation reduces it to about 36. But the so-called FAFSA Simplification Act doesn’t actually make everything simpler, as you’ll soon learn.

2. The EFC will be replaced by a new calculation

The Expected Family Contribution (EFC) will be replaced by the Student Aid Index (SAI). This name change replaces what was a bit of a misnomer - families often pay more than the EFC, either because colleges do not meet full need (providing loans rather than grants) or because the college recalculates the contribution and requires more than the federal calculation suggests. 

3. Large families and small business owners could see their tuition bills increase substantially

The biggest impact will probably be felt by large families with multiple students in college at once, as the parent contribution of the EFC/SAI will no longer be divided by the number of family members in college at once. This will greatly reduce the amount of financial aid that families paying multiple tuition bills at the same time currently receive. Depending on the number of students in college, this could be a high five to six figure difference per family per year! Small business owners will also see a potential increase in the cost of attendance for their children, as the values of those businesses will now count towards parental assets.

4. Pell Grant recipients will have an easier, more consistent process

For Pell Grant recipients, the SAI will automatically be set to zero. Students can also receive negative SAIs, of as low as -$1,500. Changes to Pell Grant criteria will make it easier for incarcerated prisoners and students with single parents to be eligible for grants. 

5. Students with past drug-related offenses will no longer be barred from receiving federal aid

In a move that is consistent with our society’s evolving attitudes on drug use and addiction, students with drug convictions in their past will now be eligible for federal aid. They have not been eligible since the Higher Education Act of 1998 was passed, and a Government Accountability Office report in 2005 found that up to 40,000 students were impacted each year as a result.

6. Divorce-related strategizing will be a thing of the past

Divorced parents have long been able to make strategic decisions about financial aid eligibility by modifying sleeping arrangements, as the parent with whom the dependent child spends more overnights is currently responsible for completing the form (regardless of legal custody arrangement). However, this will change with the new legislation, which requires the parent who provides the greater portion of the student’s financial support to complete the form. When both parents provide equal support, the form must be completed by the parent with the greater income. Step-parent income will still be included in the calculation if the parent completing the form has remarried, regardless of whether the step-parent plans to contribute to the child’s education. In fairness, many families have already had to release non-custodial parent financial information through the CSS Profile’s non-custodial parent form, so this change will have the greatest impact on students who attend schools that do not require the Profile in addition to the FAFSA.

7. Cost of attendance may look very different

There are many changes to the cost of attendance calculation in the new FAFSA. Some of the biggest include the separation of room and board into separate allowances for housing and meals, and the requirement that the meal allowance account for three meals a day. Institutions must also include loan fees on federal loans in the calculation (this is currently optional), and there will be no allowance for private loan fees. The cost of obtaining professional licenses or certifications will also be mandatory rather than at the discretion of the institution.

8. IPA rises in line with inflation

The Income Protection Allowance (IPA), which shelters a portion of parent and student income to provide for basic living expenses, has been raised and will continue to be adjusted for inflation. The 2023-2024 IPA for parents is 20% higher than 2021-2022, and for students, the 2023-2024 IPA is 35% higher.

9. Demographic changes

The FAFSA will now include a question that asks about the applicant’s race or ethnicity. Male applicants are also able to complete the FAFSA without registering for the Selective Service, a welcome change with the new legislation. 

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We hope that this rundown of major changes is helpful! It will definitely be a very different landscape in the coming years, especially for families that have more than one student attending college at a time.

For more information about all of the changes made in the FAFSA Simplification Act, we recommend this Forbes article, which also provides a list of the changes to the appeals process once families complete their financial aid applications, as well as this Q&A from the National Association of Student Financial Aid Administrators.

A long-awaited FAFSA update: Why you shouldn't apply just to apply - and how to get help if you DO need to apply!!

Don’t “Apply just to Apply”

If you are 100% positive that there is absolutely no way that your family will qualify for financial aid, submitting the FAFSA will result in the following:

• Sharing personally identifiable information unnecessarily

• Providing information that could potentially bias the admissions committee against providing merit aid to the admitted student because of a higher-than-average household income and a perception that the additional money “isn’t needed”

• Providing information that could potentially make it more difficult to gain admission in the first place.

That last one is an especially important consideration: while a lack of financial need doesn’t really give anyone an advantage anymore (there are plenty of full-pay students, especially in the DC area), having financial need can still represent a disadvantage… whether the school claims to be need-blind or not.

Remember: many admissions officers do not have access to the numbers on financial aid forms when making the admissions decision, so other than context clues, they don’t know whether the student is applying for financial aid with a $50k HHI or a $500k HHI. They just know that the student applied for financial aid.. and BOOM! There goes any benefit associated with being a full-pay student!

Still: If you need to apply, you need to apply.

If there is ANY question that you might be eligible for need-based financial aid, please disregard the above information and go ahead and apply. You need to fill out the FAFSA; in all likelihood, the CSS Profile, as well; and any other forms required for the financial aid process. Many schools also have institutional forms, so please make sure to check individual financial aid websites. Don’t waste one minute thinking about whether to apply or not or worrying about a disadvantage. Control what you can control!

How to know?

Go ahead and visit FAFSA4caster to get a better estimate of your eligibility for financial aid before filling out a FAFSA. If your Expected Family Contribution (EFC) is less than the expected cost of attendance at the highest-priced college(s) your student(s) may attend - you may qualify. Don’t forget to add the cost of attendance numbers together with multiple students in college - this is calculated per family, not per student.

• For example, let’s say your EFC is $100,000 and your son is a high school senior during the 2019-2020 academic year. You visited the schools’ websites and found that the cost of attendance at the pricest school on his list is Boston College, with an estimated cost of attendance of $76,161 (ouch) for the 2019-2020 academic year.

• Your first step should be to re-calculate the possible estimated cost of attendance for the 2020-2021 academic year. Boston College has had price increases of just under 4% (3.9%, 3.97%, etc) in recent years - let’s give them some wiggle room and re-calculate assuming a 5% cost increase to be safe. Your new estimate is $79,969. In this case, STOP! Don’t apply for financial aid. (Note: BC claims to be need-blind, and they very well may be, but why risk it? Many schools claim things that aren’t the case, or change policies mid-way through the admissions cycle.)

• However, let’s take that same scenario (EFC is $100,000 and the expected cost of attendance at your senior son’s highest-priced school is $79,969) and pretend that you already have an older child in college already. She will be entering her second year at UVA’s School of Engineering (that in-state tuition never looked so good, huh!) and the estimated cost of attendance is $38,210. Allow for a 4% increase based on UVA’s past data, which would come to be $39,738. Add the two numbers together: you’re now at $119,707. YES- you should apply for financial aid!

One issue I didn’t cover here, for simplicity’s sake - the way that schools present costs are slightly different from school to school and are not particularly straightforward. Some include allowances for items like living expenses, for example. Since it’s not a perfect calculation, if your EFC is anywhere near the expected cost of attendance, I would go ahead and apply just in case. On the other hand, if your EFC is $100,000 and your student is attending a school with a $70,000 cost of attendance, you should not apply. This will do you no favors.

YAY! WE WILL LIKELY QUALIFY! HOW DO I FILL THIS THING OUT?

If you do decide to fill out a FAFSA and apply for aid,  the good news is that there is a local organization that provides 1:1 assistance for free. College Access Fairfax will provide 1:1 assistance at their FAFSA completion workshops, as long as you show up with the documents they require in hand (don’t worry, there aren’t too many documents to gather).  Students do not have to be enrolled in Fairfax County Public Schools and do not even have to live in Fairfax County. This is such a great service! There is still one workshop left on April 1 for Class of 2020 seniors who are filling it out on the later side, and you can register for that here.

They also provide programming for younger students that is absolutely worth attending if you believe you will apply for financial aid or would just like to learn more about the process. Events in March include Paying for College/Scholarship 101 (I would recommend this for families with students in 9th-11th grade) and several Middle School Financial Awareness seminars.

A FEW LAST TIPS

Believe me, I understand that it’s stressful to think about paying for college. Whether you qualify for financial aid or not, this is a source of stress for MANY families across income levels. Here are a few more tips concerning finances:

• Set a budget from the beginning and stick to it. Do not allow emotion to be a factor in your decision-making process; desperate people make bad choices. NO school is worth your retirement savings or hundreds of thousands of dollars in debt.

• Try not to feel badly if you can’t afford to send your student where she wants to go (or can, but have chosen not to spend your money that way). I have seen so many parents beat themselves up about this over the years, which is crazy. Accepting that you can’t give your child everything is the worst part of parenting and 100% unavoidable. You can put it off, sure, but not forever.

• Bernie Sanders is NOT the answer. Sorry, had to stick that in there :) Don’t forget to vote on Super Tuesday tomorrow!

Good luck!

To FAFSA or not to FAFSA... that is the question!

Few things bother me more than processes that aren’t transparent.

As a result, I try to do whatever I can to be honest and direct with my clients. I do not believe in hiding the truth from people - it only causes problems in the long run, even if it seems like a good idea or “the right thing to do” at the time. (Side note: if you haven’t read the book Lying, I highly recommend it. Life-changing!)

One college admissions-related issue where transparency is seriously lacking has to do with filling out the FAFSA, and whether families without financial need should fill it out anyway.

Around this time of year, every year, questions about this issue roll in nonstop. On one hand, colleges and school counselors seem to be insisting that the FAFSA is required for everyone, financial need or not… but many families report that their accountants have advised them that it’s not required, and that they shouldn’t fill it out.

I’m with the accountants. NO! Don’t fill it out if you don’t have financial need.

But my school counselor said to fill it out!

The long and short of it is that school counselors often-times encourage all families to fill out the FAFSA to make sure that no families accidentally bypass it because of a mistaken belief that they aren’t eligible.

While I agree in theory that it’s better to have a hundred ineligible families apply for no reason than to have one eligible family miss out on financial aid… I feel like the whole thing gets tricky when gentle “encouragement” turns into “bombarding families with scare tactics” about how their students will not be eligible for merit-based scholarships if their parents do not apply for financial aid.

And it’s not just counselors, it’s entire school systems and even STATES! Some states have actually begun to force all graduating public school students to complete the form!

As a result, many families truly believe that filling out the FAFSA is just another necessary step in the college application process and they fill it out without questioning anything.

Even though I am not a fan of spreading inaccurate information to scare people into doing something, I think the school counselors that perpetuate this myth have their hearts in the right place.

Moreover, based on the outright arguments I have seen on college admissions list-serves, I am pretty confident that a good number of these counselors actually do believe it’s required and just don’t know any better. Which is sort of concerning, to be honest, but I digress!

But the colleges said to fill it out too!

Colleges, in my opinion, aren’t perpetuating the idea that the FAFSA is required for the same reason as the counselors. Instead, they want the data! If more students fill out the FAFSA, that just means that the colleges and universities have more information to use in sophisticated mathematical models that influence admissions decisions and scholarships.

You can read more about how data is used in the admissions process in a New York Times article that I shared on social media this past fall. It was one of the best college admissions-related reads of last year, in my opinion! You can find it here - but I took the liberty of copying and pasting a selection below, as well:

If you pick any two freshmen at the same college, they are very likely to be paying completely different tuition rates. Those rates are based not on the true value of the service the college is offering or even on the ability of the student’s family to pay. Instead, they are based on a complex calculation, using sophisticated predictive algorithms, of what the student is worth to the college and what the college is worth to the student.

The consultants many colleges hire to perform those calculations — known in the trade as “financial-aid optimization” — are the hidden geniuses of enrollment management, the quants with advanced math degrees who spend hours behind closed doors, parsing student decision-making patterns, carefully adjusting their econometric models, calculating for admissions directors precisely how many dollars they would need to cut from their list price to persuade each specific Chloe or Josh to choose their college. Outside the ranks of enrollment management, the work done by the companies that employ these back-room prodigies is almost entirely unknown. But collectively, they play as big a role as anyone in shaping American college admissions today.

Of course they try to suggest that families have to fill out the FAFSA. Come on - those algorithms won’t run without data!

The Actual Truth

Colleges provide three different types of scholarships, or “free money", “grants,” etc:

• Merit-based

• Need-based

• A combination of merit-and-need based

It is exceptionally, exceptionally rare for a school to require the FAFSA for a scholarship in the first category - one where financial need does not play a role in the selection process.

If you hear an admissions officer say that the FAFSA is required for scholarships, or if you read it on a college website, you need to delve deeper to determine if any of the schools on your list fall under one of those rare exceptions.

NOTE: Since many of my blog readers are Virginia residents, I want to point out that Virginia Tech is one of the schools that does show up on the exception list. Still, the reason for the exception won’t apply to 99% of the VT applicants with whom I work. Most of their “merit-based scholarships” do have a need-based component - which obviously requires the FAFSA - but some of their military scholarships require the FAFSA even though they don’t take financial need into consideration:

So, if you know that you will be applying for a military scholarship at VT: yes, you’re going to have to file the FAFSA regardless of need.

If there is any question whatsoever about whether a FAFSA might be required at a certain school for merit applicants without financial need, make sure to do your due diligence; after all, policies change. Give their financial aid office a call. Ask: “What kinds of scholarships require the FAFSA? Does your institution have a single scholarship that is merit-based only, with no financial need component whatsoever, that requires the FAFSA?”

Be warned: the person may very well tell you at first that merit-based scholarships do require the FAFSA at their institution. But once you start pressing about whether those “merit” scholarships incorporate financial need, you will learn that it is incredibly rare for a college to require the FAFSA for a scholarship that is truly based on merit alone.

Think about it - why would you need to share your financial information for a scholarship that has nothing to do with financial need? That would make no sense.

So why not just submit it anyway, just in case? Can that really hurt?

It sure can!

More on that in my next post..

(And just to be clear - families with financial need should fill it out. No debate there.)

ROI: What are we really measuring?

I posted about a Georgetown study on Higher Education ROI on our Facebook page a few weeks back and promised to follow up with a blog post. I think there’s a lot of interesting information here, and while it may be surprising at first to hear about Maine Maritime Academy and the pharmacy schools, it brought up another point that I’ve thought a lot about lately: that it’s important to realize that when we consider these issues, we are looking at averages.

It’s absolutely correct that the average income of a pharmacist is higher than the average liberal arts graduate. There’s a whole sub-set of fields like this - engineering is another great example - where the starting salaries are high and remain consistent, without much risk of the student ending up unemployed or underemployed.

However, averages don’t tell the whole story. How many engineers or pharmacists do you know in the top 1%? I almost feel badly writing this out because I do not think that high incomes should necessarily be everyone’s goal (I have a master’s degree in education for goodness’ sake!) but if we’re going to use salary information as a ranking metric, I think we need to differentiate between the chance of achieving financial stability and the chance of becoming a high-income earner.

I know that the definitions of these are probably different for everyone, but let’s say for our purposes, a financially stable professional might bring in about $100k in the DC area and a high-income earner might bring in about $300k+ in the DC area. Give or take.

How would these rankings look if instead of taking the average incomes of graduates - which clearly speak to stability - they took the percentage of alumni earning more than $300k? Oh, and if they performed cost-of-living adjustments (I can dream, right? All my readers know how passionately I feel about cost of living adjustments!). I think this would give us very different results. No way would the Maine Maritime Academy come out on top, in my opinion - or the pharmacy schools.

Yes, there’s no question that liberal arts degrees bear more risk as opposed to pre-professional degrees. No doubt about it. But I really do believe that by and large, they also offer the most reward. When I look at myself, an English major with a master’s degree in education, I know that on paper I should probably be making a tenth of what I actually earn. On the other hand, though, maybe it was my relatively low income potential that led me into entrepreneurship. If I had a solid six-figure engineering job at age 25, would I have taken the risk of losing that income? Again, just speaking for myself here, but I don’t think I would have.

I think that the Wealth-X list provides a good point of comparison that comes a little closer to the point I’m trying to make, although we have to keep in mind that people with a net worth exceeding $30m are not exactly the norm. But I do enjoy this statistic: “University of Chicago and University of Virginia share the distinction of having the most UHNW [ultra high net worth] alumni with self-made wealth.” YES! That is right about what I would have guessed.

Now, how about just regular high net worth alumni? Time for someone to perform that study!

Meet me in St. Louis?

Another day, another scandal.

What's frustrating to me (and I tried to get it across in this article - but I think a lot of what I said was edited out) is that this is indicative of a FUNDAMENTAL PROBLEM in the way that financial need is calculated without taking cost-of-living adjustments in mind. It's just ridiculous.

Why do we live here again? YIKES

A family with a bunch of kids in a high cost of living area like Northern Virginia could absolutely, ABSOLUTELY struggle to pay the cost of attendance at their state university - over 31k at UVA - with a HHI of $200k. (I do not, for what it’s worth, consider anyone in our area with a 200k HHI to be wealthy. Far from it.)

But many of these people have “no financial need" on paper because the calculators do not take cost-of-living adjustments into account. SIGH!

I do realize that the kids could just attend community college. And I have no idea about whether this had anything to do with the situation in Chicago. I am not saying that it is okay to commit fraud, because it’s obviously not - at all. What these people did was wrong.

But I do know that the FAFSA calculation methodology is a real problem that's affecting so many families in our area, and I cannot for the life of me figure out why the government can't stick some kind of cost of living adjustment on there. This is NOT a hard problem to solve!

For what it’s worth, I’m not even saying that I think financial aid guidelines should be loosened, or that a Bernie Sanders type of “free college” system is what we need - I actually really don’t think that. I work my tail off and pay a fortune in taxes already.

But if we’re already giving this money away, why are we doing it inequitably? And why are the families in high cost of living areas just sitting by and letting it happen without throwing a fit?