As has been widely reported, Secretary of Education Arne Duncan announced
this week that the department would be taking steps to simplify the grueling
109-question "Free Application for Federal Student Aid."
But for many families, the more important news was this: Duncan also called
on Congress to remove student and parental assets from the analysis of a
family’s eligibility for federal student aid. This change has been discussed and
debated for several years, but Obama’s Department of Education is the first to
officially endorse it. As someone who works with middle-class families
struggling to pay for college, that is a "change" that I can believe in.
If Congress follows the secretary’s call to eliminate all questions on the
form pertaining to student and parental assets, it would not only simplify
applying for aid, but it would also make more middle- and higher-income families
students eligible for help.
As part of the simplification, Duncan said some applicants from lower income
households will be allowed to "skip over" the asset sections on the grueling
eight-page FAFSA. Previously these students had to complete those sections even
though–under federal law–that information was not used in calculating their
For other families, however, all the asset, income and demographic
information demanded on the FAFSA form does enter into the
congressionally-mandated formula that determines their Expected Family
Contribution (EFC) to college. Parents’ non-retirement account assets,
including stocks, mutual funds, 529 college savings plans and regular savings
accounts can reduce a student’s eligibility for aid by as much as 5.64% of
the total value of those assets. Put another way, an extra $100,000 in parents’
assets can raise the amount the government calculates those parents can pay for
college by as much as $5,640 a year. If Congress agrees to remove asset
information from the form and the formula, the EFC will be based on income and
family demographics alone.
Say parents have $240,000 in assets that currently have to be reported on the
FAFSA, and based on family demographics they are permitted to have $40,000 in
such assets that don’t count as available to pay college costs. Their EFC would
be $11,280 higher ($200,000 x 5.64%) under the current formula than it would be
under the Obama administration proposal. I can hear the older baby boomers now, "Where was this when we were paying for college 10 years ago?" (Forbes.com)