The FAFSA is Broken: Middle-Class Students Have Been Left Behind in the Wake of the Great Recession

By Jennifer Finetti, MA / Delta Valley College Counseling

We all know about increasing college costs, and rising student debt. These issues have been discussed again and again in the media, and the good news is that politicians seem interested in doing something about it. But most Americans – and I suspect most politicians – likely have no idea that the financial aid eligibility determination process has evolved into a system that seems truly rigged against the majority of American families.

As a parent of both a high school student and a recent college grad – and as an independent college & career counselor working with high school students in my community, I have a spent a considerable amount of time researching and discussing the financial aid process with families. Most of the families I work with would be considered “middle-income,” and they are often surprised to discover that their child qualifies for minimal – if any – grant or scholarship aid. This is because parent income and assets are considered when determining financial aid eligibility, regardless of whether or not parents have saved or invested for their child’s education, and regardless of whether parents are unable or unwilling to help pay for their child’s education. As a result, many aspiring college students are left with few options – this is especially true for today’s teens and young adults, whose parents are still recovering from the Great Recession.

But hasn’t the federal government taken these issues into consideration? Haven’t we heard about changes in student loan repayment plans? Didn’t the Obama Administration just announce changes to the Free Application for Federal Student Aid (FAFSA)? The federal government has been making some changes, but those changes do not address the fundamental problems with the FAFSA, and do not address the growing need for grant aid for middle income families.

The FAFSA considers students under age 24 to be “Dependent Students”

The FAFSA requires both the college student and his or her parents to provide their financial information – up until the student is 24 years old, so that the combined “family income and assets” from both student and parents will be considered when determining the “Expected Family Contribution” (EFC) toward the student’s college education. The only possible way for a student to avoid having to include parental income and assets is if the student is considered to be “Independent” on the FAFSA, meeting one or more of the following criteria:

• Student is married or separated, but not divorced
• Student will be working toward a master’s or doctorate degree
• Student is a parent of 1 or more dependent children who receive more than half of their support from the student
• Student has dependents (other than children or a spouse) who live with the student and receive more than half of their support from the student
• Student was in foster care or a ward or dependent of the court after age 13
• Student is an emancipated minor or is in a legal guardianship as determined by the court
• Student is currently serving on active duty in the U.S. armed forces for purposes other than training, or student is a veteran of the U.S. armed forces

The above exceptions are noteworthy; however, there are many situations in which students might be under the age of 24, yet NOT be receiving financial support for college from their parents. Consider the following:

• If a student is under 24 and divorced, but not yet a parent, that student is NOT considered to be “independent” for financial aid application purposes. This is true even if the divorced student is living separately from his or her parents!
• If a student is under 24 and never married, has never been a parent, but HAS been living independently from his or her parents, the parents’ income must still be included on the FAFSA application. This is true even if the student has lived independently from the parents for several years.
• If a student is under 24 and currently living with his or her parents, but will NOT be living with parents during college, AND the parents have indicated they will NOT provide financial support during college, the parents’ income must still considered for determining financial aid eligibility of the student, regardless of the fact that parental financial support will NOT be provided, even if the parents could technically afford to do so.
• If a student is under 24 and his or her parents have clearly stated that they will not provide any kind of financial support for the student AND they have also clearly stated that they will NOT EVEN provide their financial information to the student to enable appropriate completion of the FAFSA, the student can submit the FAFSA without their information, but then the student must work directly with the university to see if there might be a way to obtain any financial aid. In most cases, this results in the student only being eligible for student loans, rather than also enabling the student to be considered for grant or university scholarship aid – even though these students may actually have just as much financial need as students from low-income families.
• If a student is under 24 and his or her parents have not saved or invested for their child’s higher education, and do not have the financial means to pay for their child to attend college or a vocational program, parental income and assets must still be considered in determining the EFC for the student.

An 18 year old is legally an adult – except when it comes to financial aid

How is it possible that upon a child turning 18, parents have the legal right to stop providing financial support for their child if they so choose, yet somehow parental income and assets must be considered when that same child – up to age 24 - applies for financial aid to go to college? And why is it that parents who are legally-obligated to provide child support can stop that support when the child turns 18 or graduates high school, yet parental income and assets must still be considered when determining financial aid eligibility for that child?

And conversely, how is it possible that an 18-year old can assert his or her independence from parents, move out, and provide for his or her own financial support, yet again, parental income and assets must be considered to determine financial aid eligibility for that student?

Upon turning 18 in the United States, a person is now legally able to vote in elections, and may also be selected for jury duty. An 18 year old can work full-time, may establish a checking and savings account without a co-signer, may apply for loans, obtain credit cards and establish credit worthiness. An 18 year old can purchase and use tobacco products in most States, may legally consent to sexual activity with others who are 18 or older, and in 48 states, an 18-year old can get married without parental approval. Males must register for the draft via the Selective Service System within 30 days of turning 18 or face a fine and/or jail time. And an 18-year old is now legally responsible for his or her actions, and is legally obligated to pay all debts he or she has incurred. Yet despite all of these new rights and responsibilities conferred on an 18-year old, and despite the fact that parents are NOT legally obligated to provide financial support to a son or daughter who has turned 18, the FAFSA requires that parental income and assets be considered for students under the age of 24 who do not qualify as an “Independent Student” by meeting one of the very narrow exceptions described above.This simply doesn’t make sense.

Dependent Student vs. Independent Student. Why is this significant?

You might wonder why any of this matters. After all, whether a student is 18 or 23, if parents can’t afford to contribute to that child’s college education, then shouldn’t this be supported by the FAFSA eligibility determination process? For low-income families, the FAFSA process works pretty well. But unfortunately, most middle-income families are left behind by the FAFSA. These families simply have not had the available discretionary income to be able to set aside money for their children’s education, yet the FAFSA eligibility process often determines that they do. Unfortunately, many middle income families have so little discretionary funds that they often don’t save much overall for emergencies or other family needs.

If the FAFSA process could be adjusted to accommodate for mitigating factors to enable some amount of flexibility on the “Independent vs Dependent” continuum, we could level the playing field a bit. There certainly are some students under age 24 who truly ARE independent of their parents, and there are also some parents who simply refuse to contribute to their child’s college education. I personally know of several students who have the desire as well as the grades to go away to college, but their parents have said that they will not help to pay for college. And because their children will be 18, these parents are within their legal right to refuse to do so. Yet the FAFSA process makes no exception for these kinds of situations, resulting in very limited options for these students.

The impact of rising college costs in the wake of the Great Recession

While most parents hope to have the financial resources to help pay for their children to pursue higher education, the sad fact is that the Great Recession has left many families without a way to do so. Years of unemployment, underemployment and/or plummeting home values have taken their toll. Historically, families have often taken out a loan against their home equity to help finance their children’s education – but for many families, homes are still underwater, making this option an impossibility. Parents have often borrowed from or drained their retirement accounts as well, making it even more challenging to take on the cost of college.

But just how much does a college education actually cost? According to the College Board, the average cost of tuition and fees at a public, 4-year In-State University is over $9000 per year. When room and board is added to that figure, the average annual cost rises to nearly $20,000 - and in many states, the cost is higher. For example, in California, tuition, expenses and room & board at a public university ranges from $22,000 to $36,000 per year. Private non-profit universities cost even more, with the average annual cost of tuition, fees and room & board coming in at over $42,000. This means that students who live away from their parents to attend a 4-year university will pay $80,000 to $168,000 to obtain a Bachelor’s Degree.

Most parents understand that saving and investing for their children’s college education is important, and do strive to do so. But according to Sallie Mae’s “How America Saves for College 2015” study, just 48% of families with children under age 18 have saved any funds for their children’s higher education. The average amount saved for college was just $10,040 – an amount that would only cover the cost of tuition & fees for 1 year at a 4-year public in-state university. Yet somehow 40% of parents surveyed indicated they were confident that they would be able to meet the future cost of college. Perhaps these parents are unaware of the actual cost of college, and/or they may be unaware of how financial aid eligibility is determined. In fact, the Study shows that among families who are saving for college, most believed that scholarship or grant money would cover 23% of the cost of college, and that 22% of the cost would be covered by loans. Given that parental income and assets must be considered up until a student is 24 years old – and given the relatively low limits on annual federal subsidized and unsubsidized student loans – it seems unlikely that the reality will match these parents’ expectations.

The Study also indicated that among the families not currently saving for college, 61% cited a lack of funds as the primary reason why they have not saved. And nearly 2/3 of parents who haven’t saved for college are under the impression that their children will receive enough financial aid to cover the cost of their higher education. But in 2014, undergraduates reported they could only cover 1/3 of the total average cost of one year of a college with scholarships and/or grants… The rest had to be covered via parent or student income, student loans, parent loans, etc.

The cost of community college is significantly less than the cost of a 4-year university, making community college a viable solution for families who have not saved for college. But the completion rate for community college students is woefully inadequate. A study conducted by the Institute for Higher Education Leadership & Policy at California State University, Sacramento showed that 70% of students seeking degrees at a California community college did not attain a degree OR transfer to a 4-year university within 6 years. Most of the students dropped out, with just 15% still enrolled. While multiple factors influence these statistics, the rising cost of college is one of the greatest considerations.

The Bill & Melinda Gates Foundation Public Agenda Report “With Their Whole Lives Ahead of Them” discusses the myths and realities of why students drop out of college. The study offers these compelling statistics about why the students left school:

• 71% said that they did not complete their program because they needed to go to work and make money.
• 52% said that they couldn’t afford tuition and fees.
• Among the students who dropped out of college:
• 58% did not have parents or relatives who provided financial support
• 69% did not receive any scholarship or grant aid
• 69% received loans of some sort

Among the students who did not have parent or relative financial support:

• 62% chose their college based on its proximity to where they live or work
• 62% also did not receive a scholarship or grant aid
• 46% would have chosen a different school had money not been an issue

These statistics bear-out in my own community. I have found that many of my son’s friends either didn’t go to college, or went to the local community college and dropped out. Most of them had been excited to go away to school, but their families were unable to provide the financial support needed for them to attend a university. Some of my daughter’s friends are in the same situation, and feel disheartened at their prospects.

Grant aid still inadequate despite rising costs

With college costs skyrocketing, you might think that students would receive significantly greater grant aid to help compensate – but you would be wrong. In fact, the maximum federal Pell Grant award is just $5830 per year, which is only a $100 increase from the previous year. Most students who receive the Pell get less than the maximum allowed. And Pell Grants are typically awarded to families earning less than $40,000 per year, which makes the Pell outside the reach of middle-income families. State grant funds are awarded based on financial need as determined via the FAFSA, so again we are faced with a need to change the financial aid eligibility determination process.

Average annual income in America is relatively stagnant

Perhaps if the average annual income were rising in America, there might be a way forward – families would be able to increase their college savings and/or begin saving. But unfortunately, this simply isn’t the case. In September 2014, the U.S. Census Bureau reported that the median household income was $51,939 in 2013, with no statistical difference from the 2012 median income. And this income level is 8% lower than in 2007, showing that we are still recovering from the Great Recession. Unbelievably, real median household income has averaged $50,781 from 1964 to 2013. The highest median income was achieved in 1999, at $56,865. Commenting on this, economist Ben Casselman noted that after adjusting for inflation, U.S. median household income is “9 percent lower than at its peak in 1999, and essentially unchanged since the end of the Reagan administration.”

FAFSA changes are on the horizon, but the changes don’t address the real problem

On September 14, 2015, the Obama Administration announced changes to the FAFSA process that will go into effect for families applying for financial aid via the 2017-18 FAFSA:

Students will be able to file the 2017-18 FAFSA as early as October 1, 2016 rather than beginning on January 1, 2017. This will be a permanent change, enabling students to complete and submit the FAFSA as early as October 1st every year.

Beginning with the 2017-18 FAFSA, students will be able to report income from an earlier tax year. So students applying for aid via the 2017-18 FAFSA will be able to report income from 2015 rather than 2016.

These changes are helpful, but unfortunately will not impact families in a truly meaningful way because the greatest problem with the FAFSA process is the requirement that parental income and assets be calculated into the “Expected Family Contribution” for students up to 24 years of age, whether or not the college student lives independently from his or her parents and whether or not the parents are willing or able to provide financial support to their adult child. Unless this issue is addressed, we will continue to see student loan debt rise, and see the college dropout rate worsen.

Ultimately, the rising cost of higher education and the fractured financial aid eligibility process impacts all of us. It is in America’s best interest to ensure that we have a more educated workforce, enabling businesses to be more innovative, agile, productive and competitive on a global scale. It is also in our best interest to support and strengthen middle-income families who are still recovering from the Great Recession, rather than making it even more difficult for these families to get ahead. We need to encourage lawmakers to take action and create a more fair and reasonable FAFSA eligibility process that supports the needs of aspiring college students who have come of age during the most challenging economic climate since the Great Depression. It’s time.  

Resources:

“Average Published Undergraduate Charges by Sector, 2014-15.” College Board. College Board, 2015. Web. 24 Oct. 2015. <http://trends.collegeboard.org/college-pricing/figures-tables/average-published-undergraduate-charges-sector-2014-15>

Casselman, Ben. “The American Middle Class Hasn’t Gotten A Raise In 15 Years.” FiveThirtyEightEconomics. FiveThirtyEightEconomics, 22 Sept. 2014. Web. 24 Oct. 2015. <http://fivethirtyeight.com/features/the-american-middle-class-hasnt-gotten-a-raise-in-15-years/>

Chen, Grace. “New Study: 70% of California Community College Students Fail.” CommunityCollegeReview.com. Community College Review, n.d. Web. 24 Oct. 2015. <http://www.communitycollegereview.com/blog/new-study-70-of-california-community-college-students-fail>

DeNavas-Walt, Carmen, and Bernadette D. Proctor. “Income, Poverty, and Health Insurance Coverage in the United States: 2005.” U.S. Census Bureau (2014): n. pag. United States Census Bureau. United States Census Bureau, 2014. Web. 24 Oct. 2015. <https://www.census.gov/content/dam/Census/library/publications/2014/demo/p60-249.pdf>

“Each One Help One.” Why College Students Drop Out. Community College Completion Corps, n.d. Web. 24 Oct. 2015. <http://www.cccompletioncorps.org/why-students-drop-out>

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Fain, Paul. “High Graduation Rates for Community College Transfers | Inside Higher Ed.” High Graduation Rates for Community College Transfers. Inside Higher Ed, 8 Nov. 2012. Web. 24 Oct. 2015. <https://www.insidehighered.com/news/2012/11/08/high-graduation-rates-community-college-transfers>

Hill, Catey. “Parents: You’re Saving for College All Wrong.” MarketWatch. MarketWatch, 12 Apr. 2014. Web. 24 Oct. 2015. <http://www.marketwatch.com/story/parents-youre-saving-for-college-all-wrong-2014-04-10>

“How America Saves for College 2015.” How America Saves for College(n.d.): n. pag. Sallie Mae. Sallie Mae & Ipsos Public Affairs, 2015. Web. 23 Oct. 2015. <https://salliemae.newshq.businesswire.com/sites/salliemae.newshq.businesswire.com/files/doc_library/file/HowAmericaSaves2015_FINAL.pdf>

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Rivera, Carla. “Community Colleges Not Preparing California’s Future Workforce, Study Says.” Los Angeles Times. Los Angeles Times, 20 Oct. 2010. Web. 24 Oct. 2015. <http://articles.latimes.com/2010/oct/20/local/la-me-1020-community-colleges-20101020>