Iowa College Aid analyzes potential impact of FAFSA Simplification Act on certain Iowans

The upcoming implementation of the FAFSA Simplification Act will streamline the Free Application for Federal Student Aid (FAFSA) process and increase the number of Iowans eligible to receive Pell grants. However, according to a recently published report by Iowa College Aid, the act may also negatively impact some Iowans’ financial aid eligibility. Those most likely to be negatively affected by this change include farm owners, small business owners, and families with multiple students in college. The report, titled “The FAFSA Simplification Act: Policy Simulations and Implications for State Aid Programs,” models the effects of changes coming to the FAFSA starting October 1 of this year. “The FAFSA Simplification Act is certainly a step in the right direction to make postsecondary education more affordable and accessible,” said Iowa College Aid executive director Dr. Mark Wiederspan. “But in states such as Iowa, where family farms and small businesses are the backbones of many communities, we are concerned that without minor changes to the FAFSA Simplification Act, it has the potential to have the opposite intended effect for some Iowans.” Iowa College Aid’s research focused on the updates to the formula used to determine financial need, known as the Student Aid Index (SAI), which replaced the Expected Family Contribution (EFC) in the FAFSA’s financial needs analysis calculation.

Iowa College Aid’s analysis and projections of the FAFSA Simplification Act found that:
• The SAI for many will likely be lower than their current EFC, leading to an increase in the number of Pell grant recipients and greater Pell grant awards.
• The SAI considers family farms and small businesses as assets, leading many Iowans to appear wealthier than they are.
• The SAI formula does not consider the number of family members in college.
• A small share of college-going Iowans will likely lose eligibility for the Iowa Tuition Grant, Iowa’s largest financial aid program.

Under the previous needs analysis formula used by the FAFSA, if a family had an adjusted gross income of $60,000 and a family farm valued at the state average, their expected contribution would be $7,626 annually. However, under the Student Aid Index (SAI) needs analysis formula, which counts farms and small businesses as liquid assets, Iowa College Aid estimates that same family would have to contribute up to $91,816 annually. Similarly, if a family had two members in college and had an expected family contribution of $5,000, that total was split between the two college-going individuals. Under the SAI, that contribution would be for each family member in college, increasing the financial burden for families with more than one member in college. In addition, it may affect their eligibility for some financial aid programs. Iowa College Aid has notified Iowa’s congressional delegation and the U.S. Department of Education about these potential effects of the FAFSA Simplification Act and is urging a continued review of this policy and its impact. While the transition from EFC to SAI in the FAFSA Simplification Act will make education more affordable and attainable for many, Iowa College Aid is optimistic that policymakers can make efforts to minimize the negative impact this may have on a limited number of Iowans.