Bipartisan Support for Financial Aid Reform

Allowing students and families to use prior-prior year income data on the FAFSA could work as an intermediate step toward CAP’s proposed early guarantee of financial aid and would improve the application process for millions of students.

Prior-prior has bipartisan support the likes of which Washington has not seen in years. (iStockphoto)
Prior-prior has bipartisan support the likes of which Washington has not seen in years. (iStockphoto)

There is a new catchphrase in the higher education policy arena: prior-prior. The term is shorthand for a simple reform to ease the federal financial aid application process for both students and families. Congress fully supports the concept: Prior-prior has bipartisan, bicameral, and broad-based support the likes of which Washington has not seen in years. And lawmakers are spot on in backing the policy—prior-prior is a valuable idea that should be implemented immediately. But they also must recognize that prior-prior should only represent the first step in rethinking the financial aid application process.

Current financial aid landscape

Financial aid is currently determined based on the applicant’s income from the prior year. For example, students and families filling out the Free Application for Federal Student Aid, or FAFSA, for application to college in the 2015-16 school year must include information on all earned income and assets in 2014. Using the most recent year’s income information guarantees that financial aid decisions are made based on the most accurate information available. However, it also creates a timing headache for families that can potentially leave students in the greatest need of aid financially vulnerable and uncertain about their ability to pay for school.

Each year, the FAFSA becomes available on January 1. In order to fill out the form the day it becomes available, families would be required to provide income information on a year that ended just hours before. This is a near impossibility—employers have a January 31 deadline for when they are required to send tax forms to employees.

The timing problem also interferes with efforts to simplify the FAFSA. In 2010, the U.S. Department of Education introduced the Internal Revenue Service, or IRS, data retrieval tool, which gives applicants the ability to transfer their tax information directly into the FAFSA. In theory, importing tax data through the data retrieval tool should cut down on the number of questions asked, the amount of time needed to complete the form, and the number of potential errors from manual entry. But families cannot use the data retrieval tool until they file their taxes, and for those who have filed, it can take weeks before they can access their data. Even families that file taxes right away have to wait until February to use the tool. Evidence has repeatedly shown that the complicated nature of the application process often hinders a student’s ability to complete the form or even file for financial aid—particularly for students with a low income.

The date when families submit the FAFSA affects their ability to get state aid because grant programs typically rely on the federal FAFSA form. At least 11 states have state financial aid deadlines that fall before April 15, including Connecticut, which requires applicants to apply as early as February 15. Other states—such as Kentucky, Illinois, North Carolina, South Carolina, and Washington—begin to determine aid on January 1 but operate on a first-come, first-served basis. If a student applies too late, then funds may already be depleted.

Benefits of using prior-prior data

This is where prior-prior proves to be a solution. The idea is that students and families could use income tax data from the previous year rather than the most recent year—the year prior to the prior year. A family looking to apply for federal aid for the 2015-16 school year, for example, would use tax data from the 2013 calendar year—information they submitted to the IRS months ago—rather than 2014 data. This simple change would allow students to apply right away and meet critical financial aid deadlines.

Prior-prior already has incredible levels of support in Congress. Members of both the Republican-led Senate Committee on Health, Education, Labor and Pensions and the House Education and the Workforce Subcommittee on Higher Education and Workforce Training support prior-prior. Leading Democrats have endorsed the plan as well. Last year, just about every major higher education policy organization signed onto a letter that called on the Obama administration to authorize the use of prior-prior data.

This overwhelming level of support indicates that it may only be a matter of when, not if, prior-prior is adopted. However, policymakers must acknowledge that there is still a significant amount of room for reform in the financial aid arena.

Further necessary reforms

Timing problems go far beyond the FAFSA application itself. Students and their families file the form in the second semester of the senior year of high school. Because of this, key pieces of information that are central to college decision making—such as price, available aid, and academic requirements—are not addressed until it is already too late for families to change outcomes. Many students and families, however, make financial and academic assumptions and decisions about college long before the senior year of high school. The FAFSA’s lack of cost visibility and clarity does not help those who are unaware of available aid and who fear that college is unaffordable, thus raising the likelihood that they do not apply—or prepare at all.

This is why the Center for American Progress believes that not only should students be able to apply for financial aid using older tax data, but they also should be informed of their eligibility for aid years beforehand. In the third report in a series that highlights the College for All plan, CAP recommends fixing the application process by providing an early guarantee of federal financial aid through the tax system beginning in eighth grade. This would eliminate the need for additional burdensome forms.

Making students aware of their aid eligibility at a much earlier date would provide a number of benefits. Providing students and families with an early guarantee of aid—as well as additional information—before high school has the potential to change the decisions people make about preparing for and applying to college.

Allowing families to use prior-prior year data on their FAFSA forms would be a big step in the right direction toward a simple and sane financial aid system. However, it should be used only as stepping stone, as further reform is still needed. While adopting prior-prior would help students by allowing them to apply for aid earlier, notice of aid eligibility should come even sooner.

Antoinette Flores is a Policy Analyst on the Postsecondary Education team at the Center for American Progress.

The positions of American Progress, and our policy experts, are independent, and the findings and conclusions presented are those of American Progress alone. A full list of supporters is available here. American Progress would like to acknowledge the many generous supporters who make our work possible.


Antoinette Flores

Managing Director, Postsecondary Education