Washington Watch: Costly FAFSA Verification Process

Washington Watch is produced by the AACC office of government relations and policy analysis.

FAFSA completion analyses typically focus on the applicant. Who and how many complete the Free Application for Federal Student Aid (FAFSA)? Why don’t some prospective students complete the FAFSA? How can we make the form and process easier to complete?

There is a cost to students, current and prospective, to not filing. Pell Grant eligible students who fail to complete the FAFSA forgo financial aid that does not need to be repaid. Even though community college students are disproportionately low-income, they are less likely than their counterparts in other sectors of higher education to complete a FAFSA. Lacking these funds, some may end up not attending and others may withdraw prior to completing their programs.

There is another cost, however, the time and effort required to completing the FAFSA. This was partially addressed by the passage of the FUTURE Act, which eliminated 22 from the 100 plus questions in the form. It also allowed data-sharing between the IRS and the U.S. Department of Education (ED), ostensibly to reduce the need for verification. For many students filing the FAFSA is not the end of the process. About one-third of the forms are selected for verification. This translates to about six million filers. Low-income students, who are more likely to be Pell Grant eligible, bear a disproportionate burden and cost because they are more likely to be selected for verification and less likely to ultimately receive a Pell Grant.

Institutional role in verification

Verification does not only involve the FAFSA applicant. Verification is a labor- intensive process for college financial aid administrators. ED’s Federal Student Aid Office uses an algorithm to select the FAFSA forms for verification, which, according to a student-focused statement from ED, “the process your school uses to confirm that the data reported on your FAFSA form is accurate. Your school has the authority to contact you for documentation that supports income and other information that you reported.” The purpose underlying verification is to ensure that federal student aid, particularly Pell Grants, go to those who are rightly entitled to receive the assistance.

The need for this burdensome process has been questioned, given that the verification process consistently has resulted in very few changes to the status of Pell-eligible filers. One study, for example, found that the Pell Grant award was the same before and after verification for 91 percent of Pell-eligible students at two-year institutions. A new Annenberg Brown University report builds on previous research to examine the institutional cost of administering the verification process by higher education institutions.

More costly for community colleges

If likely Pell-eligible students are subject to verification at higher rates than other FAFSA filers, then it is only logical to assume that institutions that educate a disproportionate number of low-income students will likewise spend more on administering the verification process than other institutions. The authors of the Annenberg report made such an assumption and not surprisingly, the findings bore out the assumption. According to the report, complying with the verification requirement turns out to come at about $500 million annual cost, falling more heavily on public colleges, particularly community colleges.  The study estimated that public four-year institutions devoted an average 15 percent of their financial aid office operating budgets to verification procedures, compared to 22 percent for community colleges.

Absent a verification database, the analysis had to rely on numerous sources and assumptions, which the authors admit may be less than ideal. To align the various sources 2014 data were used for the analysis. The Integrated Postsecondary Education Data System (IPEDS) is used to determine the number of federal student aid recipients (based on information only for first-time, full-time students). The number of Pell Grant and non-Pell Grant students who undergo verification is based on an Iowa study because no national source exists. Based on that study, 60 percent of Pell Grant recipients and 10 percent non-Pell Grant recipients had their FAFSA information verified. Costs associated with verification were based on a 1999 U.S. Inspector General Report and estimated to be $134 per student but rounded down to $100 for analysis purposes.

The resulting verification costs fell mostly on public institutions, about $414 million overall, with two-year institutions spending the greater share of $225 million and about $189 million by four-year institutions. The four-year private sector had the lowest compliance cost burden of $67 million.

The nearly $500 million spent on verification translated to the equivalent of more than 130,000 additional Pell Grants based on an average Pell Grant of $3,768 in 2014, according to the report. Community colleges bore a disproportionate amount of that cost, which the report states is concerning because they disproportionately serve the least well-resourced students, who have the greatest need for student financial aid to support their access to and success in higher education.

Policy implications

The top priorities for the American Association of Community Colleges include to “preserve and enhance the Federal Pell Grant program, which is the foundation of student aid for millions of financially needy college students” and “to simplify the FAFSA process to support greater community college student participation in federal student aid programs.”

For more information, contact Jolanta (J.J.) Juszkiewicz at jjuszkiewicz@aacc.nche.edu.

About the Author

Jolanta Juszkiewicz
is director of policy analysis at the American Association of Community Colleges.