FAFSA change creates headaches for college families

In our last report on why American colleges are so expensive, we focused on the costs, the financial aid process, and the role of accreditation in deciding how students receive both needs based and merit aids. But, now there are changes to the Free Application for Federal Student Aid (FAFSA) form, the fee-less form that opens the door to federally financial aid, and in some instances school, or state based aid.

For many years parents with multiple children enrolled in college, at the same time, received a discount making it more affordable for parents.

That has all changed and in a 2020 proposal from Sens. Lamar Alexander of Tennessee and Patty Murray of Washington State, the discount has been eliminated, in an effort to equalize access to aid for lower income families, especially those whose income is $100,000, or below to increase access to Pell Grants.

This is a form of academic outreach to those students, and their families, and the goal is to increase access to higher education for those who need it most. And, to note, Brandeis is using the new form to enhance that population and is using the version only for returning students whose gross family income is less than $100,000 according to Sherri Avery,  vice president of student financial services in a conversation with USA News.

Approximately 13 million college bound students complete the form, and some state that the changes to the FAFSA were designed to simplify the form both visually, and with content to match other formats; and in fact the number of questions were reduced from 108 to 36.

“It also uses a new formula for determining the “Expected Family Contribution” (EFC) — which will be renamed the “Student Aid Index” (SAI). The new FAFSA will still request information on the number of children in your household, but the SAI will no longer provide a discount for multiple children in college at the same time,” according to Mass Mutual’s blog.

“We also used to suggest to families with kids who are two years apart in school that the oldest child consider a gap year, so they can at least divide their EFC for those three years when their kids would be in college at the same time,” said Brock Jolly, a financial professional with The College Funding Coach in Vienna, Virginia. “These strategies will no longer work.”

The previous version had an equal division by the number of children enrolled concurrently.at college. 

Now, using a hypothetical calculation of a family income of $50,000 a first child would qualify for $8,000 with an EFC of $42,000 per year, but with the second child starting the following year, the EFC will be divided between the two children of $21,000 each, and then a third child would be calculated on a 33 percent basis. And, further for the hypothetical fourth child, based on school costs and rankings.

The winners are those aforementioned low income families, and the losers are the middle income and higher families.

While the high income families won’t get much they may get access to being able to simply write a check for annual tuition costs; and, Jolly noted to the blog that, “There are colleges out there that will make admissions decisions based upon your ability to pay full fare,so if school X looks at your FAFSA and sees that your family’s EFC (soon-to-be SAI) is six figures or more, they may be more likely to accept that student over another candidate who would need financial aid. A full-pay family may have a small leg up.”

The lower income families may get more in traditional forms of aid such as work-study, and loans with possible low interest rates.

This new reality means that spreadsheets used to calculate estimated costs will be revised, but let’s also remember that parents don’t know what aid their children could get since that is not given till acceptance, and as we’ve noted schools can afford to be stingy, especially with in-state calculations for state based schools, where parents lack the competitive edge, with lowered tuition versus students from out of state paying more.

Often overlooked, especially for those students desiring entrance to posh schools such as Harvard, Princeton, or Dartmouth is that these schools are well endowed, and can offer more, especially to low income students, especially with merit aid.

For some the drill down on college applications for their high school seniors not only took a U turn with the changes of the FAFSA sibling discount, there is another option and that is to complete the College Scholarship Service (CSS) Profile, and while the detailed questions might be intimidating, the sibling discount is available.

In its original converge, The New York Times quoted “Sandy Baum, a nonresident senior fellow at the Urban Institute, said she understood the financial strain that families might feel when multiple children were in college. But given that college costs are now paid by saving and borrowing over a decade or more, she said, it doesn’t make sense to give, essentially, a bonus to families just because they have two children attending college simultaneously.

“There’s no reason why a family with twins should get more money,” she said. “It’s not fair to families with different spacing” of children.”

The National Association of Student Financial Aid Administrators has noted “Eliminating the sibling bump also makes it possible to create a simple chart that families can check to see if they qualify for Pell grants, according to a statement from the association. Factoring in the number of students in college would have made it “unworkable.”

Why are American colleges so expensive?

When President Biden made his historic and unprecedented student debt loan relief for tens of millions of Americans, last month, encircling $10,000 in debt for those earning less than $125,000, and $20,000 for those low income students who received Pell grants, the reactions were mixed: some praised him and others panned him; and, those critics included some that said, it was not enough, or it was a handout to deadbeat debtors.

The program championed by Senators Elizabeth Warren and Chuck Schumer, came after a long slog, but  there were plenty of lawmakers on both sides of the aisle that disagreed, including, some Democrats worried about their chances in the November midterms, as well as Republicans who didn’t want the president to gain points with young voters.

This is all set against the backdrop that “45 million people owe $1.6 trillion for federal loans taken out for college - more than they owe on car loans, credit cards or any consumer debt other than mortgages,”  reported The New York Times.

What wasn’t asked, and is the $64,000 question: why are American colleges so expensive?

To help answer that question we did a meta analysis on some of the more salient research on the topic: journal articles, and private research organizations. What follows is not comprehensive and we’ve spared the reader charts, graphs and data that would obfuscate, rather than enlighten.

A core problem

While many parents and students get sticker shock when they see the price tags at some of the best private, as well as public schools; take for example Columbia College in New York City which even two years ago, came in at a whopping $61,000 per year, exclusive of fees and other costs, such as books and housing, aid becomes paramount for all but the wealthiest students.

Scholarships, grants and other forms of aid lessen the overall price tag, but what remains are key problems, and as Forbes noted in their analysis, “colleges are not transparent about their true prices.” 

Parents, therefore, are starting the process with one hand tied behind their back, since true costs, and aid packages, are not known until the student is accepted, making it akin to buying a pig in a polke, and “knowing that students will have few alternatives by the time they actually see what they see what they will pay, [and] colleges have every incentive to be stingy with financial aid.”

Problematic for many low income students, and especially students of color, is that the help of the Pell Grant, “hasn’t kept pace with inflation or the cost of college, a fact given by Mamie Voight, in policy research at the Institute for Higher Education Policy, in Washington, D.C."

That makes it easy to see that there are systemic problems with both the admission process, as well as the administration of aid, need based, or merit.

It is especially notable that in some states there has been a rise in American students going to college, for example, in 1980 one half of high school graduates enrolled in college, and that number is 70 percent today, noted Business Insider, recently.in a cover story.

For others that picture is changing with many areas across the nation wondering if both the cost, and the time are worth it,noted in another coverage, by nbcnews.com.

An unfair marketplace

That debate aside, for the moment, at least, accessing aid makes it clear that there are limited options for an atypical student, which might be why many choose the local public college, and live at home, to save on expenses; but, by staying “in state” leaves competitive providers no incentive to offer discounts, “or improve the quality of education,” Forbes surmised.

The reliable US News and World Report, whose guide to colleges and graduate schools has gained near biblical status, noted the tuition hike of 36 percent from 2008 to 2018 compared to “real median income in the U.S. grew just over 2.1 percent in the same period, according to the Center on Budget and Policy Priorities.”

At issue is also the debt that is taken on,and that can result in defaults with “one million people defaulting on their student loans.”

For Black students, in particular, this becomes of prime importance since they “hold the most debt  of any other racial group” according to The Hill, citing the PBS NewsHour that showed, “among 2016 graduates, nearly 40 percent of Black students graduate college with $30,000 or more in debt compared to only 29 percent of white students, 23 percent of Hispanic students and 18 percent of Asian students.”

This is underpinned not only by historical racism in the U.S. but the lack of ability to acquire wealth through homeownership by their grandfathers, who returning from World War II were denied access (many of them middle class) to better housing, most often in white neighborhoods, by restrictive covenants, or if that did not work by violence, to drive them away if they had succeeded.

Fast forward to the present day, and the lack of “integrated wealth” has caused “Black families to seek more and more student loans.”

Of equal consequence for all borrowers, but especially for Black graduates, who after graduation, (who often have to face racism in applying for professional jobs) is the issue of repayment.

“Because of the way that the repayment system is set up, people are only making payments on the interest, and not principal, so their balances balloon over time,” said Kat Welbeck, director of advocacy and civil rights at the Student Borrower Protection Center.

Increased costs keep rising

The bad news for high school applicants is that costs are getting higher said Zane Heflin, policy analyst at The New Center, who has said, “These colleges are trying to raise tuition to appeal to a broader group of students by allowing that to take the place of actual quality,” and furthermore, “there are a lot of perverse initiatives on the part of the colleges to raise their sticker price.”

A large part of that price surge are the ever increasing menu of amenities, part of what some have called, “our collective desire for the all frills college experience” that so many value in American universities, but that they charge for, “climbing walls, state of the arts mega student centers,seriously pimped out dormitories,” noted Thebestschools.org, in August.

This is far removed from returning vets from World War II on GI Bill who faced large state universities with cinder block walled dorm rooms, with toilets and showers down the hall, and at most, a weight room, a track team, and some basketball and tennis courts at the athletic center.

Consequently, It needs no saying that the schools are marketing themselves to wealthier students, and this specific market wants those frills, and is willing to pay the cost.

Adding it all up for a final tally was CNBC who stated that there is an average debt, per student of $37,172 totalling $1.5 trillion of “total debt spread among 44 million Americans.”

Rounding up total costs, in federal lending and grants, according to The Atlantic, “are more than $3,000 per year per student for the ancillary services alone."

Add that to higher and higher salaries of not only teachers, but administrative staff, that require college degrees plus advanced degrees,and often wrap around services, like counseling, and the perfect storm has been created.

Also significant is that many state legislatures cut their education budgets, especially during the Covid lockdown, forcing budget cuts that increased tuition by public colleges to cover the missing dollars.

Market Conditions

There is a much larger picture than parents and prospective students might not imagine, and Beth Akers, a senior fellow at the American Enterprise Institute, where she focuses on the economics of higher education,and author of “Make College Pay”, looked deeper in her research, and especially how the “market” itself is a character in a never ending drama; and, noting that “the decision to go to college is finally a cost benefit calculation, on rising to the middle class.”

Taking a look at this long term analysis, there is a market ready to exploit the value that is seen as a “golden ticket”, which in turn inflates college tuition. And, this is a market that is competitive, with few alternatives.

Accreditation is another factor that prevents a competitive market that would reward students and parents alike, and it is “difficult for a school to access federal financial aid, which means that the playing field is not level between traditional schools and new ones.”

Akers does note that the problems “are deeply ingrained in America’s higher education system and reversing them will take work: and her proposals are two fold: first off, increase transparency, and quality data “should be made more available and accessible, along with data on typical earnings after graduation. This will help inform students whether a particular college degree is worth the cost.”

A move that when suggested has had colleges and universities roaring in protest.

The result would be an increase in competition that would allow healthy competition, and secondly “removing accreditors from their role based on student outcomes,” and force current players to make their product more competitive with lower prices.

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March Jobs Report show resiliency but worries of inflation

Resilience has proven to be the key component of the recovery of the US economy from the ravages of the Covid pandemic and Friday’s Jobs Report for March, underscores this, but the fly in the ointment is inflation, and more inflation, buoyed up by higher wages, that have continued to climb higher and higher, than in 40 years, bringing the matter to both a political, and an economic problem.

For those watchers of the marquee number, unemployment fell to 3.6, but again this was accompanied by higher wages, but with a robust increase is leisure and hospitality, retail and manufacturing, which hit, 112,000, 49,000, and 35,000; and, for the latter, a sizeable increase in a field that had been wobbly for some time, has given hope to many observers.

Much of the increase can be attributed to the increase in vaccination availability, if not always increased vaccinations, but enough to bring those who were worried in working in close quarters with others, and this can be attributable to the rise in retail jobs, but also the higher wages that employers are offering to meet demand.

Bringing some people from the sidelines also increased the payrolls, as much as the dollars behind them, and there has been grave concern that increased wages will be passed onto consumers with higher prices, and as we noted last month, many households are finding that they have eaten into their paychecks, especially by working families.

Add the lack of affordable housing in America’s large cities and the problem can become acute, for even high earning families as they face restrictions from established communities preventing expansions into existing housing stock.

The Brookings Institution noted in a recent report the lack of housing being built in certain areas that affects even those with higher wages, and holding professional degrees, and an added strain on the household budget.

For Federal Reserve Chair, Jerome Powell, wage increase is very much on his mind, and with some reservation earlier said, “The promise of wages moving up is a great thing,” after last month’s interest climb, but noted that they are “running at levels that are well above what would be consistent with 2 percent inflation — our goal — over time.”

Since then wages have shot up to 5.6 percent, over the past twelve months, higher than what Powell said at that time. And, while some economists in the past have suggested winnowing wages as a leveling tool, for inflation, those are not on the horizon with many employers leaning hard to find the right employee.

This is a hot labor market, say most , and, as The Wall Street Journal noted, "service costs, including rent and other housing expenses, are increasing rapidly."

Digging deeper, continued inflation, as a core problem, as well as recession, are also concerning, with continued demand by more affluent families for services, as well as goods, despite  a continuing problem with bottlenecks still  causing rifts.

This Thursday's CPI report, nervously anticipated by the White House and others with its figure of 8.5% increase made everyone nervous, and the measure of what people will pay for goods and services will hit those larger paychecks even harder, especially for lower income households.

Many observers are mentally pushing Powell to increase the interest rate even further than the one-half point anticipated in early May,

While President Biden extolled the virtues, and benefits of the March Report, noting, “Over the course of my presidency, our recovery has now created 7.9 million jobs — more jobs created over the first 14 months of any presidency in any term ever.  And that’s striking.,” and added, “In fact, there have been only three months in the last 50 years where the unemployment rate in America is lower than it is now.”

Those higher wages, as we have seen are contributors to increased inflation, by some, and for others a cut in their spending lowers the drive of the American economy, creating a conundrum, or a perfect storm for a recession.

Biden’s polls, now in the 40s, are as much a political concern, as an economic one, and with the Republicans nipping at his heels, before the November midterms, Biden is trying to broaden his efforts, in the eyes of the public, and the recent release of oil reserves has been one.

The Hill reported that “The White House on Thursday announced plans for the largest-ever release of oil from the United States’ strategic reserves. 

It said in a fact sheet that it would release an average of 1 million barrels per day for the next six months, resulting in a total release of about 180 million barrels.

In remarks on the plan on Thursday, President Biden called on the oil industry to produce more, while also criticizing industry profits. 

“Enough of lavishing excessive profits on investors and payouts and buybacks when the American people are watching, the world is watching,” Biden said. 

“This is not the time to sit on record profits. It’s time to step up for the good of your country, the good of the world, to invest in immediate production that we need to respond to Vladimir Putin, to provide some relief for your customers, not investors and executives,” he added.

Lael Brainard a Federal Reserve governor and candidate for the position of vice-chair, in remarks before a recent Wall Street Journal panel said, "Inflation is too high, and getting inflation down is going to be our most important task.

Meanwhile the March report also showed a negligible increase in labor force participation at 62.4 percent; and, equally the employment population ratio inches to 0.2 percent, which showed that while some did come from the sidelines, in certain industries, but not enough to move the dial, despite some economist’s assertions.

Black employment was at 6.2, lower than it was a year ago, but still higher than that of whites at 3.2, ,and adult women over age 20, was 3.3, little changed from last month, but better than 5.1 a year ago, with lack of child care, still the reason, for many..

For those with less than a high school degree, it was 5.2 versus 4.3 in February.

For those that were able to complete bachelor’s and professional degrees, many are loaded with debt, and with inflation added to debt repayment, the burden is acute, and many in the Democratic party are urging loan forgiveness, especially Sen. Elizabeth Warren and Chuck Schumer to extend the pause beyond the looming May deadline, and ultimately provide loan cancellation

In a letter to Biden, they along with other lawmakers, said, "The payment pause has been a significant federal investment throughout the pandemic, providing essential relief to millions of families during the economic and public health crisis and saving them an average of $393 per month," the letter asserted, later adding that most borrowers "are not financially prepared to shoulder another bill as they face skyrocketing costs for necessities like food and gas."

“The majority of Americans support you taking action; recent polling shows that over 60% of likely voters support continuing to pause student loan payments and canceling student debt, with support strongest among likely voters of color,” the letter added.

Figures show that at the end of the Fourth Quarter of 2021 is 1.7 trillion dollars, much of it held by Black students who borrow more to attend college, continue to borrow more while enrolled, and have a harder time paying it back, once working.

 

Updated Feb. 14, 2022 at 4:30 p.m. CST