COLUMN-Three ways to fix financial aid form flaws

Mon Dec 23, 2013 7:00am EST

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(The opinions expressed here are those of the author, a columnist for Reuters.)

By Liz Weston

LOS ANGELES, Dec. 23 (Reuters) - Starting Jan. 1, families with college-bound students will begin submitting the Free Application for Federal Student Aid (FAFSA). The FAFSA is the key to getting most grants, scholarships and loans, but filling it out can be a nightmare.

The application form "is much too complicated," according to financial aid expert Mark Kantrowitz of Edvisors Network. "The FAFSA instructions are a mess" that "leave you guessing a lot of the time," said college savings guru Joe Hurley.

While some improvements have been made in recent years, including the ability to import recent IRS tax returns, the complexity of the application process means that too many students are missing out on aid, said Lauren Asher, president of the Institute for College Access and Success.

Low-income people in particular who could benefit significantly from higher education either don't know the form exists or give up after trying to fill it out, Asher said. "One of the major obstacles to enrollment and completion," Asher said, "is the lack of information about the availability of aid."

Here's what these experts say should be done to improve the FAFSA:

SIMPLIFY, SIMPLIFY, SIMPLIFY.

Kantrowitz' research found that 2.3 million students who would have qualified in 2007-08 for the Pell Grant (federal money earmarked for those with the greatest financial need) failed to complete the FAFSA. There are nearly as many questions as on a full 1040 income tax form and the number is daunting, particularly to those students least familiar with the financial aid process.

The form "chases after a false sense of precision," Kantrowitz said, in an attempt to uncover wealthier students trying to masquerade as poor.

"This loses sight of the primary purpose of the form, which is to help low-income students to pursue a college education by eliminating cost as a barrier," Kantrowitz said. "The low-income students are forced to jump through hoops so that the form can eliminate eligibility for the small fraction of a percent of students who try to game the system."

Kantrowitz said the form, and the federal financial aid formula, need "a drastic simplification."

" the number of questions from over 100 to just a handful, such as family income, household size and number in college," Kantrowitz said, "plus the student's name and contact information."

One way to fix the problem is to allow the use of prior-year tax data. A big chunk of financial aid is first-come, first-served, so students are encouraged to submit the FAFSA as soon after the Jan. 1 as possible.

But the form requires the most recent income information from tax forms, and most families do not have all of their federal income tax data that early in the year. Even after they file their tax returns, it can take a week or more to get the information electronically transferred to the FAFSA site.

Letting families use the previous year's tax information such as their return for 2012, instead of 2013, "would allow students to have their aid eligibility in hand much earlier in the application and admission process," said David Hawkins, director of public policy and research for the National Association for College Admission Counseling.

The National Association of Student Financial Aid Administrators endorses the change, which it says would help the neediest students.

CHANGE THE TIMING

Students cannot apply for aid before Jan. 1, yet many four-year colleges require admissions applications by Dec. 31. That leaves families in the dark about what the colleges will actually cost them, since they do not know what aid they'll get.

Asher's organization recommends that families be allowed to apply for aid before they apply for admission, or at least at the same time. Once families are allowed to use prior-year tax data, there shouldn't be further barriers to getting clear answers about what aid they can expert, Asher said.

"The whole process could shift to using the tax data that's available rather than waiting for after Jan. 1," Asher said.

LET THE IRS WRITE THE INSTRUCTIONS

Letting the IRS write instructions may seem counter-intuitive, given the notorious complexity of tax law and the bewildering array of tax forms. But anyone who has tried to fill out the FAFSA will come to appreciate the strides the IRS has made in recent years in making tax instructions comprehensible, said Hurley, a CPA who founded the SavingForCollege.com college savings plan comparison site.

Compared to FAFSA instructions, "IRS form instructions...are light years ahead in terms of thoroughness and consistency," Hurley said. (Follow us @ReutersMoney or here Editing by Lauren Young)

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