Financial Aid Is Way Too Complicated

Financial aid is way too complicated for high school students and their parents.

College access has been all over the news lately due to the Supreme Court’s late-June decision to ban the use of race in college admissions. Counselors and institutions justifiably worry about the impact on Black, Hispanic, and Native students. But the staggering complexity of our financial aid system is an even bigger college access problem for students of all backgrounds.

The intentions behind our financial aid system are admirable – help students afford a college education and target the majority of the funds to students that need it the most. Yet, in practice, securing financial aid requires students to navigate a labyrinthine and kafkaesque barrage of forms, jargon, and policies that even CFAs struggle to wrap their heads around.

The FAFSA and CSS Profile are way too complex

It starts with the “Free Application for Federal Student Aid.” Completing and submitting the FAFSA is a non-negotiable requirement for accessing financial aid at the more than 5,300 colleges (2-year and 4-year) in the United States.

The FAFSA questions and formula are changing this fall, but the 2022-23 FAFSA form consists of 108 questions (132 after accounting for multi-part income scenario questions). The document demands a detailed financial autopsy of student and parent income and assets and is more complex than the income tax returns of 90% of Americans. In the age of TurboTax – it’s easier to file your taxes with the IRS than to apply for financial aid.

It’s no surprise, then, that 40% of college-bound high school seniors don’t end up completing the FAFSA. Imagine a working-class family trying to sit down after a long day at school or work and make sense of this word salad:

“Other untaxed income not reported in items 92a through 92g, such as workers’ compensation, disability benefits, untaxed foreign income, etc. Also include the untaxed portions of health savings accounts from IRS Form 1040 Schedule 1—line 12. Don’t include extended foster care benefits, student aid, earned income credit, additional child tax credit, welfare payments, untaxed Social Security benefits, Supplemental Security Income, Workforce Innovation and Opportunity Act educational benefits, on-base military housing or a military housing allowance, combat pay, benefits from flexible spending arrangements (e.g., cafeteria plans), foreign income exclusion or credit for federal tax on special fuels.”

For all of the FAFSA’s challenges, transparency is the one thing working in its favor. The FAFSA publishes its formula for determining financial aid, the Student Aid Index (the artist formerly known as EFC). Trying to make any sense of the SAI calculation may require a finance degree, but at least it’s publicly available.

The main FAFSA competitor, the CSS Profile, doesn’t even have that going for it. The CSS Profile is a supplementary financial aid form used by about 400 private colleges to determine institutional financial aid awards. Students still have to complete the FAFSA to apply for aid at those institutions, but they get the added bonus of sifting through another 100+ questions of financial jargon.

There are meaningful differences between the FAFSA and CSS profiles, particularly the latter’s much harsher treatment of financial assets like housing. Good luck trying to get financial aid from colleges and universities if you had the misfortune of buying and holding a cheap house on a middle-class salary in boom markets like Boise, Austin, or Phoenix over the last decade.

But the biggest difference between the FAFSA and the CSS Profile is transparency. The FAFSA, for all its faults, clearly publishes the formula used to calculate financial aid awards. The CSS profile, as with many initiatives run by its parent company (the College Board), offers nothing of the sort. What makes this particularly galling is that the private colleges requiring the CSS Profile are also amongst the institutions with the largest per-student endowments and can afford to offer the most financial aid.

State-level financial aid programs merely add to the confusion. Each of the 50 US states has its own convoluted thicket of aid, scholarship, and loan programs. These programs are of course, useful for families, and some, like the Florida 529 Savings Plan, are genuinely innovative. But they just layer on even more complexity and uncertainty and create further barriers for low-income families to navigate. Complexity is an extra tax on the families that need the most help paying for college.

A lack of transparency from colleges and universities

The colleges themselves are also not blameless. The high-tuition high-discount model of financial aid leveraging helps universities maximize revenue through price discrimination. But it also adds to the uncertainty and stress of the financial aid process.

The schools meeting 100% of demonstrated need are mostly exempt from this criticism (as long as they pair that with “no-loan” policies). But for everyone else, even the publicly reported data on the percentage of demonstrated need (e.g., 77%) means little when some students get 35% of their need met, some get 95%, and those receiving 95% are sometimes wealthier than those receiving 35%.

Colleges also make a ton of changes to financial aid policies every year. Some of that is driven by factors outside of their control – like the changes to the FAFSA being rolled out this fall. But a lot of it is their own decision – and the onus is placed on families to navigate their own way through the shifts.

Even if a family manages to make its way through the financial aid minefield, it still has to make sense of the financial aid award letter. This final step in the aid journey adds insult to injury. Look at this example of an award letter and try to make sense of it. The page is overstuffed with trivial data points that obfuscate what students and parents actually care about – how much will I have to pay out of pocket, and how much will I have to take out in loans? The schools that try to position federal loans as “financial aid” to make the out-of-pocket cost look lower deserve a special demerit.

The end of affirmative action has heightened the conversation around college access. But if higher education doesn’t move to drastically simplify the process of applying for and receiving financial aid, then all of that emotion will be for naught.