How to Streamline the Financial Aid Process

Whew, just got done filling out all the financial aid requirements (I think) in support of my son’s college applications. It was pretty challenging even for a family with its act fairly well together, and I can only imagine how tough it would be for a family dealing with true financial insolvency.

And there was so much waste and overlap, I can’t believe that this process isn’t ridiculously expensive both for the government and for schools.

Probably as a means of heading off bureaucratic snafus, some schools actually demand that you submit your federal financial statement (FAFSA)—which is based on your tax information—by February 1. But brokerage firms don’t have to send out their statements to you till Feb 16. And even if you do manage to fill out these extensive forms, based on your best guestimates, schools still want you to turn around and submit copies of your finished tax returns by March1, when again, you will just barely have received your brokerage statements (and could they really not have just waited for your tax returns in the first place?). If you also have corporate taxes to fill out, and are dependent on a third party tax preparer and his or her schedule, this can be quite difficult to pull off.

Okay, so you sent in the FAFSA and your tax return, which were basically the same information entered twice. Was that enough? No. You also have to fill out another form, which you pay the Princeton Review to disseminate. This contains THE SAME information, again. Plus a little more, like the amount of equity in your home and the amount you’ve saved for your retirement, which the colleges claim they are not going to consider. Sure, okay.

And you have to pay the Princeton Review money to file this information and more money ($16 a pop) to send it out to each and every college.

The solution to this mess is so simple it’s heartbreaking: Just provide a check box on federal tax returns asking if parents are seeking a financial aid assessment. Ta-da! Provide a secure location where colleges can access the parents’ aid assessment index, which can be run at the same time as their taxes as processed. Lose the Princeton Review’s extraneous form. Lose the FAFSA statement. Simply require a supplemental schedule, say Schedule FA, in which parents enter information about college savings funds, any cash they have lying around, any home equity over some threshold amount that the federal government establishes that colleges are allowed to consider (I’d be okay with $200K), and ditto with IRA/401(k) info (I’d be okay with $500K for parents over 45). On the worksheet you just do one of those math exercises where if line A is greater than line B you don’t have to report it.

Go ahead and require parents applying for financial aid to file their tax returns by March 15, and fast track their returns so that colleges have the need index information by April 15.

I’ve seen that FAFSA is planning to allow tax return info to be imported into the FAFSA form. While this would be an improvement, my solution is even simpler. Consolidate the FAFSA processing people into the IRS, make it all one form, one timeline, and be done.

And let’s limit the types of information that colleges can look at. Because home equity and retirement should not be on the line, as most colleges officially agree. So why do they even ask? If they are going to charge $50K or more for tuition, they can stop the charade…either plan on offering around $20-25K in aid or drop tuition by about that amount.

This would streamline the aid process, too. Many parents who have been diligent about saving what not long ago would have been a more than reasonable amount of money for college would then not even have to apply for aid. How nice it would be if we could just meet in the honest middle.

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