Fix the FAFSA to help middle-income families

By Russell K. Osgood

For years, middle-income families have been finding it increasingly difficult to afford the tuition, fees and other expenses associated with a college education. That challenge surely has escalated as the recession has increased unemployment and reduced the value of 529 savings plans along with many other investments.

At Grinnell College, a quarter of our students come from middle-income families. To better understand their financial circumstances, we recently performed a simple analysis. The results confirmed what we have long believed: The Free Application for Federal Student Aid, the instrument that guides virtually all college financial-aid decisions in America, has a fundamental problem.

In a nutshell, the formula that the FAFSA uses unrealistically overstates what many middle-income families can be expected to pay toward a child's college education. Colleges and universities universally employ that formula to determine financial need. It is required for students to access federal grants, loans and work-study programs. As a result, its flawed calculations cascade through the entire higher-education system and severely distort virtually all financial-aid determinations.

There is no universal definition of middle-income families. For our analysis, however, we defined middle income as a range from $60,000 to $120,000 in total income for a family of four. We assumed that each of three families with various incomes in that range had one college-age student, $3,000 in untaxed income and $21,000 in combined savings and assets.

We entered that information into the FAFSA formulas for 1999-2000 and 2009-10, which calculated the expected family contribution toward college tuition and fees.

Next, we looked at the change in the U.S. Consumer Price Index that occurred between 1999 and 2009. The index measured inflation at 27 percent over the past decade. Then we compared the inflation with the expected family contributions for our three families to determine how well the FAFSA formula is aligned with increases in the cost of living.

For families at the bottom of the middle-income spectrum, FAFSA's expected family contribution decreased substantially over the 10-year period, dropping 34.3 percent, from $8,461 to $5,557. However, expected family contributions at the midpoint and upper end of the middle-income range were far out of alignment with inflation. For families with incomes of $90,000, the estimated contribution dropped only 16.7 percent, from $18,145 to $15,116; for families with incomes of $120,000, it fell just 9.9 percent, from $29,041 to $26,163.

Considering that the U.S. Department of Education, through federal mandate, updates the FAFSA formula annually, one might even wonder if government officials are consciously adjusting the formula in a manner that limits eligibility for federal aid to a level that can be met by available government funds.

The vast majority of higher-education institutions rely on the FAFSA as the starting point for establishing demonstrated need and then assist students in accessing federal Pell Grants, work-study programs and Stafford Loans. The FAFSA must be fixed.

The obvious solution: Adjust the FAFSA formula annually at a rate that directly reflects the cost of living. Equally important, that adjustment should reflect the needs and realities of families across the entire middle-income spectrum.

Doing so would, for the first time, bring openness and realism to the process of determining need. It would put new pressure on policy makers, private foundations and academic institutions to provide more aid and to moderate tuition increases.

Most important, it would build broader confidence in the fairness of our financial-aid system.

Fixing the FAFSA won't solve all the financial obstacles that stand in the way of educational aspirations. But it is a start.

Russell K. Osgood is president of Grinnell College. This article first appeared in The Chronicle of Higher Education.