Monday, January 21, 2013

Simplifying the application for federal student aid

The application for federal student aid is longer than the tax
returns filled out by the majority of US households. Research
suggests that complexity in the aid process undermines its
effectiveness in inducing more students into college.

In 2008, an article in the NBER journal showed that most of the data items in the aid
application did not affect the distribution of aid, and that the much
shorter set of variables available in IRS data could be used to
closely replicate the existing distribution of aid. This added
momentum to a period of discussion and activity around simplification
in Congress and the US Department of Education.

In this article, Simplifying Tax Incentives and Aid for College: Progress and Prospects, the authors provide a five-year retrospective of what's changed in the application process, what hasn't, and the possibilities for future
reform. While there has been some streamlining in the process of
applying for aid, it has fallen far short of its goals. Two dozen
questions were removed from the aid application and a dozen added,
reducing the number of questions from 127 to 116. Funding for
college has also been complicated by the growth of a parallel system
for aid: the tax system. A massive expansion in federal tax
incentives for college, in particular the American Opportunity Tax
Credit, has led to millions of households completing paperwork for
both the IRS and the US Department of Education in order to qualify
for college funding.

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