A new change to the process of applying for federal financial aid could lead students to make smarter choices when borrowing for college. Starting this year, the Free Application for Federal Student Aid (FAFSA), which was previously available for students and their families to fill out in January, is available starting October 1. The shift is significant since it will give students a better sense of the federal student aid they may be eligible for much earlier in the application process.
That may push students to think more carefully about the financial implications of where they apply, and to consider schools that may be less of a long-term financial burden. While students won’t get school-specific aid packages any earlier, they will find out whether they’re eligible for Pell grants and what their “expected family contribution” will be. They can then plug that EFC into college’s net price calculators to get an idea of what their need-based final aid package might look like (scholarships and other merit-based aid are awarded separately), and—importantly—how much they may need to borrow in order to make up for any shortfalls.
Nearly 70 percent of public and non-profit college graduates in 2014 owed money at graduation, with an average debt load of $29,000, according to the Institute for Student Access and Success. A recent Credit Karma survey showed that while most hope to pay off their loans in a decade or less, some plan to be making payments for more than 20 years. While college graduates may have higher employment and better pay than peers who without a degree, those who borrow too much for school may face financial insecurity for years after they’ve left. For some students, a better path may be attending a lower cost school, or one that offers a financial aid package that allows them to borrow less.
Just as students choose which schools to apply to based on their geographic, academic, and cultural fit, this FAFSA change allows students to better target schools that are a better fit financially. While that may mean ruling out schools they’d hoped to apply to, they will also have more time to research schools that they not have previously considered.
An earlier deadline will also give students an opportunity to explore other funding options, including scholarships and think about whether they’ll realistically be able to pay any money they borrow back after graduation.
The price of college has already become a major factor for students and parents. More than two-thirds of families considered it when narrowing their list of schools last year, according to Sallie Mae, and more than half of families eliminated schools for financial reasons before they began the application process. This change means that those students who take advantage of the early FAFSA may have more information on which to base their decisions about where to apply.
While the U.S. Department of Education asked schools not to shift their financial aid calendars this year, but going forward schools may start to send admitted students their full aid packages earlier in the Spring. That would benefit students once again, since it would give them a bit more breathing room to consider their packages, appeal awards, and either come up with a plan to deal with expenses not covered by need- or merit-based aid or choose another school that may make more financial sense.
In another major change to the FAFSA this year, families must use their income tax data from two years ago, known in the industry as “prior-prior year” returns to fill out the form. Previously, families had to use data from the immediately preceding year and often had to wait to file until they had a more complete estimate of their income. (As they have in previous years, families with irregular incomes will need to discuss their situation with financial aid officers if they don’t think that the prior-prior year data gives an accurate picture of their earnings.)