AEFP 45th Annual Conference

Toward a Meaningful Impact through Research, Policy & Practice

March 19-21, 2020

A Burden on the Poor: Compliance Cost Variation in FAFSA Verification

Presenter: 
Alberto Guzman-Alvarez, University of Pittsburgh, alg223@pitt.edu

Each year millions of college students seeking financial aid complete the Free Application for Federal Student Aid (FAFSA), which is required in order to be eligible for most forms of financial aid. These students are jockeying to receive the upwards of $120 billion in student aid that the federal government awards each year (Federal Student Aid, 2018). With the rising cost of tuition beyond the rate of inflation (College Board, 2018), federal financial aid is imperative for students, especially for historically minoritized and first-generation students, who may have no other way to finance their education (Castleman & Page, 2015; Davidson, 2013). However, before aid is dispersed, the federal government flags a proportion of FAFSAs to undergo further scrutiny by a process known as verification.
FAFSA verification is a federal mandate that requires Title IV postsecondary institutions to verify that student-provided information is accurate and complete. Roughly 30% of all FAFSAs filed are selected for verification every year, compared to the nominal 1.5% audit rate for federal tax returns (Dynarski & Scott-Clayton, 2006). Institutions contact students flagged for verification to request additional information or documents, such as income, household size, and parent marital status.
The federal government argues that verification is needed to assure that the billions in federal aid awarded each year are going to students that qualify for the aid, and not to students that may have misreported and received aid they were not entitled to. However, recent studies show that 84% of students selected for verification at public institutions experienced no change in their expected family contribution (EFC) (NASFAA, 2017). A zero change in EFC would result in no change in the financial aid award to the student. NASFAA also found that nearly all of community college students verified saw no change to their Pell award after verification.
Although the federal government finds and flags students, who must be verified, the government does not use its resources to process the millions of verifications that occur each year. Instead, the burden of auditing the verification falls to colleges, specifically financial aid offices. Financial aid offices must use their administrative resources to comply with verification, even though they have limited human resources and have seen continual decreases in their operating budget in recent years (Cochrane, 2010; NASFAA, 2015).
Previous work has estimated the compliance cost for the verification mandate in the hundreds of millions (Advisory Committee on Student Financial Assistance, 2005). Using data from IPEDS, Federal Student Aid auditing reports, and constituency surveys of the National Association for Financial Aid Officers (NASFAA), we expand on this line of work by calculating back-of-the-envelope estimates of the total compliance costs of verification as well as heterogeneity by postsecondary sector. We further develop the existing literature by exploring who bears the brunt of the burden by looking at the average estimated compliance cost as a function of the average operating budget by postsecondary sector.
We estimate compliance costs to institutions in 2014 totaled $420 million. The majority of the burden is placed on public institutions, predominantly community colleges. Specifically, we estimate that 16% of an average community college's financial aid office operating budget goes to the cost of verification. This analysis is timely, given that institutions are currently facing an increasing number of verifications (NCAN, 2018).

Poster: 

Comments

As someone who studies federal grant and loan aid, I have long been interested in the ways in which verification requirements could reduce the effectiveness of student aid programs. I am very excited to see new research contributing to this topic! A few thoughts/suggestions: - There's a nice paper by Mark Weiderspan that looks at the correlates of being selected for verification and the potential consequences for students that might be worth looking at (available at: https://www.iowacollegeaid.gov/sites/default/files/Impact_of_Verification_on_Iowa_FAFSA_Filers.pdf; accompanying testimony to the Senate HELP Committee: https://www.help.senate.gov/imo/media/doc/Wiederspan.pdf). - It would be interesting to elaborate on why community colleges face the largest verification compliance costs. I'm assuming that it is due to the criteria used to select FAFSA applicants for verification and how these criteria correlate with type of institution attended. - I would have liked to see more details on how the cost of $143 per student verified was calculated. - This might be outside of the scope of your work, but it would be interesting to know how the money spent on compliance would have been spent in the absence of verification. For instance, if the full amount was instead used to provide grants to students, how much more would the average community college student recieve in grant aid? Looking forward to seeing future work on this topic!

Great poster on an important topic. It would be interesting to think about what different policy shifts would produce - for example, how the different documents colleges request to conduct verification might affect their efficacy and how much that contributes to total verification time (this may be standard across institutions, but I believe there's flexibility in what colleges can request and there may be more/less effective documents out there). I also agree with Lesley's question about how the cost per verification was obtained and also what would happen if we had drastic policy shifts to eliminate verification. Would colleges simply employ fewer financial aid officers and redirect those funds (potentially, as Lesley suggests, directly into financial aid), or are there other financial aid functions that aren't getting done because verification is so time intensive? Great work that raises lots of questions - feel free to follow-up if you ever want to talk more about it! katharine_meyer@brown.edu

Good points on the audit rate. The form also seems more complex than needed. Is there a way the form could be completed accurately for the purposes needed without heavy audits? Can it be combined with tax forms?

Hello! I did not know very much about the verification process and its implications! Your abstract laid out did a great job of explaining the policy context. This is super informative. I am wondering how the 30% are chosen for verification? Is it random or some other mechanism? Do community colleges get selected disproportionately because there are more of them than 4-year institutions? I am wondering if you could also calculate what percentage of institution's budget the verification can potentially cost them, on average? You mention the FUTURE Act as including potential solutions, but I am wondering what other policies or interventions can address this disproportionate burden on community colleges?

Hi, I think the research questions here are really interesting and important. I wonder if you could leverage this work to expand on our understanding of the consequence of being flagged for verification found in prior work, like the Wiederspan study Lesley mentioned above. For example, since the verifications are most common at CCs, I think it might be interesting to look at variation within the CC sector to see how the share of student flagged for verification is associated with per-student instructional spending, financial aid adviser to student ratios, persistence/graduation rates, etc., to help illustrate not only the financial burden verification places on the institutions, but also what some of the correlated student outcomes may be. Looking forward to seeing this work progress! eswanson@rossier.usc.edu

Hi, I think the research questions here are really interesting and important. I wonder if you could leverage this work to expand on our understanding of the consequence of being flagged for verification found in prior work, like the Wiederspan study Lesley mentioned above. For example, since the verifications are most common at CCs, I think it might be interesting to look at variation within the CC sector to see how the share of student flagged for verification is associated with per-student instructional spending, financial aid adviser to student ratios, persistence/graduation rates, etc., to help illustrate not only the financial burden verification places on the institutions, but also what some of the correlated student outcomes may be. Looking forward to seeing this work progress! eswanson@rossier.usc.edu

Thanks for sharing this cool work! I think all the prior comments are great. I will emphasize that after reading the poster I really wanted to know more about variation within the community college sector. I also would have loved to know how representative the institutions included in the study are of the larger not-for-profit sector. Based on the sample size, I am assuming that there were some institutions that you did not have access to for data (which happens to all of us). In light of that fact, it would be helpful to understand how this sample aligns with the larger population so we can think appropriately about the implications of the results. Keep up the great work and feel free to reach out if you want to talk more!

Your central finding has direct implications--with the diverse students that CCs serve, having almost a quarter of their financial aid budget go toward compliance is hard to argue for. But (particularly without detail on how you reached the $143) it seems at least possible that there are differences in the dollar cost of per-student verification at different institution types [most likely because of lower staffing costs at CCs vs private institutions, for instance, but perhaps for other reasons as well]. Accounting for that would let you more precisely/accurately state the magnitude of this burden that you have identified. For future presentations (and you may well do this in your paper already, I know that posters force brevity) it would be useful to provide context of both the (i) share of federal aid recipients and (ii) share of federal aid dollars by institution type. It seems likely that the CC verification share is proportional to the former an incredibly out of proportion to the latter, which would be useful for issue framing. Happy to discuss further; fitzpa88@gmail.com

This is an incredibly important topic, and reducing regulatory burden can get bipartisan support (if HEA ever moves). There is no reason why so many students need to prove once again that their family has little or no money.

Very interesting work. I'm not sure about ongoing work in this space, but it's interesting to think about implications for students. (1) What are implications for losing grant aid during verification? (There's an existing literature on losing eligibility for grant aid.) (2) Even if verification concludes that an existing aid award is appropriate, does the time cost of complying with this regulation fall disproportionately on lower-income students, and what effect does that time cost have for them? (3) Within Pell vs. non-Pell, are there other individual dimensions along which selection for verification might be unequal? (Even if this plays out by institution-type, as you have indicated.) Nice work!

Add new comment