Testimony of Mr. George Chin

Hearing on H.R.3039, the Expanding Opportunities in Higher Education Act

House Education and the Workforce Committee
Subcommittee on 21^st Century Competitiveness

September 11, 2003

    Mr. Chairman and members of the Subcommittee on 21^st Century Competitiveness, I thank you for the opportunity to testify today on the financial aid simplification aspects of the Expanding Opportunities in Higher Education Act of 2003. I am George Chin and I am employed by the City University of New York (CUNY) which has an enrollment of over 200,000 students at 19 colleges in the system. I also currently serve the National Association of Student Financial Aid Administrators as the National Chair-Elect of its board of directors for the 2003-2004 year. I offer my comments based on a view built on thirty years of work in student financial aid at CUNY and other institutions.

    I think it would be useful to briefly review a few fundamentals about need analysis to set a framework for considering changes in the methodology and process. Historically, the measurement and analysis of family finances has been done to arrive at an expected family contribution (EFC) as an indicator of what the family could reasonably be expected to contribute toward the total cost of attending college. Simplistically, this assessment involves three major steps.; The first step is determining the discretionary income available to the family by subtracting "mandatory" expenses such as federal and state taxes, and a reasonable living allowance from the total income. The second step measures the net family assets to see if it is reasonable to expect some contribution from these amounts. The final step is to add the amounts determined from the first two steps, and assess a portion of the resulting discretionary income. The outcome of this calculation is called the Expected Family Contribution or EFC.

    In a technical sense, the EFC formulas could be viewed as a predictive model to determine the financial ability of a family unit to pay for college. In that context, we are challenged to the balance between complexity, accuracy, and, in this case, equity. In looking at the current set of formulas, essentially based on decades-old work, many would make the case that the current model is too simple. Economists, such as Dr. Sandy Baum of Skidmore College, would say that the current process, which relies on a financial snapshot, does not reliably measure a family’s ability to pay for college because it is insufficiently precise. A more complex model is necessary to gain greater precision. While time does not enable me to detail economic underpinnings the current Federal Methodology, you can find a more thorough review of these issues in the NASFAA publication Primer on Economics for Financial Aid Professionals written by Dr. Baum.

    On the other hand, for many students, the application process is viewed as too complicated because of the length of the FAFSA form and the definitions of the data elements used for the analysis. In the past, efforts have been made to shorten the process for applicants through a simplified needs test and an auto-zero calculation based on income and tax filing status. Efforts have also been made to change the format of the application and reduce the number of questions to facilitate accurate completion but often by moving data elements onto worksheets. However, even these attempts have not been as successful as one would hope.

    Suggestions have been made that applications can be filed on-line using smarter forms with logic embedded to ask only those questions that are relevant for a particular applicant and his/her family. While this is feasible on a technological basis, it unfortunately may not significantly enhance the process for many high need applicants who have limited access to internet-based services.

    First, a brief comment on the proposed simplified needs test improvements. We appreciate the addition of recipients of means-tested federal benefit programs to the population eligible for the simplified needs test and the zero expected family contribution formulas. We hope that a mechanism for authenticating the receipt of these benefits is also part of this process to prevent fraudulent use of this provision and to ensure that federal student aid funds are provided to those who truly need them.

    Given the aged framework of the current formulas, it is appropriate and necessary to have the Advisory Committee on Student Financial Assistance comprehensively review the need analysis formula and the associated application design and process to facilitate easier and better student access to the financial aid programs. Given the complexity of the issue, we appreciate the stated consideration of program intent, integrity, and cost as well as the impact on the distribution of awards.

    The desirable outcome is to have a fundamentally sound set of formulas consistent with the underlying program rationale and sound economic underpinnings. In this context, the charge to the Advisory Committee can result in that outcome if the focus is on the entire set of programmatic concerns rather than predominantly on a goal of simply reducing the number of data elements and shrinking the form.

    For example, the case can be made that a reduced set of data elements can still have a fairly high correlation with the net outcome derived from a larger set of data elements. However, the result of fewer data elements may be less sensitivity to the overall financial state of the family. If this is true, it may be less equitable and may as types of income or assets are eliminated from consideration, lead to higher program costs. The end result is that it could be extremely difficult to distinguish needy families from those who have the means to pay. This could inappropriately increase the applicant pool thereby diverting scarce dollars away from the students the programs were designed to serve.

    It is clear the underlying allowances and offsets in the formulas need to be reviewed to determine the relevancy of the allowance and the means of updating them. Certainly, the recent discussion of the updating of the state and other tax allowance table would suggest a comprehensive review, as called for in the bill, is timely. Further, recent press about the effect of dependent student earnings on aid eligibility should be reviewed to determine the right offset and taxation rate of the net income after offsets.

    We understand that the task for the Advisory Committee is complex and appreciate the directive for the use of a forms design expert and consultation with interested parties . We hope that this consultation ensures that the needs of all of the partners in the delivery system can be addressed. For example, a vastly simplified federal application could have the unintended consequence of complicating the whole process if states or institutional partners find it necessary to use a separate application to deliver funds according to their statutory structure. A system that requires multiple applications could create even greater barriers for high need students.

    It is difficult to disagree with an effort to seek simplification, ease the process for students, and communicate better with students to assure them of their potential eligibility for Federal Pell Grants. We hope the result of the study maintains fairness, equity and effectiveness for the use of the student aid programs.

    Thank you for the opportunity to appear before you today. I would be pleased to answer any questions you may have.