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Congress Expands Pell Grant Eligibility, Simplifies FAFSA

By Austin Reid  |  January 20, 2021

A new law expands eligibility for the Pell Grant program and makes federal financial aid easier for college students to apply for by simplifying and streamlining the Free Application for Federal Student Aid, or FAFSA.

The Coronavirus Response and Relief Supplemental Appropriations Act, 2021, signed into law Dec. 27, brought several significant changes to federal financial aid policy.

Notably, the new law could enable an additional 1.7 million students to qualify for the maximum tuition-aid award each year and make another 555,000 students newly eligible.

While short of the long-awaited reauthorization of the Higher Education Act, last updated in 2008, the provisions included in the relief act amount to the biggest legislative update to federal higher education law in years.

Changes to the FAFSA

Making the FAFSA easier to complete, an idea championed by former U.S. Senator Lamar Alexander (R-Tenn.), has long been a bipartisan priority in Congress. The new law cuts the number of questions on the application from 108 to a maximum of 36 and removes the questions on drug convictions and Selective Service eligibility. The revised FAFSA will also allow more students to have their eligibility calculated without consideration of their family’s assets.

These changes are expected to complement the 2019 FUTURE Act, which reduced FAFSA questions by 20% by allowing students to directly import income data from IRS tax forms rather than manually input the information over multiple questions.

Policymakers hope that a shortened, streamlined FAFSA form will lead to increased completion rates and improve college access and affordability by making billions of dollars of financial aid available to students. A study by NerdWallet found that the high school graduating class of 2018 missed out on $2.6 billion in available federal aid because eligible students did not complete the FAFSA. 

Changes to Pell Eligibility

The law also makes significant changes to the need-analysis formula used to determine Pell Grant eligibility. Federal aid will be calculated based on a family’s adjusted gross income as compared to the federal poverty level for their family size. This simple two-factor formula will give students earlier awareness of the aid they will qualify for.

The law also expands eligibility for the maximum Pell award and creates a new minimum Pell award designation. Families making less than 175% and single parents making less than 225% of the federal poverty level will receive the maximum award, which was increased by $150 to $6,495 for 2021-22.

The new minimum Pell designation is intended to help prospective students estimate a baseline amount of federal grant aid they could receive, though they may qualify for a greater amount upon completing the FAFSA.

While largely just a change in name, the current Expected Family Contribution (EFC) will be replaced by the Student Aid Index (SAI). The name change is meant to more accurately reflect the purpose of the federal financial aid index, which is to show how much federal aid students can expect to receive rather than suggest what a family can or will pay for college.

Under the new law, the SAI could be as low as minus $1,500, whereas the EFC currently cannot go below zero. Although federal financial aid cannot exceed the cost of college attendance, the negative SAI could be used to distinguish among the neediest students. This could allow states and institutions to more accurately target need-based aid.

In another change, students who receive subsidized Stafford loans will no longer have a lifetime eligibility limit on those loans if they require more than 150% of their program length to complete their degree.

Restoring Pell Eligibility

The law restores federal financial aid eligibility for incarcerated students and students who have been convicted of drug-related offenses. Incarcerated students were prohibited from applying for federal aid in the Violent Crime Control and Law Enforcement Act of 1994. The Department of Education had been piloting an experimental Second Chance Pell program that allows incarcerated students to use Pell Grants at 130 schools. The program began under the Obama administration in 2015 and was expanded by the Trump administration.

The law also restores Pell Grant lifetime eligibility for students who were unable to complete their program of study due to the institution closing, who were falsely certified as eligible to receive federal financial aid, or whose loans were discharged in a successful borrower defense claim.

Provisions of the bill generally take effect on July 1, 2023, for the award year 2023-24. The 2023-24 FAFSA will be available for completion on Oct. 1, 2022.

Austin Reid is the education committee director in NCSL’s State-Federal Division.

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