The FAFSA Crisis: Will Delayed Completions Result in Enrollment Declines?

Introduction

In December 2020, Congress passed the Free Application for Federal Student Aid (FAFSA) Simplification Act to streamline the process of applying for federal student aid and update the underlying formulas and criteria that determine aid eligibility and awards. A key provision of this rule — the revised FAFSA form through which federal student aid awards are determined — takes effect for the 2024-2025 school year. A series of delays in the FAFSA form's availability, submission technical challenges, and processing errors have contributed to a sharp decline in FAFSA completions among high school seniors relative to this time last year.

While the issues with FAFSA have undoubtedly contributed heavily to the decline, are there other factors leading to fewer submissions? This year's graduating seniors were freshmen during the 2020-2021 school year, when many were forced to attend school remotely or hybrid. In addition, there has been a steady decline in the percentage of students who attend college immediately following high school. Could a college enrollment crisis be brewing this fall?

What Is FAFSA, and Why Are the Delays Such a Big Deal?

FAFSA is the gateway to postsecondary financial aid administered to students through the Department of Education (ED) programs. These programs, also known as Title IV aid, include federal Pell Grants, work study, and low-interest loans. Many states and institutions also require FAFSA to qualify for other scholarships and programs. In addition, FAFSA requires the applicant to submit data to the ED on family structure, financial resources and income, and dependency status annually to be eligible for aid.

The FAFSA form has long been bemoaned for its complexity and time burden, but the new FAFSA links directly to IRS data, theoretically saving applicants considerable time. The simplification was estimated to provide an estimated additional 610,000 students with access to the Pell Grant.

The ED uses this information to calculate a Student Aid Index (SAI) representing a student's ability to pay for higher education expenses. Colleges and universities use this score to determine the student's demonstrated financial need relative to the cost of attendance at the institution. In many cases, students and their families use these offers of financial aid packages to determine where to enroll or if it's feasible at all.

Because eligibility and award amounts can change over time, a student must submit a new FAFSA form every academic year. Instead of being available in October 2023, as is typical, students, families, guidance counselors and student support organizations could not consistently access the form until Jan. 8, 2024. While students must submit the FAFSA form by June 30, 2025, to be eligible for aid for the 2024-2025 academic year, states and institutions have earlier priority deadlines for scholarships and grants. Deadlines for some institutions, like Virginia Tech (March 1) and the University of Maryland (April 1), have already passed, while others, including Furman University (June 30) and the University of North Carolina System (July 1), are fast approaching.

The reality is that students and families need financial aid information long before some of these deadlines to make college enrollment decisions. Many colleges require enrollment decisions by May 1 in order to receive merit aid offers and to be guaranteed freshman year housing.

Declines in FAFSA Completions — A Focus on 2024 High School Seniors

The ED posts biweekly updates on FAFSA submission and completion rates for high school seniors by school and district. Submissions reflect all FAFSA forms that students submit to the ED. If FAFSA completions have no errors or missing information, they are accepted by the ED to determine financial aid eligibility. Nationally, as of April 12, only 29.3 percent of graduating seniors have completed FAFSAs on file. By April 14, 2023, 47 percent of graduating seniors had completed FAFSAs. All geographies in the Fifth District have FAFSA completion rates that are between 15 and 20 percentage points lower than the same time in 2023. In the Fifth District, the decline in the total number of completions ranges from 30.3 percent in Virginia to almost 40 percent in West Virginia.

Not only is there variation across states in the Fifth District, but there is also considerable variation within states. For example, across the 67 public school districts in Virginia where the size of the senior class held steady or increased between the 2023 and 2024 school years, declines in completion rates varied from 4 percentage points to 16 percentage points. Some schools have higher completion rates than last year, but this is largely driven by declines in the sizes of the senior classes. Even within school districts, there is variation. For example, in Henrico County, only 34 percent of high school seniors had completed FAFSAs (down from 43 percent in 2023), but estimated declines in completion rates vary from 6 percent at J.R. Tucker High School to 23 percent at Hermitage and Douglas S. Freeman high schools.

What is driving the variation across states, districts, and schools? State policies may play a role: Some states have made FAFSA a graduation requirement. Economic disparities could also play a factor. The National College Attainment Network, or NCAN, reports that low-income and high-minority schools are showing larger declines in FAFSA completion than high-income and low-minority schools. Completion rates tend to be lower at schools with more economically disadvantaged students, but even at schools that are seeing only modest declines suggests that students who are most in need of aid (and are the most likely to receive the Pell Grant) might be falling behind.

One goal of the FAFSA Simplification Act was increasing access to higher education by easing the financial burden on low-income families. However, given the decline in completion rates thus far in 2024, there is risk of the opposite happening for this year's class of seniors. In our outreach to higher education institutions, we have been inquiring about the impact this will have on their fall 2024 enrollment. There is not only serious concern, but also a lack of information needed to calculate reasonable estimates of its impact. Schools do not currently have data complete enough to know all accepted students' SAI, which is complicating their ability to offer financial aid packages. The ED has indicated that they will not be able to get complete SAI data back to schools until late April. This severely complicates the typical enrollment deadline of May 1. Some schools, including UNC Chapel Hill, have extended deadlines, but others seem tied to their typical schedules. Given that lower-income students rely the most on Title IV aid, it makes sense that these same students will have the most difficulty committing to a college/university before knowing their full financial aid package.

How Will This Impact Community Colleges?

Nearly all colleges and universities across the Fifth District receive considerable revenue from Title IV aid, although some rely on it much more than others. As discussed in a recent post by our colleague, community college students are more likely to receive a Pell Grant than their four-year counterparts, with 46.4 percent of full-time, first-time community college students receiving a Pell Grant.

A completed FAFSA is also a requirement for many state scholarships focused on community colleges. Fifth District examples include the Maryland Promise scholarship and West Virginia Invests. These state scholarships are "last dollar," meaning that they cover remaining costs after federal financial aid has been applied.

So how will the decline in FAFSA submissions impact community colleges? While overall college enrollment may not decline in large numbers, we may see a shift in the type of institution that students choose to attend. If students cannot commit to four-year institutions in time or meet their FAFSA deadlines, there could be a shift toward enrollment at community colleges, where cost of attendance is much lower and FAFSA deadlines are typically later in the summer. For some high school seniors, it may be their only choice this fall.

However, many community college students are not recent high school graduates, and outreach indicates that FAFSA completion is down even more significantly among students over age 25. So, while more high school graduates might be bound for community colleges this fall, enrollment declines among older students could result in overall declines.

All of this remains uncertain until colleges receive full data and deadlines pass, but it is clear from our outreach that community college leaders are concerned.

Is It Too Late to Get Back on Track?

It is impossible to know exactly what enrollment will look like this fall across Fifth District higher education institutions. Since students at many institutions have until later this year to complete the FAFSA form, the hope is that there will be a significant "catch-up" between now and then. It seems unreasonable, however, to expect completion rates to recover to 2023 levels.

FAFSA issues are coming at a time when college enrollment rates among recent graduates are falling (they have been since 2018), and young people are expressing concerns regarding the return on investment of higher education. While the additional income gained from a degree (especially a bachelor's degree) is significant, and the likelihood of unemployment declines immensely with degree attainment, students are viewing college attendance more skeptically these days.

This class of students has been through a lot in the last four years. In March 2020, COVID-19 dramatically interrupted their eighth grade year, and in most school districts, their ninth grade year was spent either learning virtually at home or in some sort of socially distanced hybrid schedule. It seems reasonable to assume that this could be impacting their college attendance decisions in real ways, and as such, they may be more sensitive to hurdles like FAFSA complications.

It will be a few months before we know the full impact of FAFSA troubles on college enrollment. But the long-term costs of students delaying or forgoing higher education this year will be high. We still have the time to educate high school students and their families about the returns to investing in higher education and that completing the FAFSA can unlock the financial resources needed to make that investment possible.

Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.