Question

Beginning in October 2016 for the 2017-2019 academic year, the Free Application for Federal Student Aid (FAFSA) will be available earlier– in October, rather than January– and the FAFSA will now use tax information from two years ago (“prior-prior” year) as opposed to last year a. What economic problem does this policy change address in the allocation of student aid? b. Who benefits from this policy change? c. What are the costs of this policy change? Are there any losers?

Answer 1

a) The economic problem that the policy change tries to address is that of fair distribution (equality) in FAFSA aid.

b) People who benefit from this policy are those who were relatively poor a couple of years back, but they have moved up the ladder last year (due to windfall gain or permanent income increase). IN the previous system, they would not be eligible for FAFSA but now since data from 2 years back is considered when they were still low on income, they will be considered for aid.

c) Since FAFSA will now be available on the basis of tax information from two years ago, rather than one year ago there will be some economic costs. The data that is used is not a good reflection of the current economic situation of the people as we go further back in history. There is a possibility that those who do not deserve the aid get it as seen in part (b). Similarly, there are losers as well. Those who were relatively well off a couple of fo years back but have earned lower incomes in the last year and deserve the aid, wil lose out.