New aid formula expected to significantly expand Pell Grant eligibility

Several hundred thousand additional students with significant financial need are likely to qualify for Pell Grants under forthcoming updates to the federal financial aid formula and application, according to a new report by the State Higher Education Executive Officers Association (SHEEO). 

Scheduled for release in December, the new Free Application for Federal Student Aid (FAFSA) will be shorter, with fewer questions for students to answer about their financial status. The Education Department will also overhaul the formula used to calculate how much families are expected to contribute toward college costs—and thus their student’s Pell Grant eligibility and award amount—introducing a new methodology, the Student Aid Index (SAI). Officials say the SAI changes will make the financial aid process simpler, more transparent, and more accessible beginning in the 2024-25 academic year.

Related: FAFSA simplification delays leave applicants, colleges on hold >

The new SHEEO report is the first to analyze the effect these changes will have on state scholarships and tuition-free programs, which students rely on to fulfill unmet need. The report comes months after another SHEEO report found that 45% of eligible students and families in their dataset would be expected to contribute $1,000 to $2,500 less to their college costs under the SAI, which would increase their likelihood of receiving more need-based aid. 

Who will benefit?

Under the FAFSA simplification changes, a net of nearly 220,000 students will gain Pell Grant eligibility: an estimated 275,950 additional students, or 9.4% of students previously ineligible for Pell Grants under the EFC model, will now be eligible, while approximately 56,600 students, or 0.6% of previously eligible students, may lose access to Pell Grants. Overall, 65.6% of students are expected to see no change in Pell eligibility or grant amount, while 33.1% will see an increase in their Pell Grant awards, the report says. Just 1.4% are expected to see a decrease in funding.

“We’ve been looking for the past two years at who are the winners and losers [of the FAFSA simplification]. And over all, certainly, there’s a lot more winners,” Frank Ballmann, director of federal relations of the National Association of State Student Grant and Aid Programs (NASSGAP), tells Inside Higher Ed. NASSGAP partnered with SHEEO on the new report.

The estimated increase in Pell eligibility will result in an additional $617.4 million in grants to students, according to data from federal budget documents. The expected net increase in Pell Grant awards overall—accounting for changes in eligibility, as well as in award amounts for students who were previously eligible—is $7.85 billion, the report says, a 25% increase over the current funding level, Inside Higher Ed notes. 

Uncertain impact on state scholarship programs

Although more students might be eligible for Pell Grants and may receive bigger grants, many students will still need additional financial aid offered by state scholarship programs to cover remaining college costs. The maximum Pell Grant award for the 2023-24 academic year is $7,395, but it has the lowest purchasing power in the program’s 50-year history, the Institute for Higher Education Policy says.

State scholarships or “college promise” programs, which can help cover students’ remaining college costs, rely on FAFSA data elements and eligibility criteria. First-dollar promise programs, such as the California College Promise Grant, award scholarships to students before taking into account other forms of financial aid they may receive. These programs are most likely to be affected by changes in the FAFSA model, because students who have greater financial need as measured by the new SAI formula will get more state aid from first-dollar programs even if their Pell Grant award increases. 

The impact of FAFSA changes are more difficult to predict for last-dollar college promise programs, which are far more common. Last-dollar state scholarship programs, such as the Tennessee Promise, provide financial aid to students after accounting for Pell Grants and other scholarships a student has received. However, the increase in Pell eligibility and award amounts “may have the effect of crowding out students’ eligibility for state grants,” the SHEEO report says.

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