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Higher education administrators say changes to the federal student aid formula could mean less financial aid for kids whose parents run family farms or small businesses, and they want Congress to act.
Currently, a family with an adjusted gross income of $60,000 and a farm worth $1 million is expected to contribute $7,626 a year to college. But under the new federal financial aid formula starting later this year, that family would be expected to contribute $41,056, according to a recent report by the Iowa Student Aid Commission.
“It makes people look richer than they are,” said Mark Witherspan, executive director of the commission.
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Currently, the net worth of farms or businesses with fewer than 100 employees is exempt from the formula. However, recent legislation that reformed the federal student aid system, known as the FAFSA Easement Act, removed that exemption and treated the assets as liquid. (Families earning less than $60,000 do not need to answer questions about assets.) The changes to the law, including a simplified federal student aid application, will take effect for the 2024–25 school year. The new application is expected to begin in the fourth quarter of this year, although some doubt that the Department of Education can meet that deadline.
Some experts doubt that Congress will make any changes before the new application is released, and the farm and small business exemption will be considered in the coming years.
Witherspan and others worry the change will create another barrier to completing the FAFSA by making the process more complicated for some families and requiring more guidance from the Education Department. He noted that farms and businesses are separate assets that can be sold for cash to pay for college.
“Net price includes everything,” he said. “It includes the combine, the grain silos and the land. That’s a physical investment, and it’s completely different from a liquid investment where you can make money quickly.
Witherspan wants Congress to restore his freedom.
“If the goal of simplifying FAFSA is to make more people eligible for assistance, we can still achieve that without hurting farmers,” he said.
The US Department of Agriculture considers a family farm to be any farm where the majority of the business is owned by the operator or family members. About 98 percent of the country’s farms fall into this category. Family businesses that earn less than $350,000 in gross income account for 89 percent of US farms. A small business is one with fewer than 100 employees for FAFSA purposes.
The Iowa Student Aid Commission found similar aid eligibility for families with a farm or business net worth less than $250,000, but families with more than $500,000 are eligible for less aid than the current system.
“We expect many family farms in Iowa with a net worth of more than $500,000 to be impacted, as a study by Iowa State University found that the median net worth in Iowa was about $1.9 million in 2021,” the commission’s report said.
Wiederspan added that the issue of not including the value of family farms in financial aid calculations is not new.
“This has always been an issue in the past, and Congress has fixed it, and it’s never been a problem,” he said. But suddenly, it is now.
Thomas L. Harnish, vice president of government relations at the state Association of Higher Education Executive Officers, said eliminating the exemption “is a step backwards for students and families,” especially at a time when enrollment is declining in rural areas.
“Most family farms and businesses are small, and this provision introduces some new complexities into a process that was supposed to be simplified,” he said. “We were concerned that this could be a barrier to higher education for students from family-farm or small-business backgrounds.”
Harnish said the change could create financial and administrative difficulties for family farms and small businesses.
“I come from a small farm town in Wisconsin, and most of these farms are not mega-enterprises,” he said. “These are working-class students and their assets on farms are not easily translated into money to fund their higher education.”
SHEEO is one of several organizations that last month sent a letter to lawmakers asking them to address the issue.
Congress is showing signs that it is heeding those calls. A bipartisan group of House lawmakers, led by Kansas Rep. Tracy Mann, a Republican, and California Rep. Jimmy Panetta, a Democrat, have introduced a bill to restore the exemption. The bill has been referred to the House Education and Workforce Committee. In the Senate, a bipartisan group has sent a letter to Education Secretary Miguel Cardona seeking more information about the issue, particularly the department’s plans to provide more guidance to families.
“Farm families, whose businesses are critical to our regions’ communities and economies, need quick and tailored guidance that takes into account their unique business models and helps families better understand how implementing the FAFSA Streamlining Act will affect their participation in federal financial aid programs. ” Iowa Senator Chuck Grassley wrote in the letter.
Sen. Joni Ernst, the other Iowa Republican, and two Democrats — Sen. Michael Bennett of Colorado and Sen. Tammy Baldwin of Wisconsin — also signed on to the letter.
The Department of Education did not respond to the senators’ letter and did not comment at press time.
Frank Ballman, director of federal relations for the National Student Grants and Assistance Programs, says the main challenge is determining what the net worth of the farm or small business is. To date, the Department of Education has not provided guidance on how a family can calculate the net worth of a family farm or business.
Evaluating the value of a farm or business is “an art, not a science,” he said.
“Nobody knows what number they’re going to put there,” he said.
Ballman said the only way to address the issue is for Congress to act and change the law, although he doesn’t think repealing it entirely is out of the question. Instead, he proposed that Congress find a different measure, such as gross farm income, to qualify for exemptions.
“I’m particularly encouraged by the fact that the House bill and the Senate letter are bipartisan,” he said. “I think there’s a fair amount of interest on both sides of the aisle. It’s good to see the momentum building.”
Ballmann said the issue needs to be resolved before the new FAFSA begins, but he’s not sure if the bill will be passed by itself or as part of legislation that must pass as part of some spending bill, which is typically due in September.
But we can’t wait until September to fix this because a new FAFSA is supposed to come out, whether you think it’s October 1st or January 1st. If this is fixed in September, it will screw up that process…anything that makes it harder to fill out the FAFSA is an incredibly bad unintended consequence.
The vice president of public policy and federal relations for the National Association of Student Financial Aid Administrators said it’s difficult to predict the impact of eliminating the exemption.
“We don’t have a good way of knowing how many FAFSA filers are required to report on the FAFSA right now how many FAFSA filers own a small business or family farm because we haven’t asked the question before,” she said.
McCarthy said NASFAA has heard from members in farming communities who are concerned about the change. In a recent survey of financial aid administrators, 39 percent said the provision would put more burden on financial aid offices, and 25 percent said more guidance is needed.
She said she didn’t know what the Education Department planned for the question on the net worth of a family farm or small business. More information is expected when the department releases the draft FAFSA, which it says is due later this month.
McCarthy said he delayed the development of the new FAFSA to make significant changes.
“Our primary goal is to have a clean, smooth implementation,” she said.
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