States Need to Create New Pathways to Nonfederal Aid for Students Who Do Not Complete the FAFSA

Federal Student Aid outages. The impact of the U.S. Department of Education’s reduction in force on its ability to provide Free Application for Federal Student Aid (FAFSA) data to states and colleges. Recurring delays with FAFSA application processing times. Congress’ effort to restrict access to the Pell Grant via the budget reconciliation process.  These are just a few of the barriers higher education has faced under current federal actions and proposals. 

For years, states and colleges have converged on using the FAFSA as the gateway for all financial aid—federal, state, institutional, and local. Federal aid has been the foundation on which other aid is layered to make up the total aid package offered to students and families. This practice has historically made a lot of sense, as federal aid is a very reliable, effective, and efficient source of funding; it is free to fill out the FAFSA; and the new form (albeit with glitches when it first rolled out) has been significantly simplified. And furthermore, the practice helped to minimize administrative frictions in applying for college. 

But any disruption in federal aid wreaks havoc on current and future college students and the institutions they attend. It affects all institutional types, but for the ones that depend most on state support (community colleges, minority-serving institutions, regional comprehensive universities, rural serving institutions), the operational impacts are especially acute. When students and colleges cannot depend on consistent funding—from states or the federal government—it is a recipe for disaster. 

As instability at the federal level continues, state leaders need to rethink whether their dependence on the FAFSA as the backbone of the state financial aid process will become a barrier to meeting college access, completion, postsecondary attainment, and workforce development goals. 

To be clear, states will never be able to replace federal funds with state and local funds and will always need to rely on federal student aid as part of their calculus on making college more affordable. And for most students completing the FAFSA should and will remain the right path for accessing all aid. But that shouldn’t prevent state and local policymakers from examining the creation of alternative pathways for residents to access nonfederal aid if they have a reason to skip the FAFSA. Providing alternative access may be critical in the coming years and keeping students enrolled is an important priority for states to preserve in their efforts to strengthen their economies. 

The economic imperative for states to preserve postsecondary access and build higher education system resilience 

States have been and will always be central to facilitating student access and success in postsecondary education. In recent years, state higher education executive officers (SHEEOs) have grown more sophisticated in aligning postsecondary attainment goals and strategic planning efforts with the building of talented workforce pipelines. SHEEOs know that states cannot have a vibrant workforce without a strong higher education sector. Postsecondary access and success are no longer “nice to have” features of a state’s education system—their fulfillment has become an economic imperative for states, regions, communities, and the individuals who are collectively changed by the economic benefits that a postsecondary education bestows. 

The federal disruptions of the past 100+ days put at risk state progress on increasing postsecondary access and success and threaten remaining work to prepare state residents for jobs and forge pathways into the middle class. One way state and local policymakers can adjust to this new reality is to how they connect residents to state, institutional, and other types of nonfederal aid. 

Given recent trends, state leaders need to reassess the relationship between state and federal aid flows

In most states, the FAFSA has become the default gateway for students to access state and local financial aid. For decades, this process has guided how campuses build financial aid packages for students. Add to this the proliferation of local and statewide college promise programs that have been created to encourage more high school graduates and adults to pursue postsecondary education. There are at least 441 promise programs: 309 (70%) are local and 132 (30%) are statewide. Regardless of the program type, most local and statewide programs are last dollar, meaning that the funds kick in after other sources—with the federal Pell Grant and state aid as the foundation. It is worth repeating that this process has made fiscal sense for states to take this approach: during tight budgetary years and economic downturns, state lawmakers cut funding for higher education to achieve balanced budgets.  

As we recently highlighted, higher education is one of the biggest discretionary pots of state funding, and funding for the sector has been used as the balance wheel during tough budget cycles. Sometimes passing a balanced budget has affected state operational support to public colleges and universities more so than state funding for student financial aid, but nonetheless it has led to more students and families relying on federal and private student loans and shouldering more of the financial burden to make up for the affordability gap, including by paying out of pocket or working more hours while enrolled. 

Given public concerns about the value of postsecondary education, state leaders should be concerned about the combination of these trends and the recent federal student aid breakdowns further serving as deterrents to state residents enrolling in college at all. 

Proactive considerations for nonfederal aid disbursement

The creation of financial aid forms separate from the FAFSA is not new, as is evidenced by the number of states with applications for undocumented and Deferred Action for Childhood Arrivals students. This approach is not without its own pitfalls, as states that have taken this route have likely added to the complexity and burdens for students to access additional forms of aid. In addition, it’s possible that not every state has created systems that seamlessly connect prospective and current students to state, institutional, and other types of nonfederal aid. However, setting aside these legitimate issues for a moment, if current or future students decide not to fill out the FAFSA due to poor experiences with the process or concerns about data privacy, states will also be severed from those students and their financial need. In forgoing federal aid, students unnecessarily lose access to critical state and institutional aid and may be much less likely to consider college at all. 

Three states have created a more open, alternative path for those who do not complete a FAFSA and only desire consideration of state and local aid. California, New York, and Washington have developed unique approaches to ensure that state residents can access the financial resources they need to enroll in and complete college. 

California: In response to the glitches with the Better FAFSA rollout ahead of the 2024-25 academic year and recent federal actions prompting data privacy and security concerns, the California Student Aid Commission offers two pathways for state residents to access state and other forms of nonfederal aid: FAFSA and the California Dream Act Application (CADAA). Students from mixed-status families—where a U.S. citizen has one or both parents or a spouse without a Social Security Number—are eligible to fill out either form; some have elected to fill out both forms depending on their circumstances. 

New York: Also in response to recent federal actions and the associated data privacy and security concerns, the New York Higher Education Services Corporation (HESC), the state’s financial aid agency, created the Alternate Eligibility Path, a pre-screening tool that provides guidance to students on their financial aid options. HESC put together a set of Frequently Asked Questions with additional information, including how they protect the privacy of the data collected. 

Washington: The Washington Student Achievement Council (WSAC) has created two pathways for residents to receive state financial aid: the FAFSA and the Washington Application for State Financial Aid (WASFA). Both options enable students to apply for the Washington College Grant, which can be used to finance degree and certificate programs, job training, and apprenticeships. WSAC also issued a statement on student data privacy. 

In all three of these state approaches, students choose the form that serves them best. One advantage of a pre-screening tool like New York’s is to connect current and future students with the range of aid and scholarship options available to them depending on their student type (e.g., veteran/military, first generation, etc.). 

Closing thoughts

Most state residents have to fill out the FAFSA to access nonfederal financial aid. During normal times, this statement of fact would probably lead to widespread nodding or shoulder-shrugging. But those days appear to be moving farther in our rearview mirror as federal disdain grows around the value of postsecondary education. This disdain is being laid bare in both the congressional budget reconciliation process and the administration’s proposed budget for the next fiscal year. These are not just complicating factors for states. The proposed cuts to the Pell program are likely to spike financial need among program participants who do complete a FAFSA—increasing the state cost of fulfilling the ‘promises’ made to students. State budgeting shocks will happen, so careful consideration of program design and feasible ways to adapt to protect and preserve these important programs are conversations states and localities should be having now. 

It won’t be easy for state and local leaders to change how residents access federal and nonfederal aid. Indeed, they have invested significant time and resources to develop programs over decades to work in tandem with federal aid. But time is of the essence, and creating alternative access to nonfederal financial aid for populations specifically affected by current federal actions is a compelling starting point. 

States cannot afford to lose the gains they have achieved in broadening access to postsecondary education. By taking proactive steps now, state leaders can put themselves in the best position to weather the disruptions and cuts that appear to lie ahead.