Key Takeaways
- The Department of Education announced recently that student applications for financial aid (FAFSA) for the 2024-2025 academic year will not be available for U.S. colleges and universities to review until at least March.
- Colleges and universities will have less time to determine financial aid packages for students and aid offers could be delayed.
- The current expected timing would leave students with less than a month before they're typically expected to commit to a college (May 1), so many schools could extend their deposit deadlines.
- The potential delay in financial aid offerings to students could affect college and university matriculations, as well as fiscal 2025 operating budgets if fall 2024 institutional financial aid ends up being materially higher than anticipated.
The cost of college is a key decision factor for most students and parents. Financial aid, especially grants, can have a significant effect on whether a prospective student goes to college at all--or at the very least, where they go. Prospective undergraduate and graduate students in the U.S. complete the Free Application for Federal Student Aid (FAFSA) form to determine their eligibility for financial aid. The FAFSA is used to provide federal funds to help students cover the cost of college or university, including federal student loans, work-study programs, and Pell Grants for low-income students. For students across the U.S., these funds make attending college or university more accessible. Pell Grants, in particular, have been proven to increase college enrollment of students coming from lower- and moderate-income families and can also reduce the chances of them dropping out.
In 2023, the FAFSA was redesigned to make the application form simpler for families to fill out and increase accessibility to financial assistance to pay for college. The original FAFSA form had more than 100 questions, which were time consuming and complicated, creating a significant barrier for many families seeking financial aid. This simplification should have been good news for college and university enrollment, as in theory, more students would complete the form if it were easier to do so. However, the application was delayed in being available to students, and according to the National College Attainment Network's analysis of Department of Education (DOE) data, only about 700,000 high school seniors had completed FAFSA applications as of January, down more than 50% from about 1.5 million applicants at the same time last year. Further delays by FAFSA in processing and providing students' information to schools has added extra pressure for busy admissions and financial aid teams as they determine how best to work within these new timelines to issue aid offers as soon as possible.
Typically, students begin submitting the applications in October, and colleges and universities receive student data from the FAFSA shortly thereafter. However, the DOE recently announced that students' applications for the 2024-2025 academic year won't be ready for colleges and universities until at least March (they were expected several months earlier). The delay is the result of the department's need to fix an error in how students' aid eligibility is calculated, and it means that families of the more than 3.5 million students (including incoming and current students) who submitted FAFSA forms will have to wait even longer for financial aid offers from colleges and universities. The four-to-six-week delay puts schools in a tough situation as they try to determine what financial aid students should get without the government's FAFSA data.
What We're Watching
With financial aid offers to students delayed, will schools push back deposit deadlines?
The FAFSA delay could compress financial aid offices' timelines for reviewing student applications and determining and sending out financial aid offers. If schools don't receive FAFSA data until early-to-mid March, many likely won't be able to send financial aid offers to students until April. A couple of schools have already extended their commitment deadlines to June 1, and S&P Global Ratings expects more will adjust their timelines to provide adequate time for their offices to review the FAFSA data and for students to make their decisions. Although most colleges and universities use May 1, known as National College Decision Day, as the deadline for accepted students to commit, we are hearing that schools will give students more time and flexibility and will announce new deadlines as the FAFSA information and timing becomes clearer. This will push back the availability of definitive deposit and matriculation information used by admissions and finance offices for planning and budgeting.
Will college institutional aid (tuition discount) packages be delayed?
Most colleges and universities provide need-based institutional aid to students, in addition to the federal and state aid they receive. However, these institutions do require and rely on the FAFSA, and often other financial information, to prepare their offers. Schools might have to rework their timelines to see just how quickly they can turn around financial aid offers for students and to get them accurate aid offers as soon as possible, which can be even more difficult for institutions with more limited resources. Some schools might decide to provide packages before they have complete information, which could result in unintentionally overspending on financial aid. It could be that some schools with greater resources extend financial offers before receiving the FAFSA information, as a competitive edge for fall matriculation. In our opinion, this new timeline will likely be most challenging for colleges where a significant number of students are low income and qualify for a federal Pell Grant.
More enrollment uncertainty, when some schools really need clarity.
Many colleges and universities refined their recruitment process throughout the pandemic, with a large number no longer requiring test scores--although this appears to be changing again. While enrollments stabilized for some in fall 2023, many schools continued to experience declines. For fall 2024, the FAFSA delays introduce additional uncertainty, given that deposits will not necessarily come in as they typically do because students will wait to make informed decisions about tuition cost and financial aid. Institutions that are able to offset the effects of the FAFSA delay by offering greater institutional funds could have a competitive advantage with matriculants. At the same time, applicants with no financial need, or less reliance on federal and state financial aid to make their decisions, will have an easier time. From a credit standpoint, uncertain matriculation means that colleges and universities will have limited time to adjust their operating budgets for fiscal 2025.
Could operating budgets be affected?
As schools make institutional financial aid decisions and budget around an estimated class size and projected net tuition revenues for fall 2024 (fiscal 2025), they will likely need to make last-minute adjustments. This could have operating budget ramifications for some schools, but won't affect all equally, in line with our bifurcated outlook on the sector. We expect that institutions that serve more lower-income students, or primarily minority-serving institutions, will experience greater consequences of a delayed financial aid offer on enrollment, and possibly financial operations.
This report does not constitute a rating action.
| Primary Credit Analyst: | Jessica L Wood, Chicago + 1 (312) 233 7004; jessica.wood@spglobal.com |
| Secondary Contacts: | Laura A Kuffler-Macdonald, New York + 1 (212) 438 2519; laura.kuffler.macdonald@spglobal.com |
| Sean M Wiley, Chicago + 1 (312) 233 7050; sean.wiley@spglobal.com |
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