FAFSA delays could create enrollment uncertainty and budgetary challenges, S&P says

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Dive Brief:

• Federal financial aid delays will be most challenging to colleges that enroll significant numbers of low-income students and those who qualify for Pell Grants, S&P Global Ratings said this week.
• The U.S. Department of Education postponed the release of the 2024-25 Free Application for Federal Student Aid until Dec. 30,  about three months later than usual, as it sought to simplify the form. But that bump — and the news that colleges won’t receive FAFSA applicant information until this March — has left institutions with far less time to create and distribute financial aid offers to prospective students.
• Colleges will likely need to make last-minute adjustments to their fiscal year 2025 budgets, as the FAFSA holdups will waylay fall 2024 enrollment estimates and tuition revenue projections, according to S&P.

Dive Insight:

Congress tasked the Education Department with modernizing the FAFSA, a traditionally grueling form that could make students and their families complete over 100 questions. The new version now requires several dozen questions at most and pulls some information directly from the IRS.

But the update significantly pushed back the typical FAFSA timeline. The department has since announced increased support options and flexibility for colleges, including the deployment of federal employees to help lower-resourced colleges and eased verification requirements.

The condensed timeline and potential budget woes will not affect colleges equally, according to S&P. Minority-serving institutions and those with more low-income students will likely have a harder time issuing accurate aid offers while moving quickly.

Speed could be paramount in a cutthroat enrollment landscape.

“It could be that some schools with greater resources extend financial offers before receiving the FAFSA information, as a competitive edge for fall matriculation,” the credit rating agency said. 

But this approach could result in colleges overspending on financial aid. And delayed student decisions could result in more deposits coming in later than usual.

“From a credit standpoint, uncertain matriculation means that colleges and universities will have limited time to adjust their operating budgets for fiscal 2025,” S&P said.

Some colleges and systems, like California State University, have already postponed their financial aid and commitment deadlines in response to the FAFSA delays. S&P Global Ratings predicted Wednesday that more will follow suit.