Nearly 18 million college students receive some type of Federal financial aid every year. Due to pending FAFSA rules changes, the percentage of these students who are from farm families can be expected to drop significantly. The new rules will take effect this December with the release of the new FAFSA for 2024-25.
Changes to rules under the FAFSA Simplification Act of 2020 (the Act) will decrease the amount of aid for which a typical farm family will be eligible by calculating an increase in their wealth. A provision of the Act will require farmers to list their land and equipment as family assets. Historically, farm assets have been exempt from calculations for student aid because they have been considered business assets, not personal assets.
An effort is underway in Congress to restore the exemption for family farms assets. Seven U.S. Senators are urging the enactment of S. 1237, titled “The Family Farm and Small Business Exemption Act”. If enacted, this bill would instruct the U.S. Education Department (ED) to halt the adoption of the farm family provisions of the Act due to the expectation that they will harm rural families.
Similar legislation has been proposed in the U.S. House of Representatives. In February, Representatives Jimmy Panetta and Tracey Mann led 27 of their colleagues in introducing a House version of the bill, also called The Family Farm and Small Business Exemption Act. It too would restore asset exemptions for family farms.
The FAFSA’s Expected Family Contribution (EFC) formula currently excludes the net worth of family farms from asset calculations. This has prevented most farmers from needing to use their farm as collateral to obtain funds to finance a child’s education. Beginning with the FAFSA for 2024-25, the EFC will be renamed the Student Aid Index (SAI). The rules affecting the SAI will be almost the same as those that currently affect the EFC. One difference, however, will be that the exemption for farm assets will be eliminated. As a consequence, many farm families will not be able to afford to send their children to college in academic year 2024-25 and beyond.
Compared to other businesses, farms have unusual accounting structures and cash flows. A major factor that distinguishes farms from other businesses is that debt varies widely throughout the year. Under FAFSA rules, debt is subtracted from assets to determine net worth at the time that the FAFSA is completed. While that’s fair to businesses that have a steady stream of revenues and expenses throughout the year, the nature of farming makes it unfair to farmers.
Crop farmers must make the revenue from a single harvest last throughout the year, and livestock producers are dependent on market availability and readiness for their herds. These milestones in a farmer’s annual timetable result in significantly different asset values at different times of the year. The value of assets and, hence, net worth in the month that the FAFSA is completed will have a substantial impact on a farm family’s eligibility for financial aid.
Family homes are now excluded from assets under FAFSA, but family farms/homes may not be excluded under the new rules because they’re a place of business. Most businesses make use of at least one other location, but family farms don’t. And they don’t maintain one balance sheet for farm operations and another for the family residence because they’re the same thing.
According to the Billings News Leader, Sarah Degn, a Montana farmer, is worried about college for her eighth-grade daughter. She had been counting on Federal aid until she learned that it may not be available. “There’s no way to afford college on your own like we did 20 years ago.” Degn said. “You can’t sell a tractor; you can’t sell your cows to get your kid into college. Those are parts of your operation that you need to keep it going.”
Some farmers may be forced to put their farms up as collateral to obtain funds to pay for their children’s college education. “For most farmers and ranchers, education is so important to their families that they will put their farm at risk,” said Walter Schweitzer, president of the Montana Farmers Union.
U.S. Senator Jon Tester of Montana is a co-sponsors of S. 1237. He introduced the legislation to help ensure that farm families aren’t paying higher out-of-pocket costs to send their children to college than other families. Announcing the new bill, Tester said:
“As a third-generation farmer, I know firsthand that one-sizes-fits-all policies from Washington don’t work for Montana’s family farmers, ranchers, and small businesses. That’s why I’m teaming up with Republicans and Democrats to make sure Montana’s family farmers and ranchers don’t have to pay a higher price to send their kids to college. This bipartisan bill will pave the way for young Montana leaders to succeed well into the future while ensuring our family farmers can continue to feed the world.”
Representative Jimmy Panetta of California, in introducing the House bill, said:
“Students coming from family farms and small family businesses will be unfairly penalized when it comes to applying for Federal student aid, ultimately limiting their academic opportunities. “I’m proud to introduce the Family Farm and Small Business Exemption Act to recognize the reality of so many family farmers and small business owners who’ve poured their livelihoods into building up their businesses but live with limited financial resources. Restoring this 30-year-old standard is about fairness and supporting families who continue the entrepreneurial spirit of our country.”