Every year, the FAFSA undergoes some minor changes, and this year is no exception. One of the big changes is a new login process so that you do not need to enter personal information such as birthdate and Social Security number to log into the system. Instead, you’ll be given an FSA ID that will work as user name and password. Other changes affect Pacific Islander applicants and applicants in foster care; this article on Fastweb details those and other changes.
Those are the surface changes. If you pull back the hood and start looking at the formulas, there’s another change going on that might impact many families. Here’s how: Every year, the income and asset allowances (the part of your income and/or assets that is not counted in the formulas) are adjusted. The normal trend line would have these amounts increasing for inflation, and that is the case for the Income Protection Allowance, Social Security tax allowance, and business/farm net worth adjustment. Here is how the Income Protection Allowance has changed over the past couple of years, for a family of 4 with 2 college students:
- 2013-2014: $23,370
- 2014-2015: $23,840
- 2015-2016: $24,030
That makes sense; we have some level of inflation so some additional income is required to keep our heads above water.
The Asset Protection Allowance, however, is moving in the opposite direction, at a time when more and more savings are required to afford college. Here are the Asset Protection Allowance numbers for a two-parent household with the oldest parent being 45:
- 2013-2014: $36,200
- 2014-2015: $30,700
- 2015-2016: $28,200
Refresher course: the Asset Protection Allowance is the amount of your (non-retirement) assets that are excluded from the EFC calculation. Any amounts over that are assessed at 5.62%, i.e. every $10,000 above the APA would translate to an additional $562 available to pay for college.
Is this trend likely to continue? Yes. Does it mean to stop saving for college? No. As discussed, every $10,000 in assets you have above the asset protection allowance only increases your EFC by about $562, so you’re still coming out ahead by a long shot. The penalty for having assets available to pay for college is peanuts compared to the penalty for not having any.