169 pages of this week’s stimulus bill are devoted to FAFSA simplification. It’s a great step and I apologize that 169 pages of bill-speak have left me unable to simplify the changes for you yet. Here are a few broad points:

The changes take effect beginning with the FAFSA for the 2023-2024 school year, which is the first FAFSA for families whose students are currently high school sophomores. The bulk of changes seem to fall in a few key areas. To understand the changes, it’s important to remember what the FAFSA does: it provides access to federal student aid and provides a tool for schools to evaluate students’ financial need on a consistent set of metrics.

  • Expansion of Pell Grant eligibility. Pell Grant eligibility will now be tied to the federal poverty level, not to EFC, and more people will be eligible including former prisoners. The maximum Pell Grant amount also received a nominal increase, and more students will be eligible for the maximum grant.
  • Non-traditional students will fare better in the formula. Adjustments were made to the calculation to make it better for independent students who do not themselves have dependents.
  • The income protection allowance increased by quite a bit for both students and parents but for parents it is now based solely on family size; number of college students is no longer a factor.
  • The Expected Family Contribution (EFC) has been renamed the Student Aid Index (SAI). This is getting the most attention but it’s truly a cosmetic change intended to reflect the fact that what a college charges you will be based on the college’s aid policies which may or may not have anything to do with what you can actually pay.
  • The number of questions will be reduced drastically, though which ones stay and which go is unclear.

The inputs to the formula remain largely the same. Available Income is computed by adding back untaxed income; subtracting actual federal taxes, allowances for payroll and state taxes, employment allowance as applicable; and subtracting the Income Protection Allowance. A key difference is Available Income can now be a negative number, as low as -$1,500.

Assets remain the same goofy formula going back to 1965, based on the present value of an annuity with an 8% rate of return adjusted for inflation at 6%. Trivia question: The Asset Protection Allowance formula is from 1965. When did 401ks and IRAs first become available? (Answer below.)

One big question mark for me: References to multiple college students in the formula inputs are gone. Does this mean that the SAI will only reflect the family’s overall situation and not how many college students the family is supporting in the academic year? It’s hard to say since there is no revised formula guide to complement these new inputs, but if that were the case, it would make some colleges much more expensive for students with siblings in college.

More to come as the language becomes more clear… and happy holidays!

And the answer to the trivia question: 401ks have been available since 1978, IRAs since 1974. Which means they didn’t exist when this formula was developed, and the Department of Education has had 46 years to fix that.