About 170 pages of 2020’s year-end omnibus federal spending bill were devoted to FAFSA Simplification. Sounds almost ironic, doesn’t it? The changes aren’t all that simple, but here’s a summary.
Most important, the changes come into effect for the FAFSA that will be available in the fall of 2022, for the 2023-2024 school year. That means that students who are current college freshmen, high school seniors or high school juniors will have financial aid calculated under both the current formula and the new one.
Another big change: the Expected Family Contribution is being renamed the Student Aid Index to more accurately reflect what colleges do with it. Colleges are under no obligation to meet financial need, and it’s confusing to families who are already stunned at what the FAFSA tells them they should expect to contribute to learn that many schools expect them to contribute even more.
The changes with the broadest impact are as follows:
- Student Income Good news for students whose grandparents have 529s: The FAFSA is dropping the “Money paid on your behalf” question, which requires students to report distributions from non-custodial-parent-owned 529s or other financial gifts received as their income. This means that students with support from extended family members no longer need to wait until spring of sophomore year to access these funds.
- Multiple College Students The FAFSA will no longer divide EFC by the number of college students in the household. This is a big negative for families with multiple simultaneous college students. Currently, a family with an EFC of $40,000 and two college students would have an EFC per student of $20,000. Starting with the 2023-24 school year, each student will have an SAI of $40,000.
- Divorced Parents The current FAFSA is completed by the parent with whom the student spends the most time. The new FAFSA requires the parent providing the most financial support to complete it. In the case of parents who provide equal financial support, the parent with the higher income will complete it. The formula is throwing a bone to single parents: the new formula counts child support received as an asset, not income, thus reducing its impact on SAI.
- Simplified Formula The income limit for the simplified formula– where no assets are reported– is increased to $60,000 with some adjustments to expand eligibility.
- Pell Grant Eligibility Eligibility for Pell Grants has been expanded and tied to income, not EFC, making it easier for families to determine whether they’re likely to be eligible.
- Formula Adjustments Several components of the formula were adjusted, including a 20% increase to the parent Income Protection Allowance and a larger increase to the student Income Protection Allowance. In addition, a few items such as state income taxes have been removed from the formula. Additional adjustments to the formulas for independent students have made that calculation more favorable.
As with all changes, FAFSA simplification will benefit some and work to the detriment of others. Students from lower-income families should see more favorable treatment following these changes. Students from large families, on the other hand, will see their SAI increase by a multiple of the number of college students in their household. Divorced parents will have less planning opportunities due to the stricter definition of which parent files.
Keep in mind what the FAFSA does and does not do. The FAFSA is for allocating federal student aid. Schools can do with it what they please. For example, many schools are aware that changes to the FAFSA formula do not change the amount of money that families have available to pay for college. It’s likely that many will continue asking about siblings in college. My daughter’s school, for example, uses the FAFSA with supplemental questions. This year they added a question asking how many college students are in the student’s family. And as of right now, the CSS Profile has not announced any such changes, so students applying to Profile schools will continue to report grandparent-owned 529s and get formula deductions for siblings who attend private schools.
What should you do with these changes? If you are a current or admitted student who will be impacted, contact your school’s financial aid office to confirm that your aid package will remain consistent after the changes. If you are a high school student who will be applying after these changes, do the net price calculators for schools you’re interested in based on the changes that apply to you and ask about the changes when you contact schools.