Last month– as it does every May– the Department of Education released its Needs Methodology for the coming FAFSA. The Higher Education Act of 1965 requires that the Income Protection Allowance, Adjusted Net Worth of a Business or Farm, the Education Savings and Asset Protection Allowance, and the Assessment Schedules and Rates be updated annually for inflation.
Three of the four items received modest increases. For example, the Income Protection Allowance for a family of four with two college students went from $25,400 to $26,080. Meanwhile, the dependent student Income Protection Allowance went from $6,660 to $6,840.
Once again, the outlier is the Asset Protection Allowance, which took another whack. Whereas last year’s formula gave a married couple with the oldest partner age 50 an Asset Protection Allowance of $12,500, this year that same couple would only get only a little more than half that amount, $6,300.
Why does this happen? Here’s an explanation of how the APA is calculated. Interestingly, the Higher Education Act requires that the Consumer Price Index be the inflation measure for every category other than the Asset Protection Allowance; in the case of the APA, it requires inflation to be calculated at 6%.
Here are some takeaways from all of this:
- The typical family will see their EFC increase by about $350 based on the changes to the APA.
- A student earning the average college student hourly pay of $13.32 could work a little over 500 hours without it impacting their EFC. While 500 hours may seem like a lot, a student who works 10 hours per week during the school year and 30 hours per week for two months of summer will work around 540 hours.
And one last reminder: If you haven’t yet completed the FAFSA for the 2019-2020 school year, you have until 11:59pm Central time on June 30 to do so.
