FAFSA CHANGES

The second pandemic relief bill Congress passed in December 2020 included a significant overhaul of the Free Application for Federal Student Aid (FAFSA). 

The FAFSA is the gateway to federal and institutional financial aid, including federal student loans. The FAFSA opens each year on October 1st (along with the additional financial aid form required by many private colleges, the CSS Profile). 

These changes will go into effect for the 2023-24 school year (the FAFSA that opens on October 1, 2022). Even students who entered college using the existing FAFSA will change over to the new version beginning in fall 2022. 

Many of the changes will come as a welcome relief; however, there are some drawbacks for a number of families. 

1. SIMPLIFICATION

It will be much easier to complete the FAFSA under the new format. 

• Reducing from 108 questions to a maximum of 36 questions
• More questions will auto-fill from year to year (personal demographic information for example) beginning with the Oct 2023 FAFSA
• More questions can be auto-filled from your tax returns using the IRS Data Retrieval Tool
• Translated into 11 languages (currently only in English and Spanish)

2. LESS CONFUSION

Currently, families who file the FAFSA receive a number known as the "Expected Family Contribution" or EFC. The name has led many families to believe that their EFC is all they would be expected to spend each year. 

Under the new FAFSA, this term will now be called "Student Aid Index" or SAI. It will be possible for a family to have a negative SAI (previously 0 was the lowest EFC), thus expanding the needs-based aid some families can receive. 

3. EXPANDED PELL GRANT ELIGIBILITY

The new FAFSA expands the number of students who will be eligible for Pell grants from the federal government by an estimated 500,000 students. It will determine eligibility based on the size of the student's family and the family's adjusted gross income rather than the federal poverty guidelines. 

In addition, lower-income students can determine eligibility for a Pell grant before they file a FAFSA, thus incentivizing them to file a FAFSA and consider college as a viable option. 

4. GREATER TRANSPARENCY

All colleges will now be required to fully itemize the college's "Cost of Attendance" in a standardized format on their websites. This will both help families make apples-to-apples cost comparisons more easily, but it will also prevent colleges from under-estimating certain costs or failing to list out an estimate of certain indirect costs that many families failed to consider in their budgets.

• Tuition/Fees
• Housing & Meals (replacing "Room & Board")
  • Housing cannot be reduced to 0 for students living at home with parents and commuting
  • Meals must be calculated on the assumption of 3 meals per day
• Books and supplies
• Travel & Transportation expenses -- must be estimated and listed on the website as part of the total
• Personal expenses -- must be estimated and listed on the website as part of the total costs

5. CALCULATION CHANGES

• Increases the amount of parent income shielded from the FAFSA calculations to $29,400
• Increases the amount of student income shielded from the FAFSA calculations to $9,410
• Eliminates the inclusion of funds received from a non-parent (grandparents, uncles/aunts) as student income -- grandparent 529 plans will no longer reduce needs-based aid eligibility (but keep in mind that the CSS Profile will possibly still evaluate grandparent 529 plan assets and distributions to the student)
• Child support received will change from untaxed parent income to a parent asset (FAFSA only expects parents to contribute 5.64% of their unprotected assets toward financing college)

However, the new FAFSA expects to eliminate loopholes often exploited by those who are self-employed but have significant assets -- a family is exempt from reporting assets on the FAFSA if adjusted gross income is $60,000 or less AND the family does not file a tax return with Schedules A-H or a Schedule C with net business income of net gain or loss of $10,000 or more

6. EXPANDED FINANCIAL AID APPEALS

Financial aid appeals will be easier under the new FAFSA:

• College financial aid offices may not deny all financial aid appeals as a matter of policy.
• Financial aid offices will operate under an expanded definition of "professional judgment," which will allow them to depart from federal financial aid eligibility rules more easily. For example, natural disasters now explicitly are a factor that a financial aid office can consider under "professional judgment" for offering additional federal financial assistance

7. ADDITIONAL STUDENT BENEFITS

These perks help certain students:

• Male students will no longer be required to register with the Selective Service to complete the FAFSA
• Question(s) related to drug-related convictions will be removed from the FAFSA
• The definition of "independent student" will be expanded and allow dependency overrides for a larger number of students

Now for some changes that will not be as positive for some families.

1. DIVORCED/SEPARATED FAMILIES

Currently, some divorced/separated families had a bit of a loophole in that the FAFSA was to be filed by the custodial parent (or the parent with whom the student spent the most time in the previous calendar year). If that parent who met the custody/residential test had a lower income, the family could avoid showing the income of the non-custodial parent. Note that this was true only for students applying to or attending colleges that only required the FAFSA. Many private universities also require students to file the CSS Profile, which almost always requires financial information from the non-custodial parent. 

The new FAFSA will eliminate this loophole by requiring that the FAFSA filer be either the parent who provided the most financial support to the student in the previous calendar year OR if the parents split expenses 50/50, the filer must be the parent who has the higher adjusted gross income. Divorced and separated parents may need to consider itemizing their expenses and financial support to the student beginning in high school in case such evidence is needed or useful. 

2. FAMILIES WITH MULTIPLE STUDENTS IN COLLEGE AT THE SAME TIME

This is a big loss for certain families with multiples, stair-step kids, or students who will overlap for other reasons.

Under the current FAFSA, a family's EFC is divided among the students who are enrolled in college in any given year. So if a family has an EFC of $80,000, and they have twins enrolling in college in the same year, each twin has an EFC of $40,000 for purposes of financial aid. 

With the new FAFSA, that allocation is currently eliminated. There is quite a lot of lobbying going on to amend the FAFSA Simplification Act to reinstate that division of SAI among a family's college-enrolled students. But that may prove challenging, not only because amending any law requires time,  persistence, and votes/support from legislators. It seems there was at least some consideration of policy, and this change was not merely oversight or an outright mistake. Some commentators have noted that this is more equitable and that families who "spaced" their children don't have the same benefit of a lower EFC for their children. Of course, many (most?!) families aren't necessarily planning to have twins or triplets!

If you notice, I did preface this discussion by noting that only certain families will lose with this change. Here's why:

• Lower-income families already have an EFC of 0 or some other low number, so there was very little to allocate among siblings
• Middle-income and upper-income families will be disadvantaged by this new rule, but only to the extent that their children apply or enroll at colleges that meet 100% of demonstrated financial need (and that number of colleges is really quite small). 
  • Let's take the family from above with an EFC of $80,000 and twins. Under the old system, each twin would have an EFC of $40,000. Twin A applies to a large out-of-state public school that would have a COA of $50,000 because of the out-of-state premium. Twin B applies to an elite private school with a COA of $75,000. Assume Twin A is ineligible for merit aid in this example. 
    • Under the current FAFSA, Twin A would have need of $10,000 ($50,000 COA - $40,000 EFC allocation), and Twin B would have need of $35,000 ($75,000 COA - $40,000 EFC). Twin A would in all likelihood be told that the $10,000 would need to come from parent loans -- public state schools do not meet 100% of demonstrated financial need. The parents would be expected to fully fund $50,000 for Twin A. Twin B would receive a package of $35,000 from the private school assuming it's a school that meets 100% of demonstrated financial need -- that package possibly would only include $5500 in federal student loans or no loans at all. 
    • Under the new FAFSA, both twins have the SAI of $80,000; therefore, neither of them have any financial need. Twin B was advantaged under the current FAFSA because of application & admittance to one of the few selective colleges that would meet 100% of demonstrated financial need. Twin A is unaffected by the new FAFSA, but Twin B faces a large loss of financial aid. 
  • Another example - let's assume a family of 3 children, each one year apart in age, and the family's EFC is a slightly more modest $45,000. Child #1 would have the full $45,000 EFC in Year 1, but the next year, when Child #2 enters college, each of them has an EFC of $22,500. In Year 3, each child has an EFC of $15,000. Child #1 attends a selective private school meeting 100% of demonstrated financial need - the COA is $80,000. The family understood the first year would be a financial stretch, but that each year thereafter would be easier because of the divided EFC among their children. Child #2 attends a private school with a COA of $50,000 and was awarded merit aid of $30,000. Child #3 plans to attend a public in-state college with a COA of $25,000. 
    • Under the current FAFSA, Child #1 received a package with $35,000 in financial aid for Year #1 and the family was responsible for $45,000. The next year, Child #1 received a package of $58,500 in aid, with the family responsible for $22,500. In Year 3, Child #1 received a package worth $65,000 in financial aid. In Year 2, Child #2 had merit aid in excess of need, so the family paid $22,500 for Child #1 and $20,000 for Child #2. In Year 3, the family paid $15,000 for Child #1, $20,000 for Child #2 (because Child #2's school does not meet full financial need), and $25,000 for Child #3 (because public state schools don't meet full need). So in Year 3, the family was paying $15,000 more than their $45,000 EFC (a total of $60,000). In this example, Child #1 is the least expensive student for the parents owing to his selection of a college meeting full need and the added benefit of his younger siblings reducing his EFC by such a large amount. 
    • Under the new FAFSA, all the children would have the SAI of $45,000. So in Year 3, the family could expect (if costs stay unchanged at each school each year) to pay $35K for Child #1, $20K for Child #2 who has a large merit aid award, and $25K for Child #3 -- a total of $80,000 each year, despite the family's SAI being only $45,000. Even with Child #1 being able to gain admittance to and choosing to attend a college meeting full demonstrated financial need, his education costs per year were more than the younger siblings. In this example, Child #2, who chose to attend a college that offered a significant merit aid award, is the one with the least expensive yearly costs. 
• These examples have ignored the CSS Profile -- that's the additional financial aid form required by many private universities. Certainly Twin B's college in the first example, and the colleges attended by Child #1 and Child #2 in the second ample, would require the CSS Profile. The CSS Profile adds a potential additional layer of complication in that it might have adjusted a family's EFC upward (or possibly downward). 
• We don't know yet to what extent the CSS Profile will align with any of the above changes to the FAFSA. It is possible that a family with multiple children in college at the same time could make an effective case for additional financial aid from the college through the CSS Profile. But again, note that this won't be true for FAFSA-only colleges (such as 99% of public state colleges). 
• Families might be able to make an appeal for additional aid under the expanded "professional judgement" rules. However, if an older child is attending a very selective and costly college, financial aid officers at a state school might look less favorably on an appeal for "professional judgment" that awards more aid to a younger sibling. 

Careful financial planning in the selection of colleges for families with multiples, stair-step kids, or children born less than 4-5 years apart will become more important. 

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