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.
It will be much easier to complete the FAFSA under the new format.
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.
5. CALCULATION CHANGES
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:
7. ADDITIONAL STUDENT BENEFITS
These perks help certain 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:
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.
Penny Linsenmayer is the owner of College Dreams Consulting. She is an associate member of IECA (Independent Educational Consultants Association) and NACAC (National Association for College Admissions Counseling). She holds a certificate in College Access Counseling from the Glasscock School of Continuing Studies at Rice University.