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Congress signed a second pandemic relief package at the end of 2020 which created some changes in the Free Application for Federal Student Aid, commonly referred to as the FAFSA. Families must complete the FAFSA in order for the students to have access to federal, state, and institutional aid.

Most of the changes explained below will go into effect in July of the 2023-2024 school year.

1. A Shorter FAFSA

Currently, the FAFSA form is comprised of 108 questions.

In the new format, the number of questions has been slashed to 36 or fewer. The specific number of questions a family will have to complete will be based upon their unique financial situation.

The federal government reduced the number of questions with the hope that it will encourage more families to complete the form.

Remember, even if you don’t believe you’ll qualify for need-based financial aid, you still need to complete the FAFSA to be eligible for other types of aid and loans!

Analysis: This appears to be a big win for everyone. This change will hopefully flip the script on what many families perceived as an overwhelming process or just plainly a waste of time.

With less time and less headache to fill out the FAFSA, it is likely that more families all over the economic spectrum will submit it

2. No More Expected Family Contribution. Say Hello to the ‘Student Aid Index.’

Expected Family Contribution, or EFC, is a number resulting from the need-based financial aid calculation that comprises your income and assets to determine what the government believes you can pay toward a year of college costs.

The bill has renamed the EFC to the “Student Aid Index” (SAI) to make it more clear that the number provided isn’t the amount of money a family is required to pay for college, but rather to reflect the amount of financial aid they need.

The major issue here is that the term Expected Family Contribution is somewhat misleading. Some families mistakenly assume this is the number they are expected to pay at each school. This is not the case. Instead, the number symbolizes to each institution what your “paying capability” is, so to speak, and helps them determine your aid package.

Additionally, it’s now possible for the SAI to be zero, or negative, for low-income families so the colleges can easily determine which students need financial aid the most.

Analysis: This one is rather interesting. The change to the term, Student Aid Index, may cause less confusion and more transparency for families trying to identify what they will pay for college.

Ironically, changing Expected Family Contribution to a vaguer term like Student Aid Index adds clarity to the situation.

3. For Divorced or Separated Households: Change in the Parent Responsible for Completing the FAFSA

There will be a change in which parent needs to complete the FAFSA for students whose parents are divorced or separated, but not remarried.

Currently, the FAFSA identifies the custodial parent as the parent the student lives with a majority of the time, despite what their legal agreement says about who the custodial parent is.

With the new changes, the parent that will need to complete the FASFA will change from who the student lives with to the parent that provides the most financial support for the student. If both parents provide equal financial support to the student, then it is expected that the parent with the larger income is responsible for completing the FAFSA.

For students who have married parents, or unmarried parents that live together, either parent can complete the FAFSA using household income and asset figures.

Analysis: Although this makes things clearer for families, it could potentially take away a huge financial aid advantage that some divorced households have.

Right now, students whose custodial parents (as seen by the FAFSA) do not make that much money—even though the noncustodial parent brings in a very high income—are eligible for much more aid at FAFSA-only schools and the CSS Profile schools that don’t look at the non-custodial parent’s info.

With financial support becoming the decisive factor, this may negatively affect some students’ aid packages (depending on who gives the student the most financial support).

4. More Students Will Qualify for Pell Grant

The Pell Grant is a form of financial aid available to undergraduate students that does not need to be repaid. The good news is that the bill has expanded the eligibility to a larger range of grantees.

Currently, the Pell Grant is determined based on EFC after filing the FAFSA.

Under the new rules, Pell Grant eligibility will be based upon the student’s family size and adjusted gross income instead of federal poverty guidelines. This is a move that could increase the number of students eligible to receive a Pell Grant by more than 500,000.

Furthermore, students can be made aware of their Pell Grant eligibility BEFORE they fill out the FAFSA, giving lower-income students a huge incentive to not only submit the financial aid form but seriously consider college as an option in the first place.

Analysis: These changes provide a big step forward when it comes to college affordability for lower-income families.

5. Changes to Financial Aid Appeals

Probably the biggest and most relevant change in this category is the qualifying emergency piece.

The COVID-19 pandemic has caused extended unemployment for many families, including those that have students going off to college.

Under the new bill, financial aid administrators can use professional judgment during a qualifying emergency to factor unemployment into consideration when determining a student’s financial aid eligibility. In fact, they can set the prospective student’s (or parent’s) income to zero. The student or parent must only document that they are receiving or have applied for unemployment benefits.

Analysis: This change can be significant for families that are drastically impacted by a pandemic such as COVID-19. Currently, many families are still having their financial aid need calculated based on their “prior-prior year” income. This will allow families easier access to increased financial aid while they’re experiencing hardship.

6. Huge Change for Multiple Students Enrolled in College Simultaneously

Under current FAFSA rules, a family’s Expected Family Contribution is reduced when they have two or more kids in college at the same time.

Under the new rules, this will no longer be the case. This change will reduce the amount of financial aid for middle-income and high-income families that have multiple students in college at the same time.

Analysis: This is a massive hit to large middle- and upper-income families. This will effectively eliminate some funding strategies like taking a gap year or attending community college in order to enroll in a university along with a younger sibling at the same time.

If you have students that are currently in college or are entering college in the upcoming school years, it will be crucial to plan your funding strategy around this new rule (going into effect July 2023). You may be eligible for more financial aid during some years under current rules, and then less financial aid in later years under the new rules.

There are many other changes to the FAFSA for which we will continue to provide updates and commentary. Please continue to check our website for more blog updates. As always, reach out to schedule a free consultation with one of our experts if you have questions about your specific college funding situation.


To learn more about paying for college while saving for retirement, check out our free, educational webinars that cover a variety of topics related to planning and paying for college. 


 

Want to delve deeper into the FAFSA changes?

Forbes/Mark Kantrowitz, “Pandemic Relief Package Simplifies FAFSA” 

 

 

 


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