As part of the Covid relief package passed by Congress in December 2020, the Free Application for Federal Student Aid (FAFSA) Simplification Act makes significant changes to the FAFSA form effective from July 1, 2023, for the 2024-2025 school year and future years.
The good news is that more low-income families will qualify for full Pell Grants, and there will be a significant reduction in the number of questions.
The “meh” news is that middle-class families must be prepared for potentially significant cuts to their aid packages beginning with the 2024-2025 school year.
Note that we will be hosting a webinar explaining this topic in September. In the past, the FAFSA opened Oct 1, buthis year it will be in December. Because of these changes, I personally project a bit of a mess this spring around financial, need-based aid.
EFC/SAI Primer
The FAFSA is used to determine a family’s financial need to attend college. The income and assets of parents and students on the FAFSA drive the calculation of the Expected Family Contribution (EFC), which represents the minimum amount families are expected to contribute each year for college. Most families pay much more than the EFC, so the term seems a bit misleading. The EFC term is being replaced in the new law by the Student Aid Index (SAI).
The lower your EFC/SAI, the less you are expected to contribute to college, and families may be offered Federal Pell Grants, student loans, parent PLUS loans, and/or work-study (a paid job at the campus). The actual amount you receive depends on several factors including the Cost of Attendance (COA) at your school and any other grants or scholarships you may receive. A small number of colleges may offer to meet 100% of the need, which means the institution may kick in the difference between your EFC/SAI and the COA.
Multiple Siblings in College
Current Rules: Today, it is beneficial to have multiple kids in college at the same time. Why? Because under current FAFSA rules, you get to divide your EFC/SAI by the number of students you have in college that year. For example, if the EFC= $40000, and there are 2 kids in college, then each student has an EFC of $20,000.
The new FAFSA will take this pro-rating out of the equation, so both siblings would have an SAI/EFC of $40,000. This will affect the amount that each child is awarded in grants, loans, and/or work-study.
Divorced Families May Pay More
Today, the spouse with which the student lives the majority of the time (> 183 days) is responsible for filing the FAFSA and reporting their income and assets. The income and assets of the other birth parent are ignored. The terms of a divorce decree or the parent providing the most financial support are irrelevant in determining which parent files and reports their income and assets on the FAFSA.
Starting in 2023, the divorced parent who provides the most financial support for the student must file the FAFSA and report their income and assets regardless of with whom the student lives. Therefore, the family’s EFC/SAI (and the net cost of college) may be much higher now because the biggest earner will the one filing the FAFSA.
A Caution to High School Seniors
Families with high school seniors will soon select the colleges to which they will apply. We feel strongly that understanding aid and your budget for college are very important because the cost is often an important issue.
If families are not aware of their financial needs and the way the cost of college is affected by their SAI, they may then need to make some uncomfortable decisions once they receive their acceptance letters. The cost may be out of budget and then there may be some changes that may include (a) taking out parent PLUS loans, (b) asking their student to take a gap year to earn money to start/finish college, or (c) asking their student to attend a lower-cost college.
Do not conclude that a college is affordable based solely on your Freshman financial aid award. It is important to consider the four years of attendance, not just the first. And remember, a good college is one where YOUR student will thrive, learn, grow and leave with a lucrative skill set, not loans.
Options to Consider
There are some private colleges that use another financial calculator called the CSS Profile in addition to the FAFSA. The new changes to the FAFSA do not affect the aid given by these colleges. The CSS Profile asks many more questions about the family’s assets, but the CSS Profile still permits the EFC/SAI to be prorated between multiple siblings in college simultaneously, and it treats the income and assets of divorced parents (and their new spouses if remarried) differently than the FAFSA. While CSS colleges generally have a higher COA, they also typically award higher amounts of gift aid compared to public colleges. It is important to note whether your family needs to complete both the CSS and FAFSA or only the FAFSA.
These changes to the FAFSA and the implications will be addressed in our webinar in September. Stay tuned for an announcement about the date and time.