Financial Aid and student debt have been in the national spotlight as of late, with the advent of significant changes coming to the FAFSA for SY 2024-2025 (available for filing in October 2023) and President Biden’s student debt relief plan.
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However, there are significant changes that will commence this filing year.
FIRST, WHY CHANGE THE FAFSA?
The intent of the changes to the FAFSA are to simplify the process, make it easier to understand, and make aid more accessible to more diverse populations of people.
5 Changes to the FAFSA for school Year 2023-24
The Consolidated Appropriations Act of 2021 enacted changes to the Free Application for Federal Student Aid (FAFSA) with the intention of simplifying it.
Fewer Questions - yay!
Selective Service questions are removed.
Students no longer excluded from financial aid due to drug convictions.
BAD NEWS: Parental asset protection is shrinking.
GOOD NEWS: Student income protection is rising.
Now let's break these down...
CHANGE #1: FEWER QUESTIONS
One of the major simplification aspects is that the form has been reduced from 108 questions to just 36. However, due to “skip logic” technology, which is when the next question in a data-gathering form amends itself based on the respondent’s answer to the current question (kind of like a Choose Your Own Adventure story except maybe not as fun), applicants can expect to answer even fewer questions than that.
While these changes were intended to go into effect for the October 1st, 2022 FAFSA, some changes have been pushed back to filing year 2023.
CHANGE #2: Goodbye to Selective Service questions
Very simply, the FAFSA will no longer require males under the age of 26 to register for the draft to get financial aid.
CHANGE #3: Drug convictions...no longer an exclusion
While the FAFSA will still ask if a student has had a drug conviction while receiving federal student aid, if that answer is yes, it will no longer exclude a student from eligibility for aid. Students should answer honestly.
CHANGE #4: Bad news...parental asset protection is shrinking
While asset protection for parents has been shrinking each year, it is now $0. This means that no portion of assessable assets will be sheltered when calculating EFC (Expected Family Contribution, soon to become Student Aid Index.) This results in reduced eligibility in need-based aid, sometimes as much as $4,400.
Don't worry, your retirement accounts, home equity, and life insurance policies will not be considered in determining your aid award.
Read about asset protection allowance in more detail here.
CHANGE #5: Student income protection is rising!
Student income protection has been raised to $7,040. That means that for students, nothing is counted towards your contribution to paying for college if you have less than $7,040 in the PPY, Prior-Prior-Year (2 years prior), which is used to calculate EFC in taxable and nontaxable income.
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It is smart to keep student income at or below this number because student contribution is assessed at a flat 50% of discretionary income. For example, every $10,000 above a student’s protected income is a $5,000 increase in EFC. In comparison, parents’ contribution from income is assessed on a sliding scale from 22% to 47%.
4 Changes to the FAFSA for school Year 2024-25
Now for changes for the following year:
Expected Family Contribution (EFC) will become Student Aid Index (SAI) with more changes!
More individual data will be imported from the IRS into the FAFSA.
The FAFSA filing parent may change depending on your situation.
Calculation of the student's income will change.
CHANGE #1: EFC becomes the SAI with more changes!
The term EFC (Expected Family Contribution) will be replaced with SAI (Student Aid Index) and can be a negative number. Some more changes to the Student Aid Index are:
The lowest EFC previously was $0. SAI can be -$1500.
SAI will not be reduced by the number of students a family has in college. This is good news and bad news. On the previous FAFSA, Income Protection Allowance (IPA) was reduced by $3,310 per student in college. From 2023 forward, there will be no reduction for two or more children in college, which ends up protecting more parent income from need analysis.
However, the simplified FAFSA will no longer divide the parent contribution portion of the SAI by the number of children in college. This decreases aid to middle and upper-income families with two or more children in college, and has little effect on lower-income families.
Child support and Workman's Comp will not be added to the adjusted gross income (AGI).
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CHANGE #2: IRS data automatically imported into FAFSA
More individual data items will be imported into the FAFSA from the tax return information for families eligible to import data from the IRS, which is why it is important to apply for an FSA ID.
When completing the FAFSA, it’s best to select the IRS Data Retrieval Tool (DRT.) This will import data from your federal tax return, making filling out the forms more accurate and less time consuming. You must have an FSA ID in order to access this tool.
CHANGE #3: The FAFSA filing parent may change
The FAFSA filing parent (custodial parent) will be the parent that supports the student the most financially, not the parent with whom the student resides primarily.
CHANGE #4: Calculation of the student's income will change
Good news if that student income protection will go up to $9,410...it's about time! Ok, what else:
Money paid on behalf of the student by parties other than the parent(s), including grandparent 529s, will no longer be treated as assessable student income.*
Colleges will have more flexibility to award federal aid in case of emergency, national disaster, recession, or business losses.
To FAFSA or Not To FAFSA…
College sticker price and student debt have been skyrocketing for years, making need-based aid a necessity for many families, even ones that previously may not have thought to apply or been eligible.
To this end, applying for financial aid seems like a done-deal. However, the process is complicated, and being informed and up-to-date on current practices and the implications of applying for aid, as well as understanding the types of aid available are all key factors in maximizing your financial aid award and minimizing debt.
Anyone who thinks they may qualify for need-based aid should apply for it. Yes, this means even those of you who are “sure” you make too much money to qualify.
There are no income limits on applying for aid, and there are many factors that go into determining a family’s EFC (soon to be SAI) in conjunction with a college’s Cost of Attendance (COA,) which will vary from college to college.
To get an early read on your child’s “demonstrated need” at the colleges on their list, input your numbers into four or five net price calculators. Every college is required to have one on their website.
However, the quality of these institutional calculators varies greatly; typically, the more information they both give in terms of net price and ask for in terms of your financial standing, the more accurate the calculator is. Because of this, Big Future EFC Calculator from the College Board is also a great resource.
Anyone who thinks they may qualify for need-based aid at any point in their undergraduate years should be applying for it as an incoming freshman. At some colleges there is a one year hold on applying for aid if you did not apply prior to your first year, and some colleges will even prohibit it entirely. Unexpected financial events can occur, so best to plan for worst-case scenarios by filling out the FAFSA prior to your freshman year.
Anyone expecting merit aid scholarships should verify on the college’s website if the FAFSA (and sometimes the CSS Profile) are required. At the overwhelming majority of institutions, the college application itself is all that is needed, however it is always best practice to visit each school’s website to see what their individual requirements are.
Some states (about a dozen) require families to fill out the FAFSA, but remember that you can always opt out of this on the application. You do not need to send your FAFSA to each school to which you are applying, only the ones at which you are looking for need-based aid.
WHY NOT APPLY?
While colleges are always looking to construct the most appropriate first-year class, not the least expensive, applying for and needing aid can affect an applicant’s outcome.
Full-pay students help underwrite a college’s bills, so this may muddy the playing field a bit in terms of how an admissions office looks at the application of a full-pay vs. a need-based applicant unless, of course, the institution practices need-blind admissions.
Furthermore, how much aid a student needs can also come into play. This is why having an appropriate and comprehensive college list is crucial in ensuring not only personal fit and match, but also financial fit and match.
Being a big fish in a small pond as an applicant goes a long way in getting the money you need for college, and with over 4,000 colleges and universities in the US, getting the education you want and can afford is easier than you think.
Some adDitional Tips on HOW TO GET STARTED
STEP ONE: Your FSA ID
While a parent typically fills out these forms, they are on behalf of the student.
A student should first create an FSA ID and then one parent should follow. That parent will then be able to access the student’s application and co-sign the FAFSA if the student is dependent and younger than 24 years old. Only one parent is required to create an FSA ID; here are some rules on who that parent should be in the case of divorce or non-traditional family situations.
STEP TWO: Completing your FAFSA
Once you have an FSA ID, you can start the FAFSA here.
When you have completed the FAFSA forms, they will be submitted to all colleges the student designates. That’s why it is important to have the forms completed before the earliest application deadline, which is November 1st in the case of Early Decision.
The FAFSA has room to list 10 colleges to which to send information. Here’s what to do if you are applying to more than 10 colleges.
Does the order in which you list your colleges on the FAFSA matter? Sometimes, yes. Here are some directions as to how to list your colleges on the FAFSA.
Finally, the first “F” in FAFSA stands for Free! NEVER pay someone to prepare your FAFSA for you! It’s unethical and unnecessary. Here are free resources to help you fill out the FAFSA.
Remember to consult a financial advisor who specializes in college financial planning before making any changes in your college savings plans.
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