Jul 14, 2023 FAFSA Changes Coming

Written by Guest Contributor: Brady Woodford along with Chelsie M. Smith, CFP®

What is FAFSA?

Started in 1992, the Free Application for Federal Student Aid (FAFSA) is a form the federal government provides for upcoming and returning college students to apply for financial aid. FAFSA provides students and families with fixed-rate federal loan options or grants toward a college education. Many colleges and universities will require or strongly advise their students to complete the FAFSA application. The FAFSA is typically ready in October for the following school year but is pushed back to December 2023 for the 2024-2025 school year.

What is Changing with FAFSA?

In 2021, Congress passed the FAFSA Simplification Act (FSA), which aimed to overhaul the process of FAFSA. Listed below are the newly implemented and upcoming changes to FAFSA:

  1. Reduction of questions included on the form, from 100 to about 36.
  2. The term Expected Family Contribution (EFC) will change to Student Aid Index (SAI), effectively an index number to determine a family’s financial need based on varying factors.
  3. Pell Grant eligibility, the largest source of federal financial aid, will now be dictated based on adjusted gross income (AGI) and the Student Aid Index (SAI).
  4. FAFSA will no longer increase financial aid eligibility or provide a discount based on having multiple children in college.
  5. In the circumstance of divorced or separated parents, FAFSA will now require the custodial parent (the parent the child lives with most of the time within the 12-month period leading up to the filing date) to file on the FAFSA form. FAFSA will only examine the custodial parent’s income and assets for financial aid.
  6. Previously, families had to directly report any relative or outside financial support towards college costs. Now, families will no longer have to report this information, nor will there be any consequences of outside support on the financial aid packages. This means that grandparent owned 529 accounts will not count as part of the expected cash flow or support toward college. Previously the 529 distributions from grandparents were reported as untaxed student income. Parent 529 accounts still count as assets expected to be used towards college costs and may reduce your financial aid awards.
  7. Income protection allowance, which is excluded income from FAFSA’s aid formula, will increase for both parents and students. Parent’s allowance will be contingent on factors such as living expenses, household size, etc., while students can earn up to $9,410 a year without any financial aid consequences.

How will this Affect You?

The intended purpose of FSA is to create a more simplistic system for federal financial aid. This should make the process of applying to FAFSA simpler. These changes might also allow grandparents to save more to 529 accounts or contribute towards college without worrying about negatively affecting other financial aid.

You can find additional information on the FAFSA webpage: https://studentaid.gov/h/apply-for-aid/fafsa

Please feel free to reach out if you have any questions.

Source: https://www.kiplinger.com/personal-finance/credit-debt/loans/student-loans/602186/fafsa-application-changes-are-coming

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