FAFSA Changes on the Horizon
The photo above doesn’t have anything to do with the FAFSA per se, but indulge me as I start on a high note here. Last Thursday I had the opportunity to speak to the Durango High Noon Rotary Club and my topic would focus on forthcoming changes to the FAFSA, which is being launched sometime in December 2023 (as of this post). However, the young man in this photo stole the show. His name is Nash and he is from Zimbabwe and he has been in Durango as a Rotary exchange student for the past year.
To say Nash’s life, and his family’s, have been impacted by his experience in the US is quite an understatement.
To keep a long story short, members of Rotary got busy raising money to support Nash and his family. In the end, the outcome is nothing short of transformational and life-changing as the funds have become enough to assist Nash and his family in purchasing land and building a house of their own. Nash couldn’t stop talking about it and his family is extremely grateful to the support they’ve been given through so many generous people. Here’s to Nash and his family starting a new adventure in their new home in Zimbabwe! And let’s give it up to the spirit of generosity making a difference in our world!
Now, let’s talk a bit about the FAFSA and what you should expect when it launches in December.
“For the almost 900,000 students with one sibling in college who will maintain their eligibility, they stand to lose almost $3,000 each in institutional grant aid, totaling $2.5 billion,” the report says. “Another 157,000 will lose all eligibility that could have provided up to $7,900 in aid each, totaling $1.2 billion.”
Right now there is no small number of issues circulating throughout the world of higher education. Affirmative action and other considerations for admission, distrust of higher education by younger generations, college closures, student debt cancellation, AI and ChatGPT, student loan payment restart (pro-tip: it’s coming in August as part of the federal debt ceiling agreement so talk to your loan servicer now) - the list goes on and on.
But most families, especially those who are concerned about costs of post-secondary education, should be aware of changes coming to the FAFSA (Free Application for Federal Student Aid) this December. The FAFSA Simplification Act of 2020, passed under the Trump administration and is being headed up by the Department of Education.
Key Changes to the FAFSA Coming December 2023
As with most legislation, there is a lot to unpack, but here I’m going to cover the topics that most families will want to know.
Expected Family Contribution (EFC) is being changed to the Student Aid Index (SAI)
Expands access to the Pell Grant
Streamlines the form
More IRS and tax information will be automatically connected to the FAFSA, due to the latest Future Act
Definition of “custodial parent” for divorced couple is changing
Elimination of sibling discount
Small businesses and farms no longer excluded from SAI calculation
Expect changes to FAFSA aid calculations - do not rely on what your past EFC calculation has been
EFC Changing to SAI
Student Aid Index (SAI) is a rebrand that is more indicative of what the number actually means. Unlike the EFC which has a floor of $0, SAI will be able to go negative and has a floor of -$1,500. This means some students will have a financial need that is greater than a school’s cost of attendance. This is a win for lower-socioeconomic families and will expand Pell Grant eligibility.
Expands Access to Pell Grants
Calculation changes to the SAI and adjust gross income for families, means more families will have access to Pell Grants. Incarcerated individuals will also once again gain access to aid, including Pell Grants, which they lost access to in 1994.
Streamlines the FAFSA
One major reason for passage of the Act was to streamline the form and simplify it. It remains to be seen of those goals have been achieve, but the form has been reduced from more than 100 questions to fewer than 40. Yeah!
Enhanced Tax Tool
The new FAFSA includes an enhanced data retrieval process, allowing applicants to import their tax information directly from the IRS using the IRS Data Retrieval Tool (DRT). This feature reduces the likelihood of errors and ensures that accurate income information is provided. By accurately reflecting their financial circumstances, students may have a higher chance of meeting the eligibility criteria for Pell Grants.
Definition of “Custodial Parent” Changes
This one could be a major impact for divorced couples. Currently, the custodial parent is generally the parent with whom the student lived the most during the 12-month period for filing. If the student lived equally with both parents, the custodial parent is the parent who provided more financial support. With the new FAFSA, “custodial parent” will change to who provides the most financial support, regardless of whom the child lives with. If the custodial parent is remarried, the stepparent's financial information must also be submitted.
Eliminates the Sibling Discount
Families will no longer be able to split their EFC/SAI between all college-going students. Currently, a family with two children in college can split their EFC. So if the family has an EFC of $50,000 then one student can report an EFC of $25,000 and the other student can report an EFC of $25,000. Student will need to report the same EFC without a split, so using the previous example, both students would report an SAI of $50,000 when completing applications and completing a financial aid analysis. This means some students may lost out on need-based aid, depending on the cost of attendance of the particular schools they are considering. Need-based aid includes subsidized federal loans, work-study, and even institutional grants and scholarships.
“For the almost 900,000 students with one sibling in college who will maintain their eligibility, they stand to lose almost $3,000 each in institutional grant aid, totaling $2.5 billion,” the report says. “Another 157,000 will lose all eligibility that could have provided up to $7,900 in aid each, totaling $1.2 billion.” - Brookings report dated April 17 by Philip Levine and Jill Desjean
Includes Small Businesses and Farms in SAI Calculation
The income threshold for small business and farm owners is being raised from $49,999 to $59,999, but this isn’t the whole story. As reported by Inside Higher Education on March 20, 2023 (Treating Farm Families Unfairly?), "Currently, the net worth of farms or businesses with fewer than 100 employees is exempt from the EFC formula. However, the FAFSA Simplification Act removed that exemption."
"Currently, a family with an adjusted gross income of $60,000 and a farm worth $1 million would be expected to contribute $7,626 ($7,626 EFC) annually for college. But under the new federal financial aid formula that will launch later this year, that same family would be expected to contribute $41,056, the Iowa Student Aid Commission found in a recent report."
So starting this December, a small business or farm could greatly impact a family’s SAI calculation.
Expect SAI Different Calculations
With all the changes going into effect with the new FAFSA, students and families should expect changes to their aid eligibility and SAI calculation, especially for families with more than one student in college. Talk to a college financial planner and start the conversation to learn what you can do now to plan for any impacts.
Stay Informed
The National Association of Student Financial Aid Administrators has done a nice job of creating a case study playbook. Take a look through the document and see if your situation fits any of the examples they provide.
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Have a question or comment? Please leave it in the comment section below or contact me at mark@mastalskicoaching.com.
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