Completing the Federal Application for Student Aid (FAFSA) is an essential step for every college-bound student seeking scholarships, grants, or other financial aid. Near the end of 2020, Congress passed the Consolidated Appropriations Act (CAA) of 2021, which changed certain rules as part of an effort to make the FAFSA an easier process.
The upcoming changes simplify the FAFSA in some ways but make it more complicated in others. The majority of these changes won’t take effect until the 2024-2025 school year, which means they won’t appear on the FAFSA until October 2023. The following is a summary of key changes to help students and families prepare.
The FAFSA Application Will Get a Trim
The FAFSA currently includes a lengthy 108 questions, which many have argued discourages families from completing the form. Going forward, the FAFSA will be much shorter; instead of 100+ questions, FAFSA applicants can expect less than 40.
“EFC” Will Become “SAI”
Currently, the Expected Family Contribution, or EFC, is the all-important number that colleges and universities use to determine a student’s eligibility for aid. Under the new law, the EFC will become the Student Aid Index (SAI). The term “Expected Family Contribution” has been interpreted as somewhat confusing and potentially misleading, as it suggests that the number is how much the family will need to pay. Congress came to an agreement that “Student Aid Index” was more appropriate.
Potential Impact for Families with Two Children in College at the Same Time
In the past, families with multiple children enrolled in colleges and universities at the same time could expect to benefit by appearing more eligible for aid compared to families with just one child enrolled. Going forward, this discount no longer applies.
In earlier years, parent contribution was divided by the number of children in college. Now, parent contributions remain the same no matter how many children will be on campus. This is tied to the removal of Expected Family Contribution in favor of the Student Aid Index: the EFC would be reduced with the addition of each new student enrolled, but now each family will have an SAI that will be applied uniformly to all enrolled children.
No Decrease in Asset Protection Allowance
The section on Asset Protection Allowance exists to shield a portion of checking accounts, stocks, bonds, and other investments from the college aid formula to protect those assets from being tapped for college funding. Under the latest legislation, there is no change made to that portion.
While this sounds like a positive change, many wealthy families had hoped for an increase in that portion to account for the drastic drops over the past decade or so.
Elimination of Lifetime Federal Direct Subsidized Student Loan Limit
Currently, students can receive subsidized loans for 150% of the length of their education program. For example, a student who attends a four-year program can only receive direct subsidized loans for six years in total.
Upcoming changes will allow eligible students to have access to federal direct subsidized student loans for as many years as it takes to finish school. Unlike the others, this change will go into effect for the 2021-2022 school year.
Expanded Lifetime Learning Credit
Formerly, the Lifetime Learning Credit kept older college students from being awarded college funding because it had to be counted as income (which ultimately counted against college aid). With these new FAFSA changes, the Lifetime Learning Credit no longer has to be counted as income. The same goes for child support, work-study opportunities, workers’ compensation, and several other categories as well.
Grandparent-owned 529 Accounts
Grandparents will soon be able to contribute to their grandchildren’s education without impacting their eligibility for need-based financial aid. Under the new rules, distributions taken from grandparent-owned accounts on future FAFSA applications will no longer need reported as income.
New Rules Concerning Divorced Parents
Dependent students whose parents live together and are divorced, separated, or never married must report their income and assets as if they are married. In cases where a dependent student’s parents are divorced or separated, but not remarried, the parent who files the FAFSA is determined by which parent provides more financial support to the student.
How Families Should Prepare
It’s important for anyone pursuing college aid to know these changes, but it’s especially significant for wealthy families to understand how the college funding process will soon change.
If you’re preparing to fill out the FAFSA and are concerned about how these changes might impact you and your financial plan, please don’t hesitate to contact our team.