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FAFSA Delayed and Changed!

The Feds significantly changed the FAFSA in more ways than one.


The Free Application for Federal Student Aid (FAFSA) usually opens on Oct. 1. Plenty of time before those early deadlines. This year it was delayed and was supposed to be available on Dec. 1. Now, whether it is because of the complexity of the changes or they can't get it to work, the Feds punted and now it will be "available by Dec. 31, 2023."


What the heck does that mean? It probably means that your student's college financial aid and potentially merit offer may be sent later than expected. Procrastinators don't get around to filing the FAFSA until the Spring, so nothing will change in their timing. Savvy families understand that there is a limit to how much financial aid a school has to give. College Counselors advise families to file as soon after Oct. 1 as possible, and definitely by mid-December. Filing early meant they were first in line with the financial aid offices who divvy up the aid, before they run out of that year's allotment. This year even if the FAFSA is filed by Dec. 31, 2023, the college aid eligibility information will not go to the colleges until the end of January. Therefore, official aid statements from colleges will be delayed. The good news, the Ed. Dept. says that students will find out if they are Pell Grant eligible and receive a preliminary estimate of aid after they submit the FAFSA

This year is an outlier. There is a law that says it has to be available by Jan. 1, so dadggumit it's going to be ready. My advice, wait a bit to see if they've got it working, then file the darn thing!


In case you are wondering what a FAFSA is and why it matters, read my Blog post FAFSA = Financial Aid = Money for College . Also take a look at Understanding Financial Aid Awards Which form do I use? Since your student will be starting their next college year in the Fall, make sure you use the form that covers the next year: Freshman starts Fall 2024, use 2024-2025 FAFSA form.


Please note, I am not and do not pretend to be a financial aid expert, the contents of this post are based on extensive reading and research.


The Devil is in the details:

The government decided to simplify the FAFSA. at least that is what they say.

Major changes:

  • Fewer Questions. Decrease from 108 to 46 questions. More user-friendly

  • Male students no longer have to sign up for Selective Service (the draft)

  • No more EFC, introducing SAI (Student Aid Index)

  • Can have a negative SAI of --$1,500

  • Pell Grants will be based on Adjusted Gross Income and SAI

  • Pell Grant maximum now $7,395 (was $6,895, a $500 gain)

  • Income Protection amount for both parents and student are increased

  • Discount eliminated for multiple children in College. FAFSA will no longer asks how many students are in college at the same time

  • Change in who fills out the FAFSA in divorce or separation

  • No more Granny tax. No impact from monetary contributions by others than parents

  • Formula for calculating aid eligibility modified to provide more assistance to low-income families

  • Can have a negative SAI of --$1,500. If a dependent's parents do not earn enough to be required to file taxes, then the SAI will be automatically --$1,500

  • The net worth of small businesses are counted as parental assets

  • Income threshold for asset exemption increased to $60,000

  • The US Dept. of Education will be regulating the Cost of Attendance quoted by the school. It will not touch tuition and fees

  • All applicants must use the IRS Direct Data Exchange (DDX)

  • Up to 20 colleges can be listed on the FAFSA (was 10)

  • Student will receive a "FAFSA Submission Summary" (Used to be Student Aid Report/SAR) that will outline their federal aid estimate


What hasn't changed:

  • An FSA ID (Federal Student Aid) is required for both student and one parent

  • Parents who are not US Citizens or permanent residents will be able to get an FSA ID even without a Social Security Number. Parental citizenship or immigration status does not affect eligibility for federal student aid. FAFSA does not ask for parents' status

  • There is no income cap for eligibility for federal loans for parents or students

  • Financial need is calculated by taking the total cost of attendance at a college and subtracting the student's SAI. The remaining amount is the amount of demonstrable financial need Cost of Attendance (COA) --- Student Aid Index (SAI) = Financial Need $85,000 --- $5,000 = $80,000 in financial need

What this means: The big take aways:

SAI

They changed the EFC to the SAI because it was confusing. The old EFC meant expected family contribution. Many people thought this is what they HAD to pay for college. It actually meant an amount that the federal government thought a family could afford to contribute. The SAI no longer takes state and local taxes into consideration. The jury is out about how the SAI calculations will compare to the old EFC.


Negative SAI

Previously families with a lower adjusted gross income could have an EFC of $0. By allowing the SAI to go into negative numbers (--$1,500) it will be easier to identify the students who have the most need for aid. It is possible that they may receive financial assistance from their college that is over the cost of attendance. It might include funds for college-related expenses or travel.


Pell Grant

They simplified the formula for determining who qualifies for a Pell Grant and how much they qualify for. It was based solely on Adjusted Gross Income (AGI), but now they will take the SAI number into the calculation. Previously students whose incomes were too high and didn't qualify for Pell were out of luck. Now by including the SAI number that may not longer be true. If the SAI is low enough, this student may now get Pell Grants.


Income Protection Allowance

This is the amount of a family's income that is excluded or sheltered from the financial aid eligibility formula to provide for basic living expenses. For example: The parent allowance for a two-person family with one dependent will be $23,330 (currently $19,080) and $29,040 for a family of three (currently 23,760). Kiplinger


For students the income protection allowance goes from $7,040 for a dependent student to $9,410. "This means that a student can earn up to this amount and not jeopardize aid eligibility. Said another way, the amount that student will be expected to contribute toward their college expenses will be reduced, and their financial aid eligibility will increase." Kiplinger


Multiple Student in College Discount Eliminated

This is probably one of the most controversial changes. Up to now if a family had more than one child enrolled in college at the same time, there was an adjustment for the number of students. For instance with twins, if the family EFC was $50,000 it would be split between the two kids (rarely precisely in half) to around $25,000 for each student. Or, if a family EFC was $10,000 for the older child, when the second child enrolls in college the EFC would be split between them, so their base EFC is $5,000 for each child which results in more identifiable financial need.


We can thank US Senator Lamar Alexander (R-TN) for this. He insisted that parents who have kids closer together in time should not get a decreased EFC. My translation, these parents should suffer just as much as families with kids spaced 4 years apart. There is no longer a "benefit" for having more than one student enrolled at a time. (Hey folks, I'm just the messenger. Write to Senator Alexander and Congress to complain).


In theory low-income students with siblings in college at the same time will not see too much of a difference. If their SAI is $0 then there wouldn't be a change because of the multiple kids discount. Zero is still zero. However, it might reduce aid eligibility for middle and high-income families. Whether the colleges will make adjustments is yet to be seen. The additional form used by many private colleges, the CSS:Profile, does still ask the question. These schools only use the FAFSA to determine who is eligible for federal and state aid, not money from the college itself.


Change for Divorced or Separated Parents

In previous years, the custodial parent was defined as the parent that the student spent the most time with during the year. This parent (all too often the mother) was the one to sign the FAFSA and use their income for eligibility calculations.


Now the parent who has to fill out the FAFSA is based on whichever parent provides the most financial support. This change is going to cause a lot of consternation! As Mark Kantrovitz observed, "In attempting to simplify the FAFSA Congress made parenthood on the FAFSA more complicated."


No more Granny tax!

In the old days if a kind grandparent, other family member, or friend gave money to the family to cover college costs, then it was treated as a kid's untaxed income and was assessed up to 50% in the FAFSA formula. Wise relatives gave money only during the senior year because neither the Feds nor the school would know. Their last FAFSA was filed during the junior year!


The new improved FAFSA will ignore whether anyone related or not gave money to the kid for school! It will no longer be counted against the student's income. For those with friends and relations who want to pitch in, this is very good news!


Small businesses and farms will now be counted as parental assets

The old rule was that a family-owned businesses with fewer than 100 employees was not counted as an asset. That exclusion and the one for farms is now gone. However, if the parent's income is under $60,000 the exclusion still applies.


For families with an income over $60,000 the net worth of the business or farm will be added to the parental assets. Net worth is calculated by subtracting business debt from the current market value of the business (including the value of land, buildings, inventory, equipment, machinery and livestock). The debt must be secured by the business or farm to be counted.


Asset exemption income threshold increased to $60,000

Under the old FAFSA if a family earned less than $50,000, then they were excused from reporting assets. Now the threshold has been raised to $60,000. In days of yore, Congress made an annual decision about what should be considered the "asset protection allowance." There was a colorful chart that showed a dollar amount for assets to be left out of the calculation. The numbers changed dependent on how many people lived in each household and the age of the older parent. Back in 2009, a parent aged 65 or older had $84,000 of their assets left out of any calculations. Now the asset protection has plummeted around 89%. That same family would now have only $9,000 left out of the equation. Don't be too alarmed, parental assets are assessed at 5.65%. So a $100,000 investment fund would add $5,650 to the formula. However, this asset protection allowance is dwindling away fast. It is up to Congress to revive it or let it slip gently into the sunset. Write your congress people.


Cost of Attendance modification

Every college has to, by law, provide a total cost of attendance. This means tuition, fees, room and board, transportation and more. Most people focus only on tuition and forget that there will be an additional $10,000 to $25,000 cost for room and board, books, travel etc. Because some colleges were fiddling the numbers, which led to families being faced with surprise expenses, the Dept. of Ed. can now regulate the cost of attendance (COA). The regulation will not extent to tuition and fees which are still set by the college. Room and Board will now be Housing and Food. The colleges have to include costs for a student living at home, food means at least three meals a day instead of two; transportation costs can now include travel between home, school, and work; and actual loan fees for federal loans will be included (but not for private student loans). These changes are expected to alleviate the "surprise expenses." The value of this will depend on how the Dept. of Ed regulates things.


Summary:

If you've never had to fill out a FAFSA then you won't notice the changes. Your friends and colleagues may give you old information but it won't matter. If you have filled out a FAFSA, then the hope is that you will find these changes make the process easier, or so they say. I would advise against filling out a FAFSA on New Year's Eve unless you are both sober and ready to really pay attention. Wait for a week or so into January, then have at it.


Research article links so those of you who want to know more can read the information for themselves.


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