12 Ways This Year’s FAFSA is Changing and How It Will Impact You

NOTE: this piece was last updated on 12/20/2023. There are details about these FAFSA changes that have not yet been announced and/or are unclear given what has been announced. Please stay connected to trusted resources in the weeks to come.

The Free Application for Federal Student Aid (FAFSA) is changing in 2023 as a result of legislation passed in 2020. Some changes will have a positive impact. Some families won’t be happy. Let’s break down what you need to know.

First, if you are new to the FAFSA, here is a summary of what it is.

The FAFSA is a free student aid application maintained by the US Department of Education. It is used in the calculation of a student’s financial aid based on the student’s and parent’s income and assets. After completing the FAFSA, you’re provided with a number. We’ll come back to this number in a second.

The FAFSA is used to determine eligibility for federal grants, work-study, federal loans, state financial aid, and (sometimes) college-provided aid. (Some colleges use an additional aid application called the CSS Profile.)

Families fill out the application a year prior to the school term. For example, the FAFSA completed at the end of 2023 will be used for the 2024/25 school term.

Tax forms from the prior year will be used to fill it out. In our example above, your 2022 tax returns will be used. Sometimes, you’ll see this referred to as the “prior-prior” year.

Families should fill out the FAFSA each year.

We understand this can be a pain for those who don’t believe they’ll qualify for need-based aid. However, we strongly suggest you do it anyway. Some colleges require the FAFSA for annual merit scholarships. Access to any federal and state aid (grants and federal loans) will require it.

In addition, life happens. Having an application on file with your college will be a big help if your financial situation changes along the way due to medical hardships or changes in employment, for example.

We suggest families fill out the FAFSA as soon as they are able each year. Some forms of aid are first come, first served. Money can run out, so apply early.

What changes are coming in 2023?

Ok. That’s the background. So, what changes are coming this year?

1) It will be shorter.

Thankfully, the FAFSA will go from 108 questions down to 36 questions.

2) The timing will be different (this year).

In the past, the FAFSA opened on October 1 each year. This year, the application will open by December 31. After this year, it should (we hope) return to the October 1 open date.

Results of the FAFSA application (the student data) will be provided to the colleges by the end of January. In the past, colleges received this information within 3 to 5 days of a student filling out the FAFSA. This year, colleges will be pressed for time as they prepare their financial aid offers.

We would suggest families NOT attempt to fill out the FAFSA immediately when it opens at the end of December. Colleges will not be receiving the information until the end of January anyway. Wait until some of the bugs are worked out with the new website. It may be down for maintenance occasionally. Waiting until mid to late January will be fine.

The FAFSA timing has no impact on admissions deadlines used by the colleges–like early action, early decision, or regular deadlines.

3) The terminology will change.

We mentioned above the number you’ll receive after completing the FAFSA. It used to be called your Expected Family Contribution (EFC). Now, you’ll receive a Student Aid Index (SAI) figure. Primarily, this change is meant to avoid confusion because families thought they were expected to pay the EFC number each year.

4) The connection between FAFSA and the IRS will look different.

In the past, you had the option to connect the FAFSA with your IRS tax returns electronically through a link called the Data Retrieval Tool (DRT). This year, you will still be able to do that, but it will be called something else, and we’ve read that it will be easier.

In addition, the student and all contributors (spouse, parents, etc.) must each provide consent for their federal tax information to be retrieved from the IRS and used on the FAFSA. Without this connection, federal student aid will not be approved. (The Department’s documentation on how this will look exactly is not clear. We’ll have to wait and see.)

5) We’ll need more FSA IDs.

Because of #4 above, all contributors need an FSA ID, a username and password combination used to electronically access and sign the FAFSA. Contributors include the student, their spouse (if applicable), a parent (biological or adoptive), and a stepparent if the parent has remarried. The Social Security Administration will verify FSA IDs, so the process of getting one could take a few days.

If married parents file separate taxes, they will each need an FSA ID.

6) Many fine-tooth comb changes to the calculations.

We won’t get into all those details here. For those who want to travel down that rabbit hole, you can read about changes to income, allowances, assets, etc. here.

Ideally, the goal of these changes is to provide more aid to those who most need it. Some applicants will automatically qualify for maximum Pell Grants. Others, like incarcerated individuals, will be qualified for aid.

We’ll review a few of the other larger impacts below.

7) Impact on small business owners

Previously, small business owners with over 100 full-time employees would report their net worth as an asset. Going forward, all business owners, regardless of the size of their business, will need to report their business’s net worth.

8) Impact on farm owners

Your net worth will now include the value of your family farm, but not the value of your primary residence. “The net worth of a farm may include the fair market value of land, buildings, livestock, unharvested crops, and machinery actively used in investment farms or agricultural or commercial activities, minus any debts held against those assets.”

9) A plus for families with Coverdell Education Savings Accounts (CESA)

“Education savings accounts will only be counted as a parental asset if the account is designated for the student.” CESAs for siblings are not included. For clarity, be aware that “education savings accounts” are not the same as 529 plans.

10) Grandparent’s 529 loophole

In the past, if grandpa and grandma saved for their grandchild’s college education using a 529 plan, the student would report the money they received as untaxed income. With the new FAFSA changes, these payments are not reported and won’t impact potential aid. (CSS Profile colleges may view this differently.) Remember, grandparents are limited in the amount of money they can invest in a 529 in any one year. The gift exclusion is $17,000 per individual or $34,000 per married couple.

11) Impact on families with multiple children in college at the same time

Families with more than one student in college at the same time will be eligible for less federal aid than in past years. Previously, the EFC would be divided based on how many students are in college. If a family with two students in college had a total EFC of $30,000, each student’s EFC would be $15,000. Now if a family’s SAI is $30,000, each student’s aid will be calculated using that $30,000 number.

12) Impact on divorced families

In the past, the custodial parent’s financial information was used in the calculation of the FAFSA. If a student lived with one parent more than the other, that parent was determined to be custodial. Going forward, the parent who provided the most financial support will complete the FAFSA with their student—even if the student lived with them less often.

A common example is a mom who is the custodial parent and earns less than the dad who has a higher paying job. Last year, Mom completed the FAFSA. This year, Dad will if Dad provided more financial support through child support payments, etc. The SAI amount could be higher than last year’s EFC, potentially resulting in less need-based aid.

How will this be calculated? We aren’t sure yet. We know parents will need direction on this item.

Side note: child support used to be reported as income and will now be reported as an asset. This change will protect some of the value of the asset from the SAI calculation.

This article does not cover all the potential changes applicants may see.

For example, we didn’t touch on changes for those filing foreign tax returns or independent students in this article. You can read this article for an in-depth explanation.

We’re looking forward to December to see the finished product.

Our fingers are crossed it will launch without a hitch. Be sure to stay informed of the latest news by subscribing today.


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