12 Ways This Year’s FAFSA is Changing and How It Will Impact You
NOTE: this piece was last updated on 8/7/2024. Please stay connected to trusted resources in the months to come.
The Free Application for Federal Student Aid (FAFSA) underwent a complete overhaul in 2023 as a result of legislation passed in 2020. Families suffered through many delays trying to file their financial aid application.
Now, we are approaching the second year of the updated FAFSA. 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 2024 will be used for the 2025/26 school term.
Tax forms from the prior year will be used to fill it out. In our example above, your 2023 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 did we see in 2023? What can we expect in 2024?
1) It is shorter.
Thankfully, the FAFSA went from 108 questions down to 36 questions. For some families, completion of the form took only 10 minutes.
2) The timing will be different (this year, again!).
Prior to the revamp, the FAFSA opened on October 1 each year. On August 7, 2024, the US Department of Education announced that the FAFSA will be fully available on December 1.
Starting October 1, they will begin testing this year’s form with limited number of students and schools. “During the testing period, the Department will make the form available to an increasing number of participants, starting with hundreds and expanding to tens of thousands of applicants.” We don’t know what this rollout will look like at this point. We’ll keep you posted.
We hope that the FAFSA will return to the October 1 open date in 2025 for the 2026/2027 school year.
Last year, the Education Department struggled to get the results of the FAFSA application (the student data) to the colleges in a timely manner. In the past, colleges received this information within 3 to 5 days of a student filling out the FAFSA. We’ll keep an eye on the process this year.
The FAFSA timing has no impact on admissions deadlines used by the colleges–like early action, early decision, or regular deadlines.
3) The terminology changed.
For those who completed the “old” FAFSA, you may remember the Expected Family Contribution (EFC). Now, the FAFSA determines your Student Aid Index (SAI). Primarily, this change was meant to avoid confusion because families thought they were expected to pay the EFC number each year. The SAI helps colleges assess a student’s financial need.
4) The connection between FAFSA and the IRS is different.
With the “old” FAFSA, you had the option to connect the FAFSA with your IRS tax returns electronically through a link called the Data Retrieval Tool (DRT). With the revamp, you are still able to do that, but it is 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.
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 verifies FSA IDs, so the process of getting one could take a few days.
If married parents file separate taxes, they 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. Now, all business owners, regardless of the size of their business, 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 due to tax law. In 2024, the gift exclusion is $18,000 per individual or $36,000 per married couple. (Always consult your accountant regarding income tax matters.)
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 is 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. Now, the parent who provided the most financial support completes 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 completed the form if Dad provided more financial support through child support payments, etc. The SAI amount could be higher than a previous year’s EFC, potentially resulting in less need-based aid.
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.
We’ll continue to monitor the second year rollout of the FAFSA.
Our fingers are crossed it will fully launch by December 1, 2024 without a hitch. Be sure to stay informed of the latest news by subscribing today.
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