Is college on the horizon for your kids or grandkids? Then you need to know about some important updates to the Free Application for Federal Student Aid (FAFSA). If this is a new acronym for you, FAFSA is the main form you’ll use to apply for student financial aid.
The recent revisions were passed by Congress in 2020, though they won’t kick in until the 2023–2024 academic year. Here’s a rundown:
The form is shorter. While the old FAFSA weighed in at an imposing eight pages with more than 100 questions, the new form has been cut to just two pages with fewer than 40 questions. We’re hoping that this new streamlined version removes some of the complexity and proves simpler to complete.
The “Expected Family Contribution” is rebranded. If you’ve filled out the FAFSA in the past, then you’ve likely come across the phrase “Expected Family Contribution” (EFC), a bit of jargon for how much of a student’s college costs a family is expected to pony up—and therefore, how much aid the student is eligible for. In other words, it’s a critical number. The new FAFSA replaces the EFC with a “Student Aid Index,” which is expected to be calculated slightly differently. The Student Aid Index may mean more assistance for students from lower-income families and less for those from middle- and upper-income households, particularly those with multiple scholars in school at the same time.
No automatic assistance for multiple students. At present, having multiple students in college simultaneously usually makes you eligible for additional financial aid. This break is eliminated under the new Student Aid Index. Your aid eligibility is based on overall need regardless of the number of students you claim as dependents.
Grandparent 529s don’t reduce aid eligibility. This is a major change. Under current FAFSA reporting rules, a 529 plan (college savings account) owned by a dependent student or a dependent student’s parent has relatively minimal impact on eligibility for need-based financial aid. Whereas, a 529 owned by anybody else would be treated as the child’s untaxed income. When the new FAFSA goes into effect, starting in 2023, that will no longer be the case. Grandparents, aunts and uncles, or others outside the immediate family will be able to help with college costs without significantly reducing a student’s aid eligibility.
It is likely that further guidance will be released over the next few years as the transition to the new FAFSA gets closer. We’ll be sure to keep you updated as information becomes available. In the meantime, if you have any questions about how the revisions might impact your financial plans (or your plans to assist a loved one), don’t hesitate to contact your wealth management team. It’s what we’re here for—we are The Planner You Can Talk To.
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