New FAFSA Rules For 2023 - Adviser Investments

New FAFSA Rules For 2023

Is college on the horizon for your kids, grandkids or yourself? Then you need to know about some important updates to the Free Application for Federal Student Aid (FAFSA). If this acronym is new to you, FAFSA is the main form you’ll use to apply for student financial aid.

Wealth Adviser Diana Linn covers the new FAFSA rules for 2023 in Today’s Adviser Takeaway. Watch now to learn about changes to how college savings accounts–such as 529 plans–are taxed. Diana also reminds us of the FAFSA due date and covers changes to how the expected family contribution (EFC) is created as well as the income protection allowance.

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The bond market, the debt ceiling and more...Episode Transcript

New FAFSA Rules For 2023 Episode Transcript

Diana Linn:

Back in 2020, Congress made some revisions to the free application for Federal Student Aid Act. This is often referred to as FAFSA. These changes are finally set to go into effect this 2023-2024 academic year. So if you have Children, grandchildren or perhaps maybe even yourself with college on the horizon, here are a few things you need to know about the new FAFSA.

Hi, I’m Diana Linn, a Wealth Adviser with Today’s Adviser Takeaway. The window to file for FAFSA opens every year on October 1 and it’s due by June 30. And since all scholarships, loans and grants are determined by FAFSA, it’s important to fill this form out every year, the student is in college, regardless of if you think they might be eligible for financial aid, you just never know.

Previously, the FAFSA form was over eight pages in length and contained over 100 questions. Now this process has been streamlined to just two pages and about 40 questions. Under previous FAFSA reporting rules, college savings accounts such as 529 plans, owned by anyone other than the student themselves, or the student’s parent would be treated as untaxed income to the child.

With these new guidelines, that’s no longer the case Grandparents, aunts or uncles that own 529 plans, really, anyone can now help with college costs without reducing the student’s aid eligibility Another change in the new FAFSA is to how expected family contribution is calculated. This critical number will now be determined slightly differently by the student aid index. This change should more accurately reflect the determination of aid rather than just how much a family can afford to pay.

This bill also made changes to the income protection allowance for students and parents. And since income is reported two years prior on the FAFSA form, a student’s sophomore year of high school is usually key since this will be the base year on the FAFSA for determining how much financial aid a student will get. Parents should avoid realizing any large capital gains in the base year. They should try to maximize their 401(k) contributions contribute to IRAs and 529 plans because for every $10,000 decrease in parental total income that increases the eligibility need for base financial aid by about $3000.

And that’s Today’s Adviser Takeaway. Thanks so much for listening.

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