New and Improved FAFSA Rules

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.

About Adviser Investments

Adviser is a full-service wealth management firm, offering investment management, financial and tax planning, managed individual bond portfolios, and 401(k) advisory services. We’ve been helping individuals, trustsA legal document that functions as an instruction manual to how you want your money managed and spent in your later years as well as how your assets should be distributed after your death. Assets placed in a trust are generally safe from creditors and can be sold by the trustee in short order, avoiding the lengthy and costly probate process., institutions and foundations since 1994. Adviser Investments and its subsidiaries have over 5,000 clients across the country and over $8 billion in assets under management. Our portfolios encompass actively managed funds, ETFsA type of security which allows investors to indirectly invest in an underlying basket of financial instruments (these may include stocks, bonds, commodities or other types of instruments). Shares in an ETF are publicly traded on an exchange, and the price of an ETF’s shares will fluctuate throughout the trading day (traditional mutual funds trade only once a day). For example, one popular ETF tracks the companies in the S&P 500, so buying a share of the ETF gets an investor exposure to all 500 companies in the index., socially responsible investments and tactical asset allocation strategies, and we’re experts on Fidelity and Vanguard mutual funds. We take pride in being The Adviser You Can Talk To. To see a full list of our awards and recognitions, click here, and for more information, please visit www.adviserinvestments.com or call 800-492-6868.