As part of the Covid relief package passed by Congress in December 2023, the Free Application for Federal Student Aid (FAFSA) Simplification Act makes significant changes to the FAFSA form beginning with the 2023-2024 school year.
The good news is that more low-income families will qualify for full Pell Grants, and there is a significant decrease in the amount of questions.
However, middle-class families entering college today should be ready for potentially significant cuts for their aid packages starting with the 2023-2024 school year.
EFC/SAI Primer
The income and assets of parents and students around the FAFSA drive the calculation from the Expected Family Contribution (EFC), addressing the minimum amount people are likely to pay every year for college. Most families pay much more compared to EFC, and since the term was viewed as misleading, the EFC term has been replaced in this law through the Student Aid Index (SAI). I'll refer to the dpi hereafter as the “EFC/SAI.”
Families should calculate the EFC/SAI as the first step in their college search if they don't want to overpay for college. The EFC/SAI reduces the total Cost of Attendance (COA) at a school to determine your financial need.
For example, if your student attends a college having a COA of $75,000 and also the family members have a $60,000 EFC/SAI, the household has $15,000 of financial need. Colleges typically “meet” 50% to 100% of this need, and they may achieve this with grants (free money), loans, and work-study.
So, the low your EFC/SAI, the greater your financial need and aid.
Changes Hurting Middle-Class Families
Unfortunately, there's two significant changes that will negatively affect middle-class families that do not qualify for Pell Grants and who don't possess a minimal EFC/SAI.
Multiple Siblings in College
Current Rules: Today, it is good for have multiple kids attending college simultaneously. Why? Because under current FAFSA rules, you're able to divide your EFC/SAI through the quantity of students you have attending college that year.
For example, if a family today comes with an EFC/SAI of $60,000 and it has 3 kids in college, each would obtain a prorated share from the EFC/SAI equal to $20,000 ($60,000 ÷ 3 students). If one of these attended a school having a COA of $50,000, that student might have $30,000 ($50,000 – $20,000) of financial need.
New Rules: The proration from the EFC/SAI is going to be eliminated starting with the 2023-2024 school year. Applying the new rules towards the example above, each one of the 3 students would come with an EFC/SAI of $60,000.
The student attending the school using the COA of $50,000 would pay the full cost as the COA ($50,000) doesn't exceed the EFC/SAI ($60,000).
Divorced Families May Pay More
Current Rules: Today, the spouse with which the student lives the majority of the time (> 183 days) is responsible for filing the FAFSA and reporting their income and assets. The income and assets of the other birth parent are ignored. The relation to the divorce decree or the parent providing the most financial support are irrelevant in determining which parent files and reports their income and assets on the FAFSA.
Example: Assume that a student splits her time between her divorced parents. The student spends all weekdays throughout the school year and several weekends (say ~200 days/year) with Parent #1, who is an instructor making $60,000/year, has minimal assets, and rents an apartment. Parent #2 is a professional making $150,000/year, owns a condo by the pool, and it is responsible (underneath the divorce decree) for supporting your children of $15,000/yr. The student vacations with and spends most of the Summer by the pool with Parent #2 who provides the greater portion of the student's support for the year.
Under the current FAFSA, Parent #1 would file the FAFSA and report their assets and income (including the $15,000 of child support received) since the student lives together more than half time.
New Rules: Starting in 2023, the divorced parent who provides probably the most financial support for that student must file the FAFSA and report their income and assets (Parent #2 in this example). Therefore, this family's EFC/SAI (and the net price of college) will be higher of computer could be if the custodial parent (Parent #1) filed the FAFSA.
But this is an excellent and equitable change, right? Not. Think about the following situations:
Situation 1: Many divorce decrees stipulate how college costs are to become shared between the birth parents (e.g., 50%/50%, 25%/75%). Since the consequence of these new rules is a reduction in financial aid, the family's total cost of college goes up. What this means is Parent #1 (who constitutes a lot under Parent #2) will have to pay more than under current FAFSA rules.
Situation 2: Parent #2 got remarried, and their new spouse also makes $150,000 each year. Under current (and new) FAFSA rules, the income from the new step-parent should be included on the FAFSA filed by Parent #2. Now, Parent #1's share of the college costs will go up considerably simply because their ex-spouse got remarried. Wait, it gets worse-.
Situation 3: Let's say the divorced couple had 2 or 3 children in college simultaneously? Then, the increase in the cost of college triggered by the alternation in the divorce rules is created much worse because the family does not get to separate the EFC/SAI amongst the siblings.
A Caution to High School Seniors
Families with high school seniors will quickly choose the college they'll attend. They need to determine if by how much their 4-year college costs will increase because of these changes, and possibly choose a less expensive school to attend for those 4 years.
If the family waits until their costs go up in 2023 before addressing these changes, they'll then desire to make some uncomfortable decisions that could include (a) taking out parental PLUS loans, (b) asking their student to consider a spot year to generate money to complete college, or (c) asking their student to transfer to a lower-cost college.
Do not conclude that a college is affordable based solely in your Freshman financial aid award.
Options to Consider
These changes to the FAFSA don't affect the aid provided by many private colleges that require the CSS Profile in addition to the FAFSA. The CSS Profile still permits the EFC/SAI to be prorated between multiple siblings attending college simultaneously, also it treats the wages and assets of divorced parents (as well as their new spouses if remarried) differently than the FAFSA. While CSS colleges have a higher COA, additionally they typically award higher levels of gift aid compared to public colleges.
Families should consider CSS schools to see if their net 4-year price is less than at FAFSA-only schools.