Free Application for Federal Student Aid (FAFSA) is changing to a Simplified Student Aid Index (SAI)


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Changes are Coming to the FAFSA

It’s that time of year where the college students are settling into their dorms and preparing for the school year ahead. Getting ready to go to college can be a stressful time for both parents and their students. At the top of the list of worries is having enough money to cover the cost of college.  The cost of college has become more expensive than ever. Tuition and fees plus room and board for a four-year private college averaged $50,770 in the 2020-21 school year; at four-year, in-state public colleges, it was $22,180, according to the College Board, which tracks trends in college pricing and student aid.

The Free Application for Federal Student Aid (FAFSA) serves as the application for all federal aid money, including loans, work-study, and Pell grants. The FAFSA is also used to determine how much aid a college or university would like to give a student based on need. Very few families complete the FAFSA because there is a misunderstanding about who FAFSA will help and how it helps. 

New Legislation Simplifies the Financial Aid Application Process

In December of 2020, former President Trump signed a spending package (The Consolidated Appropriations Act) that included several provisions to simplify the financial aid application process and expand eligibility for several students. The FAFSA is filled out in the fall of a student's senior year of high school.  Some of these changes are coming soon, and will be implemented in the 2022 FAFSA which affects school year 2023-2024 but the majority of the changes will happen in 2023 and will take place for the 2024-2025 application cycle. 

Here are the highlighted changes: 

  • Shorter form: the number of questions on the form is being shortened to 36 questions from 108 questions.  Family tax income will be imported directly from tax returns, reducing the number of self-reported questions on income
  • Expected Family Contribution (EFC) is changing to Student Aid Index (SAI): this is mostly a change in terminology. The EFC is the amount of money the government determines a family can pay for a year of college based on the information provided in the FAFSA. Moving forward, this number will be called SAI to make it clear that this is an indicator of need, but it’s not what families are required to pay.
  • Removal of requirement to register with the Selective Service: Male students under the age of 26 will no longer have to register with the Selective Service System and questions related to drug convictions will no longer be used to determine financial aid eligibility. 
  • Number of kids in college: The number of children in college within one household (or family) will no longer be a determining factor in the Student Aid Index. The new legislation will cause the family’s out of pocket cost to be the same regardless of how many children they have enrolled in college.  

For example, if you are a married couple who makes $150,000 combined, the former FAFSA would ask that 20% ($30,000)  of your income goes towards the cost of college. Under current legislation, if you had two kids in college, the cost would be divided equally, or $15,000 to each student in college. With the new Simplification Act, the 20% would remain the same for each student. Parents would be expected to contribute $30,000 to each child in college, totaling costs to $60,000 in the year you have two students enrolled. This new legislation is expected to take effect starting in the 2023-2024 academic year.

  • Divorced Families: If a student’s parents do not live together and are divorced, separated or never married, only one parent is responsible for completing the FAFSA. This parent is now required to be the parent who provides more financial support to the student. This may not be the same parent who has legal custody and may also not be the same parent who claims the student as a dependent on the parent’s federal income tax returns. It is likely that the U.S. Department of Education will issue guidance basing the determination factor on whichever parent has the greater adjusted gross income (AGI), per tax returns.
  • Grandparents: The new FAFSA will make it easier for grandparents and others within the family to pay for college without jeopardizing financial aid. When grandparents, aunts and uncles, friends or others outside the immediate family help with college costs currently, this money is treated as the child’s untaxed income which is assessed at up to 50% by the FAFSA formula, thereby hurting some student’s eligibility for help. The new FAFSA will ignore this question and whether grandparents or others have given money to pay for college costs will not be calculated into the formula for aid. 

These last few key changes will mostly impact large middle-and upper income families. If you have students that are currently in college or are entering college in the upcoming school years, it will be crucial to review your original strategy around this new rule (going into effect July 2023). You may be eligible for more financial aid during some years under current rules, and then less financial aid in later years under the new rules.

Supporting a child or grandchild’s education can be one of the most rewarding aspects of success and one of the most important elements in your financial plan.  Let us help you get started.

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By Katie Bruno, CFP®, CDFA®, MIMFA Financial Planner

Morey & Quinn Wealth Partners

Phone: 402.502.9900
Toll Free: 877.541.6593
11225 Davenport St, Suite 109
Omaha, NE 68154

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Any opinions are those of Katie Bruno, CFP®, CDFA®, MIMFA, and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional.

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