College Financial Aid: FAFSA Changes Coming Soon

by | Sep 25, 2023 | Wealth Management

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The Free Application for Federal Student Aid (FAFSA) is a financial aid form administered by the Department of Education that helps students qualify for loans and financial aid. The FAFSA window typically opens every year on October 1 for high school seniors planning to attend college in the following year and for returning college students. However, due to an extensive redesign of the FAFSA, the filing season for the 2024-2025 school year will be delayed until December. Here are the forthcoming changes to FAFSA.

FAFSA Changes

The simplified FAFSA will have fewer questions — 46 compared to 108 previously — and the direct transfer of financial information from the IRS to the FAFSA will now be mandatory. A new student aid index (SAI) will replace the current expected family contribution (EFC) terminology, and a raft of changes to the formula could impact the amount of need-based aid offered to students.

For example, the simplified FAFSA will expand Pell Grants to more low-income students and will link eligibility to family size and the federal poverty level. The income protection allowance for parents will increase by 20%, and the income protection allowance for most students will increase by 35%, which will shield more income from the needs analysis formula.

The new FAFSA will no longer provide an advantage to parents with multiple children in college at the same time. The current FAFSA divides the EFC by the number of children in college, but the new FAFSA does not. This could decrease aid eligibility significantly for middle- and high-income students.

Cash support and other money paid on a student’s behalf by grandparents or other relatives will not need to be reported on the new FAFSA, so they can help with college expenses without affecting the student’s eligibility for financial aid based on the FAFSA. However, grandparent gifts will likely continue to be counted by the CSS Profile, an additional aid application typically used by private colleges when distributing their own institutional aid. Read more here about the new FAFSA rules around grandparent owned 529 plans.

Summary

If education planning is important to you and your family, it may be more beneficial to focus on having a greater balance in a grandparent-owned 529 plan rather than a parent-owned 529 plan. There also may be options to change the owner of a 529 plan from a parent to a grandparent, depending on the state that your 529 plan is in. If you have both a parent-owned and a grandparent-owned 529 plan, it is important to coordinate the distributions from each account for the optimal financial aid available for the student. Due to the new Secure Act 2.0, there is also the ability to roll over up to $35,000 of funds in a 529 plan to a Roth IRA for the beneficiary if the beneficiary chooses not to go to college. The funds had to be in the 529 plan for at least 15 years to take advantage of this and the amount that can be rolled over each year is subjected to the annual Roth contribution limits. Our goal is to help you understand the overall costs of college, and the process and best types of financial aid available. Check out our “Definitive Guide to Education Planning” webinar to understand your options, the costs, and the best ways to pay for education.

Prepared by Broadridge. Edited by BFSG. Copyright 2023.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

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