Prospective & Current College Students and Parents!
Mark your calendar for October 1, 2023 - the day that many new financial aid rules go into effect!
The Consolidated Appropriations Act (CAA), 2021, which went into effect in December 2020, is a $2.3 trillion spending bill that provides stimulus relief for the COVID-19 pandemic. One of the biggest results of the CAA includes changes to the Free Application for Federal Student Aid (FAFSA), which is the application completed by students each academic year to determine their financial aid eligibility.
The new provisions will show up on the 2022 FAFSA and take effect for the 2023-2024 academic year, which gives the U.S. Department of Education time to implement the changes. Below are a few highlights of the legislation and how they impact middle- and high-income families.
1) The term “Expected Family Contribution (EFC)” renamed the “Student Aid Index (SAI)”: The EFC is the amount of money the government determines a family can likely pay toward a year of college costs, based on income and asset information in the FAFSA. The term has often been misleading and confusing to families, as it implies that it is either the amount of money a family will have to pay for college or the amount of aid they will receive.
The name change does nothing more than acknowledge that the term doesn't properly characterize what it is and to make clear the number a family sees after filing the FAFSA isn’t the amount of money they are required to pay for college. Instead, it’s an indicator of their financial need. In practice, depending on the school’s costs, a family could end up paying much more than the EFC calculated for them.
The EFC (soon to be SAI) is based on several factors, including income, non-retirement assets, education savings account(s), household size and marital status to name a few. Many middle- and high-income-income families pay more than the EFC because schools rarely provide an aid package that meets 100% of financial need.
2) The FAFSA application will be much shorter and more user friendly, reducing the number of questions from over 100 to approximately 36! This will help the application process seem less tedious and daunting especially since it must be completed every year until the student graduates.
The other objective is to encourage more families to complete the FAFSA, particularly middle and high income families. There is a common misconception among middle and high income families that they won’t qualify for financial aid because their income is too high. This may or may not be true – income is only one of several factors that go into determining a family’s eligibility for financial aid. It’s also important to note there is no income cutoff limit when it comes to the FAFSA. Determining need-based aid is a crucial first step to figuring out how to pay for college, which underscores the importance of completing the FAFSA.
3) FAFSA will no longer provide a discount for families with more than one child enrolled in college at the same time. Currently, financial aid eligibility increases for families with more than one child enrolled in college at the same time. So, parents with twins/multiples or parents whose children are spaced closer together have had the potential to benefit greatly. However, under the new legislation, the FAFSA will no longer provide this discount.
4) The new legislation requires the parent who provides the most financial support to complete the FAFSA, instead of the custodial parent. This greatly impacts divorced or separated parents because this could result in lesser financial aid eligibility if there is a significant difference in income between the parents.
Currently, in a two-parent household, either parent can complete the FAFSA. However, if the parents are divorced or separated, the custodial parent is required to fill out the FAFSA. The custodial parent is defined as the parent with whom the child lives for the majority of the 12-month period ending on the day the FAFSA is filed. A big advantage of this is that if the custodial parent is the lower wage earner, then only that parent’s income and assets will be counted for financial aid purposes.
5) Simplified Pell Grant Eligibility: The biggest source of financial aid comes from the federal government and the vast majority of it is awarded through the Pell Grant Program which is also the main federal grant available to low- and middle-income families.
The new legislation simplifies Pell Grant eligibility by ensuring that families that make less the 175% of the federal poverty level will receive the maximum award, $6,495 (2021-22 school year). The new criteria will have little impact on middle-income families and no impact on high-income families, as these grants are typically awarded to those earning less than $60,000 per year.
While the CAA has simplified some aspects of the FAFSA, it has made other aspects more complicated. This is why it is so important to understand the provisions and determine how they impact your family’s ability to pay for college.
As always, if you want to set up a time to discuss any financial opportunities or concerns, don’t hesitate to call or email me. You can also schedule a phone call or meeting by clicking here.
Sincerely,
Sarin