FAFSA Simplification: What Do You Need to Do?
FAFSA should look different from this year's, with FAFSA Simplification in the pipeline, and the coming changes could impact your eligibility for financial aid. FAFSA Simplification will have different impacts on different families depending on situations, so it's important to understand what's coming and how it's likely to affect your EFC (besides changing it to SAI). Some of the changes are positive and likely to reduce a student’s Student Aid Index, the new name for the Expected Family Contribution, but others will decrease aid eligibility—potentially by a lot.
The changes with the greatest impact fall in these areas:
Family size: Currently, the FAFSA calculates an Expected Family Contribution, and in doing so divides the family’s ability to pay across all college students in the household. Going forward, the Student Aid Index is per student and is not divided by the number of college students in the household. That means that families with multiple college students will see reductions in aid eligibility in the federal needs analysis methodology, aka how much the FAFSA calculates that your family can pay for college.
Divorced parents: For students whose parents are divorced, the FAFSA only collects income and asset data from the custodial parent. Currently, the FAFSA considers the parent with whom the student spends the most time to be the custodial parent. Post-FAFSA Simplification, the parent providing the most financial support will be the custodial parent and therefore will be the one to complete the FAFSA. Although what constitutes the “most” financial support is often less than entirely straightforward—for example, the parent with whom the student lives might own or rent a larger home and thus provide a comparable amount of support even though the other parent pays alimony or support—this will in many cases result in students having higher SAIs when the (likely higher earning) parent becomes the one responsible for the FAFSA.
Grandparent 529s: Currently students are required to report distributions from any 529 not owned by the parents as student income. This includes 529s owned by grandparents or other family members and those owned by the non-custodial parent if the student’s parents are divorced. A student who needs access to those funds before Jan. 1 of sophomore year of college (due to the FAFSA’s prior-prior income year) would be penalized in the formula for the withdrawal. Good news for students with someone other than mom and dad saving for their college: these withdrawals will no longer be reported.
Adjustments to the formula: The formula will increase the income protection allowance and make some other adjustments that should lower SAI for many students. This includes increasing the income threshold for Simplified Formula eligibility to $60,000.
In many cases, the formula adjustments will offset SAI increases for students who would be impacted by the changes to family size or custodial parent. But others will find that next year’s SAI is considerably higher than this year’s EFC.
What can you do if that’s you? First, estimate your EFC under the new rules using the Student Aid Estimator. It won’t be exact but you can, for example, use the other parent’s information or say there’s only one college student in the household.
Second, know that the changes are to the federal needs analysis methodology only. That means eligibility for Pell grants and other forms of federal financial aid. Far more dollars come directly from the colleges, and colleges have latitude to adjust institutional awards based on the student’s circumstances.
Third, the CSS Profile will continue discounting based on the number of college students in the family, and most Profile schools require both parents to report income and assets if divorced.
Students whose situation will be significantly different might be better served by looking for colleges that offer merit scholarships rather than need-based ones, since EFC is not a determinant in those awards. In addition, families should contact financial aid offices at schools they’re considering applying to to ask if the college will continue awarding institutional dollars on the basis of the current formula. At least you can minimize surprises that way.
