Changes Coming to the FAFSA: EFC to Student Aid Index

The FAFSA Simplification Act of 2021 brings a slew of changes to the FAFSA that will begin with the 2022-23 application cycle. Perhaps the biggest change is to the EFC—Expected Family Contribution. The EFC is the number that was calculated by the FAFSA and provided to colleges as a way for them to determine demonstrated need. (Total cost of attendance minus EFC = demonstrated need.) Because most colleges do not meet 100% of demonstrated need, the EFC misled families into thinking that this number was what they would actually pay for a year at a particular college. In practice, most families paid more than the EFC and were often expected to provide more funds from assets or through student/parent loans. Thus the new law changes the name from Expected Family Contribution to Student Aid Index to better reflect this fact.

The new legislation also simplifies the FAFSA process by greatly shortening the number of questions asked. Accordingly, the form will be shortened from over 100 questions to about 35. The hope is that a shorter, less complicated form will encourage more families to complete the FAFSA.

Another big change is for families who have multiple students enrolled in college. Currently, a family’s expected contribution is divided by the number of children in college. As of 2022, this benefit for families with multiple children will change, and families will no longer see a benefit from this provision. This loss will reduce the amount of need-based aid that middle and high-income families with multiple family members enrolled in college can expect.

Still, another change is in regards to whose income is considered for the FAFSA. Currently, students whose parents live separately submit information for the parent with whom they live during the majority of the time. Once the new law goes into effect, the parent who contributes more financially to the student’s upkeep will be the one whose income will be considered.

Pell Grant eligible students will see another change. Some lower-income students may find it easier to determine how much Pell money they can expect using the new FAFSA.

While changes will not take effect for another year, families should factor in these changes while considering the 4-year cost of college.

Summary of Changes and What you can expect:

• Eliminates 2/3 of all questions
• Expected Family Contribution name change to Student Aid Index
• Increases the Income Protection Allowance for parents by 20
• Increases the Income Protection Allowance for students by 35%
• Eliminates the number in college factor to reduce SAI/EFC.
• Certain types of untaxed income are no longer reported
  • Money or support paid on behalf of the student, i.e., gifts from grandparents
  • A qualified distribution from grandparents owned 529
  • Workman’s comp
  • Veteran’s education benefits
  • Child support received – but will be reported as a parent asset
• Regarding Pell Grants (using 2020 poverty lines)
  • To receive the maximum PELL Grant
    
    • A dependent student and only child of a single or two parents with AGI less than or equal to $38,970
    • A dependent student with siblings of a single parent with AGI less than or equal to $38,970, plus $10,080 for each sibling
    • A dependent student with siblings of two parents with AGI less than or equal to $38,010, plus $7,840 for each sibling
  • The AGI cut off for PELL Grant is
    • $56,030 for a dependent student of a single parent, plus $14,560 per sibling
    • $59,730 for a dependent student of two parents, plus $12,320 per sibling
• Divorced or Separated Parents
  • If the parents have an informal separation, they will be considered to be still married, following IRS rules.
  • The parent responsible for filing the FAFSA will be based on whichever parent provides more financial support to the student during the prior-prior tax year, not the parent with whom the student resides.
  • Family size will include the student and parent. However, children and other people will be counted in family size only if they are dependents according to IRS rules.
    
    • A student must live with the parent for more than half the tax year. If the custodial parent is remarried, the stepparent’s children from the previous marriage will count only when they live with the stepparent.
    • Additional children must be under the age of 19 (or 24 if a full-time student)
• Financial Aid Appeals
  • Special circumstances can now include unusual business, investment, and real estate losses, as severe disability of the student, parent, or spouse.
  • Applicants Exempt from Asset Reporting
    • Instead of basing eligibility on the Schedule 1, now all households with less than $60,000 income are exempt from reporting assets.
• Other
  
  • The FAFSA will have a new question about the student’s race/ethnicity. This question will not affect eligibility for need-based financial aid.
  • Male students will not have to register for Selective Service to receive aid.
  • Students convicted for the sale or possession of a controlled substance will no longer be ineligible to receive aid.

How FAFSA Simplification Will Change Financial Aid Eligibility, Mark Kantrowitz, https://bit.ly/36fbxUW

Photo by Pepi Stojanovski on Unsplash