As college costs continue to rise, families must explore various avenues to support their student(s)’ education. To access a multitude of financial aid sources, such as from the U.S. government, states, and colleges, families will need to fill out and submit the Free Application for Federal Student Aid or FAFSA.
Although the application is free, many families do not fill out the application due to its perceived complexity, or they mistakenly believe that they won’t qualify for any financial aid. According to the National College Attainment Network, 1.65 million high school graduates failed to complete the FAFSA, resulting in approximately $3.58 billion in unclaimed Pell Grant funding and an additional $100 million in unclaimed scholarships.
At the end of 2020, the Consolidated Appropriations Act was passed to help simplify the process and the changes are finally going into effect now for the 2024-2025 school year. This new FAFSA form for the 2024-2025 school year became available December 1, 2023, and will return to its usual availability on October 1st in subsequent years.
EFC becomes SAI
One notable change to the FAFSA is the replacement of the Expected Family Contribution (EFC) with the Student Aid Index (SAI). This calculation determines a family’s ability to pay for college, and colleges will use this number to assess your eligibility for financial aid. Many misinterpreted the EFC as the total amount a student would have to pay for college, so it was renamed. Aside from the name change, certain changes have been made to the calculation. For example, the SAI score can go as low as -1,500, helping colleges identify students with greater financial need.
To qualify for the maximum Pell Grant, a student must have a SAI value of 0 or lower. It’s expected that more than 600,000 additional students are expected to qualify and over 1.5 million students may qualify for the maximum Pell Grant of $7,395. A factor of the Pell Grant was family size, this will get an adjustment as now family size will be reported based on the number of dependents.
The biggest change arguably deals with non-parent owned 529 accounts. These accounts and their withdrawals are no longer reported on the FAFSA, which will allow more people to open 529s for their family member or friend without negatively affecting federal aid. This can be extremely helpful for estate planning, as 529 plans allow for larger tax-free gifts than other education accounts.
Elimination of sibling discount
An unfavorable significant change is the removal of the sibling discount. In the past, if a family had multiple children attending college at the same time, each additional child would help reduce the EFC, leading to a more favorable number to receive financial aid. This is no longer the case.
Another considerable change impacts those children with divorced or separated parents. Previously, the parent who housed the child for most of the year would file the FAFSA using only their financial information. Now and going forward, the parent who provides the student with the most financial support will be the one to apply and report their income and assets. This means that if they are the higher earner, the student may qualify for less federal aid.
Reduction of questions
One of the more welcomed changes is the reduction of questions from 108 to 36, with some applicants only needing to complete as few as 18 questions, which the U.S. Department of Education estimates will take less than 10 minutes. This will help reduce the burden of completing and submitting the FAFSA form.
Income & asset reporting changes
With the applicant’s permission, a family’s federal tax information can be pulled from the IRS instead of having to manually enter the data needed for the SAI formula. This also means that some untaxed income sources such as contributions to tax-deferred retirement accounts like 401(k)s and 403(b)s won’t have to be reported. Some of the items it won’t be able to pull are demographic information and assets, as those will still need to be entered manually by the applicant.
Regarding assets, one significant change is that child support is now considered an asset instead of income, which is a favorable change. Other changes include that you will now be required to report your businesses and family-owned farms as assets, whereas previously if you employed less than 100 people, it was excluded from the calculation.
Finally, the FAFSA contains the income protection allowance (IPA), where a portion of parent and student income is excluded from the calculation. The IPA amounts rose about 20% for parents and 35% for students.
In the past, if a family wanted to exclude assets, they had to answer questions on the Simplified Needs Test. This has been streamlined as you will only need to report assets if any of the following are true:
- Your Adjusted Gross Income (AGI) is less than $60,000; you don’t file Schedules A, B, D, E, F, or H; and you don’t file a Schedule C with a net business gain or a loss of $10,000 or less.
- You receive benefits from a federal means-tested program.
- You qualify for an automatic maximum Pell Grant.
One thing to note is that some colleges require a second application to award financial aid. This additional application is known as the CSS Profile. It collects more data and uses a different formula to determine financial aid. There were no substantial changes to this form.
Financial aid appeals
With such extensive changes, experts predict there to be some bumps in the road, so if your student’s financial aid has decreased due to the changes, it could be worthwhile to consider appealing for more financial aid. College financial aid administrators must be more flexible as they can no longer have a policy of denying all financial aid appeals. Furthermore, colleges are also expanding the scope of appeals to cover a wider range of special circumstances that can affect a family’s capacity to pay for college.
The new FAFSA is currently available, so if you have a child entering or in college, be sure to fill out the new application because most aid is given on a first-come, first-served basis. Consider filing even if you believe you earn too much money, for it doesn’t hurt to give it a shot, especially given its reduced complexity. The submission deadline is June 30, 2025.
Presented by Lucas Campbell