A New Chapter on College Financial Aid

Copyright 2021

Financially savvy parents of college students should generally take the time to complete the Free Application for Federal Student Aid (FAFSA) each year. Students must file their FAFSA for the 2022–2023 academic year between October 1, 2021, and June 30, 2023. This means there's still time to file a FAFSA for the 2021–2022 school year.

Special Situations Covered by the CAA

The Consolidated Appropriations Act (CAA) includes several provisions that impact certain students' financial aid for the 2023–2024 school year. Here are three family situations that will be evaluated differently under the new-and-improved FAFSA:

1. Students with divorced or separated parents. Under the existing rules, the custodial parent with whom the student has lived for most of the year currently files the FAFSA. Under the new rules, starting with the 2023–2024 school year, it will depend on which parent claims the student as a dependent on a tax return.

2. Students with siblings in college. The revised FAFSA will no longer grant households with multiple children in college a significant edge in terms of financial aid eligibility.

3. Students who receive gifts. Grandparents or others will be able to kick in gifts without jeopardizing financial aid. Previously, this generosity was factored into the determination of the expected family contribution (EFC).

Currently, some schools use the College Scholarship Service (CSS) Profile (another financial aid application) to determine who gets what aid from their own financial programs. Although there's been no official word from the College Board, the creator of the CSS Profile, modifications corresponding to the FAFSA changes are expected.

 

Important: The FAFSA asks for financial information, including information from tax forms and balances in savings, checking and certain other accounts. For example, the 2021–22 FAFSA asks for 2019 tax information. However, you may be able to request an adjustment if your family's financial situation has changed significantly from what's reflected on your federal income tax return (for example, a job loss or change in marital status).

The FAFSA may result in financial aid for those who need it and benefits more people than you might think. It's generally recommended that you investigate the possibilities, even if you don't expect to receive much federal need-based assistance.

In the past, the start date for filing the FAFSA was January 1, but a few years ago it was moved up to accommodate parents facing financial dilemmas. Other major changes related to this form are scheduled to take place for the 2023–2024 school year. However, they may be implemented sooner. Those provisions were part of the Consolidated Appropriations Act (CAA), which was signed into law late in 2020. Here's an overview of some important changes coming your way.

Simplified Filing Requirements

There's no getting around the requirement for filling out the FAFSA to qualify for aid from the federal government, individual states and many educational institutions. (The student technically files the FAFSA, but parents often are the ones effectively assuming this responsibility.)  

This form isn't easy to complete. The current version of the FAFSA features 108 questions, often requiring parents to track down information that isn't readily available.

But the new-and-improved FAFSA will be much shorter. It's expected to include approximately 36 questions. And it will be far more convenient to fill out, allowing you to electronically import tax return data filed with the IRS. Obviously, that drastically cuts down the number of questions you have to answer about income. Also, students will no longer be required to report any drug-related convictions they've had in the past.

Student Aid Index

If a student submitting a FAFSA is denied financial aid, the reason can often be traced back to the expected family contribution (EFC) determined under the form. Essentially, this is the amount of money a family is considered to afford to put toward college costs, based on answers to questions on the FAFSA. But critics have argued that the formula for the EFC, as presently calculated, is flawed.

Under the CAA, the EFC has been renamed the "student aid index" (SAI). Notably, the new calculation doesn't affect the amount of money families are required to pay for college, rather it's a barometer of their financial picture. To cut through the technicalities, it should become easier for a college to identify those students with the greatest financial needs through the SAI.

College aid experts have long maligned the EFC as an inadequate means of helping to measure financial need. But the jury is still out on the potential impact of the newly designated SAI metric.

Expansion of Pell Grants

Pell Grants, which are based on financial need, can be especially valuable because they don't have be repaid. For the 2021–2022 school year, the maximum Pell Grant is $6,495 per student. This amount is indexed annually.

Currently, eligibility for Pell grants is determined by the EFC figured on the FAFSA. But these rules are being revised to reflect family size and adjusted gross income (AGI) in comparison to federal poverty figures. In addition, the new rules will open up more avenues to those in financial need, including students who:

  • Are incarcerated and participating in prison education programs,
  • Have had a drug-related conviction in the past, and
  • Didn't complete a program of studies because of a school closing (for example, due to COVID-19 or financial reasons).

The changes will provide more financial aid for more students. In fact, this change is expected to boost eligibility for Pell Grants by more than half a million students.

Discretionary Adjustment for Unemployment

Many parents were forced out of work or had their hours reduced during the pandemic. Although the economy has been rebounding overall, some workers are still in dire straits. Under the CAA, certain consequences of the pandemic will become a piece of the financial aid puzzle.

Specifically, the law allows financial aid administrators to use their professional judgment to adjust the income calculation of a student's family during times of national emergency. In some cases, a student may be able to use the unemployment factor to reduce his or her income to zero. Accordingly, the student may then be in line for a Pell Grant or other aid.

Federal Direct Loans

Students may benefit from Federal Direct Loans that are subsidized by the federal government while they're still in school. Uncle Sam picks up the interest tab while the student is enrolled in an undergraduate or graduate school program or if the student otherwise qualifies for deferment.

However, as things stand now, these loans may be subsidized for only 150% of the length of their education programs. For instance, if the student has embarked on a four-year course of study, the loan may be subsidized for up to six years only.

The CAA removes this arbitrary limitation. Beginning with the 2023–2024 school year, the subsidy can last as long as it takes for the student to complete the program. This change will relieve the pressure for many students who have to work during college, often causing them to take longer to wrap up their studies.

For More Information

These are the highlights of FAFSA-related changes under the CAA. Contact your financial advisor or educational institution for more information about what's in store for the 2022–2023 school year and beyond.