‘Never a dull moment’ was the 2020 mantra for college planning and 2021 has started the same!
The Covid-19 relief legislation passed late last year includes the FAFSA Simplification Act. I’d like to highlight several aspects of this legislation that will affect many families.
When does it take effect?
The first redesigned FAFSA will go live on October 1, 2022 and be in effect for the 2023-2024 school year. Current sophomores in high school are the first class to be subject to the changes.
Length of FAFSA
The number of questions on the FAFSA will go from 108 to 36, which should simplify the completion process and decrease the anxiety that people feel.
The Expected Family Contribution (EFC) will be replaced with the Student Aid Index (SAI). This new terminology may help correct the common misperception that the EFC represents exactly what they will have to pay for one year of college when families are often expected to pay more than their EFC (and sometimes less).
Crossover Years – Multiple Kids Enrolled in College at the Same Time
In the current calculation, your family’s EFC is divided by the number of family members in college. So, for example, a family has an EFC of $50,000 with one child in college. When the second child starts one year later, the EFC would essentially be cut in half (assuming the family’s financials remain the same) giving each child an EFC of about $25,000.
Under the redesigned FAFSA, the EFC is applied per student rather than per family. So, in the example above, each student would have an EFC of $50,000. This change will significantly reduce the amount of financial aid for families with multiple children in college at the same time.
The rationale for this change is baffling. Why should a family with $xxx in income be expected to afford paying double when their second child enters college at the same time?
Learn How to Save Thousands
On The Cost of College
Untaxed Income Changes
There is a concept in financial aid called untaxed income. This is income that is not taxed by Uncle Sam but considered as income for the purposes of calculating an EFC. The following areas will no longer be considered untaxed income – workman’s compensation, housing, food, and other allowances for military and clergy, veterans’ education benefits, and child support received (see more detail on child support in the section below).
In addition, cash support and any money paid on the student’s behalf will not be considered. This has a significant impact because currently any financial help given to the student by someone not included on the FAFSA is considered untaxed income and is assessed at 50%. The result is that friends and family can help with college costs without adversely affecting the student’s financial aid package.
Another change for divorced families is that child support received will no longer be considered “untaxed” income where it is assessed up to 47% in the EFC calculation. It will now be considered an asset which is assessed at a much lower rate (up to 5.64%). This is a positive change for divorced families.
Just a reminder that there are two financial aid forms that families may be required to submit – the FAFSA and the CSS Profile. This legislation affects the FAFSA only. It will be interesting to see how this all plays out as far as how colleges change their practices around awarding their endowment funds. The cost of attendance (“sticker price”) is usually not the price that families pay if they understand how college is priced and how they “fit” financially as a family at different institutions.
No, it’s never dull when you’re planning for financing college! For more information on specific changes and impacts of the FAFSA Simplification Act, here’s an excellent piece from Forbes.