FAFSA’s Getting an Overhaul: Here’s What to Expect

Personal Finance

Sep 25

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In December 2020, Congress passed the FAFSA Simplification Act (an updated version was signed into law in 2021 as part of the Consolidated Appropriations Act): an endeavor designed to reduce the burden on students by making it easier to apply for and obtain the financial aid needed to attend college. In this article, we’ll walk you through key changes, tell you what to expect, and note when these changes will take place.

FAFSA overview

FAFSA, also known as the Free Application for Federal Student Aid, is the form you’ll fill out if you pursue federal financial aid to attend college. (You can still receive financial aid from private sources such as banks, foundations, and the institution itself, but you’ll need to complete a FAFSA form while seeking financial help from the federal government.)

The form contains questions concerning your and your family’s financial health, the answers to which are used to determine your eligibility. If you’re deemed eligible, you’ll then receive financial aid in the form of federal grants or loans.

About FAFSA funds and why the process is changing

The best thing about FAFSA funds? They’re often easier to pay back than private student loans—and in some cases, no reimbursement is necessary! Even when they’re not free, the amount of grace you receive from a federal student loan often eclipses what you’ll reap from a private donor: as FAFSA loans typically feature smaller interest rates and lengthier interest-free periods than private loans.

With these facts in mind, you might be surprised to learn that a recent College Attainment Network study found billions of dollars in federal student grants and loans go unclaimed each year by the people who need them most—primarily due to incomplete FAFSA forms. To combat this challenge and unlock additional aid to finance college, Congress put FAFSA on the diet of the century: which is what we’ll explain right here.

Upcoming FAFSA changes

Several changes authorized by the FAFSA Simplification Act primarily function by making FAFSA funding easier to access, whether by expanding applicant eligibility or streamlining the application process itself. Here’s an overview of the upcoming changes:

Question reduction

Previously, the FAFSA form featured 108 questions. The updated version, meanwhile, will only have 36: reducing form length by two-thirds. It’s worth noting that the exact number of questions will in fact vary based on your and your family’s finances (with the 36-question limit serving as the upper cap).

EFC gets a name change, and more

One major component of FAFSA is the EFC, or Estimated Family Contribution. This is essentially a calculation used to determine one’s eligibility for federal student financial aid, with the corresponding number representing the overall financial strength of a family; this consists of income and assets for both the student and his/her parents (or spouse, if the student is classified as independent), number of children attending college, household size, and age of the older parent. Now, the EFC is set to be replaced by the SAI (Student Aid Index).

This is more than a name change, however; the method used to calculate family financial assets will also change, including exempting applicants from the requirement of disclosing assets under various conditions (such as cash support from a grandparent in the form of a gift or from a qualified distribution from a grandparent-owned 529 college savings plan).

The EFC currently takes family size into consideration when calculating the total score by dividing the student’s EFC by the number of family members in college; moving forward, this will no longer be considered. The impact will decrease aid eligibility for middle- and high-income families who have multiple children in college.

Additionally, your SAI score will now have the ability to fall below zero (which was not the case with the EFC). The new lower threshold is -1,500, allowing additional gradients between low-income applicants to help colleges and aid administrators better distinguish the neediest students.

Cost of attendance calculations, expanded

The amount of financial aid you qualify for is currently calculated by subtracting your Expected Family Contribution from the school’s cost of attendance (also known as the “sticker price”). Unfortunately, the cost of attendance calculations colleges use to determine student aid amounts are woefully underscored: prompting the following changes to better account for realistic costs of living for college students:

● Colleges can no longer set a housing budget of $0 for students who live with their parents, as these students will incur various college-related expenses aside from books and tuition.

● The cost of attendance must include actual loan fees for federal loans but can’t include those for private student loans.

● No more skimping on meal plans; under the new rules, colleges must assume students are eating three meals a day.

● And finally, the U.S. Department of Education will now have the ability to regulate the cost of attendance (with the exception of tuition and fees).

Pell Grant accessibility will improve for many

Pell Grants are designed to help make college a little more affordable for the most economically challenged students, with eligibility typically based on the student’s EFC. Upcoming changes aim to simplify the eligibility process.

First and foremost, the FAFSA Simplification Act restores privileges to the following groups who previously received a Pell Grant: students whose school shuttered and those who, due to an emergency, were forced to use their grant funds to cover other expenses. Incarcerated students will once again be eligible for Pell Grants.

Changes will also be SIA-based. For example, students with an SAI of $0 or less will be eligible for the maximum Pell Grant amount ($7,395 for the 2023-24 school year). If a student’s SAI falls below the maximum Pell Grant amount, he or she may qualify for a smaller grant. Students with an SAI greater than the maximum Pell Grant amount may still qualify for the minimum amount, but this will depend on family size, adjusted gross income, and poverty guidelines.

Selective Service goes by the wayside

Previously, male applicants between the ages of 18 and 26 (aka, most men applying to college in the first place) will no longer be required to register for the Selective Service (aka the draft) before filling out a FAFSA form. They’ll still be obligated to register per federal law, however, making this change somewhat pointless; but it’s the thought that counts.

Financial aid appeals get a major facelift

If a student receives a better award offer elsewhere or his/her family situation changes, that student often files for a financial aid appeal. The FAFSA Simplification Act will greatly overhaul how colleges approach these. A few notable changes include:

● Colleges can no longer set a blanket ban on financial aid appeals—each appeal must be made on a case-by-case basis.

● If a student or parent is freshly unemployed (within the last 90 days), this can be stated with the corresponding SAI score set to zero—even if the past year’s income exceeds prerequisites for this SAI score.

● Determinations of homelessness will no longer take into account why the student is homeless, only the fact that he or she is.

● When the school allows a student to exclude parent information on the FAFSA, dependency overrides will continue for the length of the student’s education unless his/her home situation clearly changes for the better; colleges must also address dependency override petitions within 60 days of the student in question’s attendance.

Changes for dependent students with divorced parents

In the case of a dependent student whose divorced parents share custody, the parent responsible for filing the FAFSA will ultimately provide his/her child with the majority of financial support (rather than basing this on where the student resides).

Other changes worth mentioning

● The new FAFSA bans charging a fee for form completion. Paid preparers (those who charge a fee to help complete the form) are no longer allowed.

● Previously, the FAFSA form was only available in English and Spanish; the updated version will be available in at least 11 languages. Exact languages are TBD, but we can safely assume that English and Spanish are on the list.

● The new FAFSA will allow students to list as many as 20 colleges (up from 10 previously).

● If a student’s SAI score is zero or below or he/she makes less than the minimum income tax threshold, that student will not need to declare any assets at all.

● Previously, students wishing to continue receiving financial aid for their entire college career were required to fill out a FAFSA form for each and every school year. Now, filling this out is only necessary if something significant changes in one’s financial status.

Simplified FAFSA launch date

After some delays with respect to implementation, the simplified FAFSA will be the standard for the 2024-2025 academic year and available on December 1st of this year: two months later than the typical application and financial aid cycle.

In sum: upcoming FAFSA changes

Significant (and long-awaited!) changes are coming for FAFSA with the aim of making grants and other financial aid instruments more accessible to students. This is especially important as tuition inflation has significantly outpaced inflation for other goods and services over the last 40+ years.