The FAFSA Simplification Act was passed in December of 2020. It takes effect at the start of the 2024-25 academic year, making many adjustments to the FAFSA (Free Application for Financial Student Aid). Below are the most impactful changes the FAFSA Simplification Act will have on families.
Families complete the FAFSA form to determine whether they are eligible for financial aid. The government calculates a family’s EFC (Expected Family Contribution) for expenses such as tuition, books, accommodations, etc. The EFC does not represent the exact cost a family is responsible to pay for college, but rather a baseline to determine financial aid.
No more discounts for siblings enrolled in college simultaneously.
Today’s rules:
The EFC is divided by the number of children simultaneously attending college. For example, if a family with two children attending college this year (2022-23) has an EFC of $20,000 and a tuition bill of $50,000 per child, each child would have an EFC of $10,000 ($20,000/2) and the family would then have a financial aid need of $40,000 per child.
Starting in 2024-2025:
The EFC will become the Student Aid Index (SAI), which will no longer give families a discount for having multiple children attend college at the same time. If we are using the example above, with an SAI of $20,000 and tuition of $50,000, each family’s financial aid need would decrease to $30,000 per child.
With these changes coming, it might make sense, if you have multiple children in college, to contact their schools to be sure you’re still eligible to receive the existing multi-sibling discount.
529’s owned by a grandparent or other non-parent relative will no longer count as untaxed income to the student.
Today’s rules:
If a child receives a distribution from a grandparent, or other relative-owned 529 account, the student’s needs-based financial aid would be reduced up to 50%.
Starting in 2024-2025:
Grandparent or other relative-owned 529 accounts will no longer have any effect on students’ eligibility to receive needs-based financial aid.
Simply put, if you have a trusted family member who owns your child’s 529 account, the assets can accumulate in the family member’s name and wouldn’t show up as a family asset on the FAFSA, potentially increasing the needs-based financial aid a family could receive.
Custodial parent is no longer the default for submitting financial information
Today’s rules:
Students with divorced or separated parents fill out the FAFSA form for the custodial parent they live with for the majority of the year.
Starting in 2024-2025:
Under the amendments to the FAFSA, no matter the living situation, students will now report financial information solely for the parent who provides the most financial support.
Small business owners must report the net worth of their business as an asset.
Today’s rules:
Families who own a small business or family farm with less than 100 employees do not need to report the value of their business on the FAFSA because of the small business exclusion.
Starting in 2024-2025:
Small business owners must report a percentage of their business’ net worth as an asset on the FAFSA if their income is greater than $59,999.
Key improvements
The FAFSA Simplification Act will expand access to Pell Grants. Also, pre-tax retirement contributions made through your paycheck will not count toward your Adjusted Gross Income anymore. The biggest win may be that the act shortens the form, decreasing the number of questions from 108 to 36! Understanding how the FAFSA Simplification Act will affect your college student helps you plan better for the future.
Photo by Emily Karakis on Unsplash