If you have a child, undoubtedly the cost of higher education has crossed your mind. With the escalating costs of tuition and living expenses, most families cannot afford to pay for their students’ higher education outright, despite the many tax-advantaged savings opportunities. Consequently, the availability and comprehension of financial aid and student loans have become paramount. According to the National Center for Education Statistics, over 85% of students receive some form of financial aid, comprising scholarships, grants, loans, and work-study programs.
It all begins with the Free Application for Federal Student Aid (FAFSA). Both undergraduate and graduate students should submit the FAFSA, regardless of if they think they may not qualify for need-based aid such as work-study or grants. The FAFSA provides access to federal parent and student loans, which generally have better interest rates and terms than private loans.
The application window opens in October of the previous year and runs through June for the upcoming academic year starting in the fall; therefore, for the 2023-2024 academic year, the deadline to complete the FAFSA ends June 30. The application window for the 2024-2025 academic year will open this fall, accompanied by significant changes to the FAFSA resulting from the Consolidated Appropriations Act of 2021.
The most significant change involves replacing the Expected Family Contribution, which determines how much the federal government believes your family can afford to contribute towards college costs, with the Student Aid Index, which modifies the mythology used to determine need. The new need-analysis formula eliminates the increased eligibility for families with multiple students enrolled simultaneously. This change is expected to affect over half of all families. While it may not significantly affect low-income students, it is likely to decrease aid eligibility for middle- and high-income students when multiple children are attending college.
On a positive note, more income will be excluded from the eligibility formula. For dependent students, the parent income protection allowance will increase by 20%, while a dependent student’s income protection allowance will rise 35% above current levels. Furthermore, families will not be penalized if grandparents or other individuals outside the immediate family assist with college expenses. For example, grandparent-funded 529 plans were considered unearned student income, leading to reduced aid eligibility. With the upcoming changes, these funds will no longer jeopardize a student’s chances of receiving need-based aid.
The upcoming changes also aim to simplify the application process. The FAFSA application will be streamlined from more than 100 questions to less than 50. Families will also be required to use the IRS Direct Data Exchange, enabling the direct transfer of federal tax information from the IRS to the FAFSA. This will reduce the verification process and the number of questions regarding income.
The upcoming changes are generally beneficial with decreasing the complexity and protecting more income; however, some changes may affect eligibility—particularly for families with multiple college-enrolled students. It is important to note that aid is not exclusively reserved for low-income students, and even if you perceive your family income to be too high, it is a misconception to assume that you are ineligible. In fact, more than $2 billion in federal student grants go unclaimed each academic year.
If you have questions on how to save for college costs, the experts at Henssler Financial will be glad to help:
- Experts Request Form
- Email: experts@henssler.com
- Phone: 770-429-9166
Listen to the May 20, 2023 “Henssler Money Talks” episode.
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