College Financial Aid Changes: Winners and Losers
by David J. Haas, CFP®
April 26, 2023
The Consolidated Appropriations Act (CAA) of 2021 changed college financial aid in a big way, but most of the provisions of this law were delayed until this fall. The time has finally come where families with college students will be feeling the effects when they apply for financial aid in 2023 for the 2024-2025 school year. As with any major law there will be winners and losers. Let’s see who they are.
Delay of FAFSA Availability – LOSERS: Everyone applying to college using rolling admissions or early action.
Normally the FAFSA form is available October 1, but because the U.S Department of Education won’t be ready, they have already decided to delay FAFSA availability to December this year. They haven’t announced which day in December yet. Why are those applying to college early action or with rolling admissions losers? Because the college will not be able to prepare an aid package for you until you fill out the FAFSA. You might get a college acceptance but have no idea if you can afford to attend until January or later. The availability date should go back to October 1 for the 2025-2026 school year.
Shorter FAFSA – WINNERS: Probably most applicants.
We haven’t seen the new FAFSA questions yet. More information is supposed to be transferred from tax returns automatically. So, if the data in your tax return is what is supposed to go onto your FAFSA form and if the questions are easily answered, then you are a winner.
(HOWEVER, if your situation is unusual and your tax return isn’t available or does not reflect what is supposed to go onto the FAFSA, then you may be a loser.)
Expanded Access to Pell Grants and Increased Grants – WINNERS: Those who qualify for the grants.
Pell grant eligibility will be linked to family size and the federal poverty level. Grants have increased $500 to a maximum of $7,395 in 2023. Congress must approve Pell grant spending each year, so it remains to be seen what the grant amount will be in 2024.
Divorced Families FAFSA Parent Change – LOSERS: Divorced Families who follow the rules. WINNERS: Divorced Families who fudge the rules.
The change is that the parent who either provides the most financial support or the parent with the highest AGI (Adjusted Gross Income), will have to fill out the FAFSA. This is a change from the past when the parent with whom the student spent the most time was considered the custody parent and would fill out the FAFSA. This is an area where divorced families can probably fudge the rules. While child support is in the divorce settlement, who’s to say that the parent receiving the child support isn’t providing more overall financial support. The exact rules have not been published, but I would expect families can play games with who fills out the FAFSA.
Child Support Change – WINNERS: Recipients of child support if they fill out the FAFSA.
Child support is now reported as an asset instead of income, and considered at the same rate as parent assets or 5.64% instead of the higher parent income rate. This will benefit those who are receiving child support if they are the ones who provide the highest support and fill out the FASFA.
Less Aid for Families with Multiple Children in College – LOSERS: multi-child families.
With the old rules, if you had multiple children in college at the same time, each child would get a lower Expected Family Contribution (EFC), which increases aid. The new law provides the same Student Aid Index (SAI, the replacement for the EFC) whether the child is the only college student in their families, or if there are multiple children in one family who are in college at the same time. Note though that if the student is eligible for a Pell grant, that grant may be increased because the new calculation method takes family size into account. Also keep in mind that this change will only affect colleges that don’t require the CSS (College Scholarship Service) Profile form. The CSS colleges have not announced a formula change and they typically do give multi-student families a break.
Small Business Owners – LOSERS: The old rules did not require reporting the value of businesses with less than 100 employees.
The new rules require reporting of a value for such businesses. This could be onerous for small business owners, since few of them will know what their business is worth. The CSS has included this information and they simply require a good faith estimate, so the new FAFSA will likely require the same. CSS schools often ask detailed questions such as business revenue. Since the new FAFSA is restricted to 36 questions, it seems unlikely that they will be able to ask many additional questions. This is a case where capital intensive businesses such as rental real estate or manufacturing will fare worse than service businesses that don’t need assets.
Clergy or Military Families – WINNERS: Clergy and Military get non-taxable housing allowances.
Previously the FAFSA required these non-taxable amounts to be counted as income. With the new FAFSA, these amounts will be ignored.
Grandparent or Other Gift Givers – WINNERS: Those with grandparents or other relatives who are willing to help pay for college.
If a grandparent or other relative or friend paid for college, that money had been considered untaxed income of the student and counted at the very high student income rate. With the new FAFSA, gifts to the family or the student are completely ignored.
We still don’t really know the details of the new FAFSA, so some of what I have written is conjecture based on the CAA law and what the U.S. Department of Education has released so far. But this definitely affects everyone who will fill out the form. You might be a winner in some areas, but a loser elsewhere. Working with an advisor from Cereus Financial Advisors as part of the College Money Match service can help reduce the uncertainty around the college finance question. By the time you apply to the college you should have a pretty good idea what that college might cost for your child and how your family will be able to pay for their education. Give us a call to find out more at 201-848-6802.
