Nothing is more appealing to soon-to-be and current college students and their parents than free money. However, it’s mind-boggling that so many families fail to fill out the Free Application for Student Aid (FAFSA) form.¹ That’s why we crafted this guide for the FAFSA 2024-25 application, as we do each year.
The cost of college can be stifling to most families, so you certainly don’t want to miss out on this opportunity. The FAFSA usually opens on October 1 but due to a number of changes and administrative delays, it is now not expected to be released around December 31. You’ll want to submit your application as soon as possible after that date, as it is expected that the Education Department and colleges will face additional processing delays.
File as close as possible to the start date to improve your chances of qualifying for the most grant, scholarship, and work-study aid. Plus, more families than ever may request — and qualify for — aid in 2024-2025 due to major changes to the process and equation used to calculate assistance.
The phased implementation of the FAFSA Simplification Act adds even more complexity and questions for families. You need to make sure you’re in the know about this year’s changes² so that you don’t leave money on the table (remember, the 2024-2025 FAFSA uses 2022 tax information). Below are the key updates made to the 2024-25 FAFSA form and process, along with some tips for filling it out.
Key FAFSA Simplification Act Changes
Passed in December 2020, the FAFSA Simplification Act represents a significant overhaul³ of federal student aid, including the Free Application for Federal Student Aid (FAFSA®) form, need analysis, and many policies and procedures for schools. The Department of Education had originally delayed the implementation of SOME of these changes until the 2024-2025 aid year. The biggest changes for many of our clients fall into four key areas:
- The reduction of the FAFSA from 10 pages and over 100 questions down to 3 pages and only 35 questions.
- Increased income protection levels that will provide more aid for many, as the Parental Income Protection Allowance will increase by 20% and the Student Income Protection Allowance by 35%.
- The elimination of the multi-child EFC reduction, which grants higher aid awards due to multiple children attending college.
- For divorced parents, a shift of which parent completes the FAFSA from the one with whom the student resides to the one who provides the most financial support.
Again, these are major shifts. Additional guidance is sure to come between now and December 31, 2023 with the FAFSA release. In the interim, consider speaking with a financial and wealth management professional about your options, particularly if your family will have multiple students in college in Fall 2024, or if you are divorced and have a widely divergent income or asset profile compared to your former spouse.
Detailed EFC (SAI) Changes To The 2024-25 FAFSA
When the FAFSA is released on December 31, 2022, families accustomed to seeing an Expected Family Contribution (EFC) amount will instead see a Student Aid Index (SAI) figure. This terminology change more accurately describes the number used to determine aid eligibility and, unlike the EFC, the SAI may be a negative number down to -1500. Updates to the calculation for the expected family contribution (SAI) will include the following changes:
1. The income threshold for a maximum Pell Grant⁴ has been increased to $56,823 for a family of five. The same family can automatically qualify for a Pell Grant of some form with income up to $89,293, and some families with income above $100,000 could still qualify with certain exclusions and deductions. This is a huge increase in the threshold; as a result, the Department of Education expects up to 930,000 more students will now qualify for a Pell Grant.
2. The typical family will see their Parental Income Protection Allowance⁵ increase by 20%, or an average of about $8,000. This will in-turn decrease expected family contribution at similar income levels. For example, a family of four with one dependent child in college will now have nearly $40,000 shielded from expected family contribution calculations.
3. The Allowance for Student Wages⁶ before those earnings impact the expected family contribution has been increased by the largest amount, ever, from $7,600 to $9,410. This works out to about 10 hours per week during the school year and 20 hours per week during the summer at an average hourly wage of $15.00.
4. Unfortunately, the Educational Savings and Asset Protection Allowance⁷ has been entirely phased out (a multi-year process) so that for most people, parental assets will no longer be shielded from the EFC calculation. Additionally, in 2024 the new SAI formula will also do away with exclusions for family farm and small business assets. This means you will most likely need to declare the net value of your farm or business on the FAFSA.
5. There’s more bad news for families: the number of children in college at the same time will no longer affect eligibility for aid,⁸ nor will the income protection allowance increase for each additional child enrolled. This change will have a big impact on middle- and high-income families with two or more children enrolled in college at the same time.
6. Luckily, there is some good news to offset this: The new FAFSA will simplify contributions from grandparents⁹ or others outside the immediate family towards college expenses without affecting the family’s financial aid status. Any financial support from grandparents or others won’t be considered in the FAFSA, eliminating the current question about it. Currently, grandparent contributions from 529 plans count as untaxed income for the student, and therefore lower aid amounts by 50 cents on the dollar.
7. Finally, as mentioned previously, divorced and separated families could see a major change, as the new FAFSA will ask for the parent who provides more financial support to fill out the form.¹⁰ Currently, the parent with whom the child resides more often has been the one to fill out the form. This typically allowed families to arrange residence to help get more aid. That will no longer be the case. The Department of Education has yet to give concrete guidance on defining “the parent who provides more support”. Some sources indicate they will probably rule that it is the parent who claims the student on taxes; others suggest it may be which of the two parents earns more income. The DOE could also leave the question ambiguous to allow schools flexibility in determining a rule that works best for their student population. More to come!
Have All The Right Documents Ready
To complete the FAFSA Form, you will need your:
- Social Security Number
- Alien Registration Number (if you are not a U.S. citizen)
- Most recent federal income tax returns, W-2s, and other records of money earned. (Note: You may be able to transfer your federal tax return information into your FAFSA using the IRS Data Retrieval Tool.)
- Bank statements and records of investments (if applicable)
- Records of untaxed income (if applicable)
- FSA ID to sign electronically. To create one, go to Studentaid.gov.
- If you are a dependent student, then you will also need most of the above information for your parent(s).
What About Lingering Impacts from COVID-19
What if your financial situation has dramatically changed since the 2022 tax returns that you’re using for the 2024-2025 FAFSA? You have two options.
1. Any parent who has lost their job should check the “Dislocated Worker” box.
2. Since the FAFSA does not have an open-ended field to describe changes in family circumstances, you will probably have to endure the Professional Judgment (PJ) process after receiving acceptances.
Unfortunately, the Department of Education says that families must fill out the FAFSA “as is” and then appeal their award: You must complete the FAFSA questions as instructed on the application and then contact the school you plan to attend to discuss how your current financial situation might have changed.
Tips For Filling Out The FAFSA Form
Not Sure If You’re Eligible? Fill It Out Anyway!
A common financial aid myth is that students with parents that have high-paying jobs will not be eligible for FAFSA – wrong! Everyone should fill out a form, regardless of your financial situation. FAFSA is not just the application for federal grants but it is also necessary for low-interest student loans, work-study programs, as well as scholarships and grants from schools, states, and private organizations.
You should complete the form so you don’t miss out on possibly thousands of dollars to help pay for your child’s college. Don’t fall for these myths¹¹ about financial aid.
Also, you may not need financial aid now, but anything could happen. If you do need aid in the future, the process will be much easier if you’ve already filled out the form.
Fill Out The Form ASAP
The new FAFSA form will be made available around December 31, 2023, on studentaid.gov. Again, you’ll want to submit your application as soon as possible after that date, as it is expected that the Education Department and colleges will face additional processing delays. Particularly for first-time college students, you’ll want to know your available aid as early in the process as possible to make the right choices for you and your family.
Use the IRS Data Retrieval Tool
Previously, users had the option to enter their tax information manually or use the IRS Data Retrieval Tool. Beginning with 2024-25, all persons on the FAFSA must provide consent for the Department of Education to receive tax information or confirmation of non-filing status directly from the IRS. In a very small number of cases, students and families will have to enter their tax data manually, but for most, that data will be automatically transferred into the application. This change makes it easier to complete the FAFSA and reduces the number of questions to be answered.
Renew Your FAFSA Every Year Of College
Another financial aid myth is that after a student’s first year, they no longer need to worry about filling out FAFSA – wrong, again!
The amount of federal aid your child qualifies for in one year does not carry over every year. Also, changes in your family’s financial situation could impact the amount of financial aid your child qualifies for in future school years.
To Sum Things Up
Affording college can be a challenge for any family regardless of their situation, but it’s not impossible. By utilizing the tips above and additional resources such as other forms of financial aid and College Savings Plans,¹² affording college can be more manageable than you think.
In addition to these tips, you can also learn more about College Savings via our many helpful articles, including How To Find College Scholarships¹³, College Savings: From Getting Started To Enrollment¹⁴ and How To Balance College Savings And Retirement.¹⁵ And be sure to check out our Family and Finances blog series¹⁶ where we provide general financial insights for families.
Have additional questions regarding FAFSA or College Savings Plans? Contact our team of Financial Advisors today! And sign up for our free blog via the panel at right to get monthly wealth management updates like this one sent directly to your inbox!
1. FAFSA Guide: Find Free Money For College (Nerdwallet, 2023)
2. FAFSA Simplification Act Changes For Implementation In 2024-2025 (Federal Student Aid.gov, 2023)
3. Beginning Phased Implementation Of The FAFSA Simplification Act (Federal Student Aid.gov, 2023)
4. 2024-2025 DRAFT SAI Guide Supplement (Federal Student Aid.gov, 2023)
5. New FAFSA Changes For The School Year 2024-2025 (Association of Certified College Funding Specialists, 2023)
6. New FAFSA Changes For The School Year 2024-2025 (Association of Certified College Funding Specialists, 2023)
7. The EFC Formula 2023-2024 (Federal Student Aid.gov, 2023)
8. Summary of Changes To The 2024-2025 FAFSA (California Student Aid Commission, 2023)
9. New FAFSA Changes For The School Year 2024-2025 (Association of Certified College Funding Specialists, 2023)
10. Summary of Changes To The 2024-2025 FAFSA (California Student Aid Commission, 2023)
11. 15 FAFSA Myths (Federal Student Aid.gov, 2023)
12. College Savings Planning Basics (Magellan Financial, 2023)
13. How To Find College Scholarships (Magellan Financial, 2023)
14. College Savings: From Getting Started To Enrollment (Magellan Financial, 2019)
15. How To Balance Retirement And College Savings (Magellan Financial, 2019)
16. Family and Finances Blog Series (Magellan Financial, 2023)
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