For the first time in 40 years, students will see a completely revamped Free Application for Federal Student Aid (FAFSA). These changes are part of the FAFSA Simplification Act and should benefit most families, but some households could see their eligible aid decrease significantly, experts say.
“Overall, I think there are a lot more winners,” says MorraLee Keller, senior director of strategic programming at the National College Attainment Network, a nonprofit organization supporting college affordability. On the other hand, Keller says she doesn’t want to underestimate the negative impact those changes may have on some families.
The FAFSA Simplification Act aims to streamline the application process, remove barriers for key student populations and expand federal aid eligibility. Notable changes to the FAFSA include:
- Replacing the Expected Family Contribution with the Student Aid Index.
- Expanding Federal Pell Grant eligibility.
- Automatically populating federal income tax data from the IRS.
- Adding details that determine a school’s cost of attendance.
- Removing questions about Selective Service and drug convictions.
- Simplifying questions that determine the independent status of students in unusual circumstances, such as homeless students, orphans or former foster youth. Institutions will have more flexibility in adjusting certain factors that impact federal student aid for these students.
- Translating the application so it will be available in more languages.
The long-awaited changes will launch in December 2023.
Plus: Run, don’t walk to apply for college grants: Student loan interest rates are highest in 10 years
How the FAFSA changes will impact your aid
Changes that will impact most students
The Department of Education is changing how a family’s need-based aid is calculated. As a result, more households could receive more aid.
Before FAFSA simplification: A family’s need was calculated using the Expected Family Contribution (EFC). The EFC incorporated income and assets, family size and the number of children currently enrolled in college. Typically, the lower the EFC, the more aid you’d be eligible for.
After the FAFSA simplification: The EFC is being replaced by the Student Aid Index (SAI). And similar to the EFC, the lower the SAI, the more aid you’ll be eligible for. But the new formula increases the income protection allowance — allowing for more of a student’s or family’s income to be excluded from the calculation.
For example, using the EFC, the parent income protection allowance for a family of four for the 2023-24 academic year is $32,610. For the 2024-25 school year, the same family can exclude $35,870 — protecting an additional $3,260 from their income calculation and lowering the student’s SAI.
Read: How college admissions will change in America after the Supreme Court knocked down affirmative action
Changes that will impact low-income students
Moving away from the EFC to the SAI, it will be easier for some households to show the magnitude of their financial need.
Before FAFSA simplification: Students from a household with limited income and assets could, at the lowest limit, receive an EFC of zero. If your EFC was zero, you were automatically eligible for the maximum amount of federal student aid.
How it works:
Cost of attendance – EFC = Financial need
For example, if your school’s cost of attendance is $20,000 and your EFC is zero, you would be eligible for $20,000 in need-based aid.
After FAFSA simplification: Unlike the EFC, the new SAI calculation can drop below zero. The SAI can be as low as negative $1,500. A family with significantly fewer financial resources could receive more aid in the 2024-25 academic year than they were eligible to receive in the 2023-24 school year.
How it works:
Cost of attendance – SAI = Financial need
Using the example above, having a $20,000 cost of attendance and an SAI of negative $1,500, you could be eligible for $21,500 in need-based aid — an increase of $1,500.
The SAI calculation also makes it easier to qualify for the Pell Grant:
- If your SAI is between negative $1,500 and zero, you qualify for the maximum Pell Grant.
- If your SAI is greater than $0 but less than the maximum Pell Grant award, you could qualify for the maximum Pell Grant — minus your SAI.
- If your SAI is greater than the maximum Pell Grant award, you could still qualify for a Pell Grant depending on your family size, adjusted gross income and poverty guidelines.
Changes that will impact students with siblings in college
Families with more than one child in college at the same time will no longer receive a sibling discount.
Before FAFSA simplification: The contribution for parents with multiple children in college was divided by the number of children enrolled. This was based on the idea that a parent’s ability to pay for college doesn’t increase as they have more children enrolled, according to the Department of Education.
Using an example from the Department of Education, a parent with one dependent in college full time could have an EFC of $10,000. When their second child enrolls, that child’s EFC would be $5,000. If they have three children enrolled, the third child would have an EFC of $3,333, and so on.
After FAFSA simplification: The SAI does not consider the number of children enrolled in college when determining the parent’s contribution.
For some families, particularly those with incomes and assets between $75,000 and $200,000, the impact of removing the sibling discount could be large. Their eligibility for financial aid could be cut by thousands of dollars, explained Phillip Levine, an economics professor at Wellesley College.
Also read: If you’re part of the 1%, you’re twice as likely to attend an elite college, new research finds
All changes to the FAFSA will be in place for the 2024-25 academic year, but you don’t have to wait to take action. Use the federal student aid estimator to see what you’ll be eligible to receive.
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Trea Branch writes for NerdWallet. Email: tbranch@nerdwallet.com.
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