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At the end of 2020, Congress passed the Consolidated Appropriations Act. Most of the attention around this act, a $2.3 trillion spending bill, was focused on the COVID-19 relief provisions. However, also buried in that massive document were dramatic changes to student financial aid rules.  These changes will go into effect during the 2023-2024 school year when the FAFSA becomes available on October 1, 2022.  Some of these changes are long overdue and will be a benefit to families.  However, not all changes will be beneficial.

First, here is a brief rundown on some of the changes you can expect in the future: 

The FAFSA will be shorter and easier to fill out

The FAFSA currently has over 100 questions included in the application and many of them are confusing.  The new simplified version will have approximately 36 questions.  It also allows applicants to have both their taxed and untaxed income transferred to the FAFSA automatically, as opposed to manually entering it or having to self-report it.

“Expected Family Contribution” will be renamed “Student Aid Index”

The Expected Family Contribution, or EFC, is an index that schools use to determine a family’s eligibility for financial aid.  The formula includes such things as a family’s income, non-retirement assets, marital status, number of dependents, and how many children will be attending college at the same time.  Theoretically, the lower the EFC, the more aid could be available to a family.  This will get renamed to Student Aid Index, or SAI, but will operate similar to the EFC so there will be no impact to families financially.

Change in Custodial Parent

Under the current rules, the custodial parent in two household families (as a result of divorce or separation for instance) is the parent whose financial information is supplied.  The custodial parent is defined as the parent with whom the child lives with for the majority of the year.  As of 2022, the parent who supplies the most financial support will be required to fill out the FAFSA application, and this may not necessarily be the custodial parent.  The result – a higher EFC and less financial aid available to the family.

Pell Grant Eligibility

Pell Grants are a form of need-based financial aid that are awarded to low-income students to help offset college costs.  These typically do not need to be repaid.  This change is one of the positives of the new legislation. Under the current method, Pell eligibility is determined by a family’s EFC, the cost of attendance at the chosen school, and whether the enrollment status is part time or full time.  With the new rules, the size of the student’s family and their adjusted gross income will determine their Pell eligibility and size of the award.  Families that make less than the 175% federal poverty level will receive the maximum award, which is $6,495.

The above summarizes some of the changes you can expect to see in the 2023-24 school year. Now let’s focus on one that will negatively impact many families.  Currently, financial aid eligibility increases for families with more than one student enrolled in college at the same time.  Under the new law, the aid eligible to families will significantly decrease.

Let me explain with a fictitious family that includes two children who are two years apart. The first child will be in college by himself for his freshman and sophomore year, but the younger child will start college when the older one begins his junior year.  Therefore, the family will have two kids in college at the same time for two years. Both parents work and their combined income is $150,000.  The family also has assets of $150,000 which include cash and savings, taxable investment assets, and 529 plans.   The calculated expected family contribution (EFC) for this family is $40,000.

Before we dive deeper into the above family’s college financial situation, I would like to explain how the EFC is utilized by schools.  Your EFC is an indexed number that college financial aid offices use to determine how much financial aid a family is eligible for.  The formula for financial need is the Cost of Attendance (COA) less the Expected Family Contribution (EFC).  For example, if your EFC is $30,000 and you are applying to a school that costs $70,000, you will be eligible for $40,000 of need based aid.  ($70,000 COA – $30,000 EFC = $40,000 need).  It is important to point out – just because you are eligible for $40,000 in need-based aid, it does not mean you will receive this from the school your child applied to.  All schools vary in the determination of financial aid, so this will be solely dependent on the individual institution.

Now back to our fictitious family.  Under current guidelines with two students in college at the same time, this family’s EFC would be cut roughly in half for each student.  When this family has only one child in college for the first two years, the EFC that the college will use is $40,000.  However, once the second child starts school, the EFC will be roughly be cut in half to $20,000 per student.  The total EFC does not change, but the distribution of it does.  Therefore, the school that the older child attends will factor in the following EFC numbers for the four years he/she is in college as $40,000, $40,000, $20,000 and $20,000 and adjust the need based financial aid package accordingly, with more aid from the school being distributed in the last two years.  End result: the family is still expected to pay a total of $40,000 annually.

Under the new bill, the EFC no longer will be reduced with multiple kids in college at the same time.  Therefore, the above family’s EFC contribution would be $40,000 in year one and two for the oldest child and then $40,000 per child for the next two years.  That reduction is eliminated and so is the additional need-based aid that would come with it.  This will significantly increase the financial strain on families with two children attending college simultaneously.

The Expected Family Contribution index was designed to give insight to colleges on what a family could afford to pay each year. For families who have, or will have, multiple children attending college at the same time, this new rule is a major setback. Instead of being more accommodating to families facing the rising cost of college, this new rule essentially doubles a family’s expected contribution, which would decrease the amount of aid they’re eligible for.  We encourage all families who will be adversely impacted by this change to consider writing your Congressman or Congresswoman and requesting action to repeal this part of the bill.

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