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FAFSA Is Getting a Makeover, Here's What You Need to Know

September 19, 2023
By Paulina Cachero and Francesca Maglione

FAFSA Is Getting a Makeover, Here's What You Need to Know

The Free Application for Federal Student Aid is getting one of the biggest overhauls in decades — and the changes have the potential to dramatically alter the price some families pay for college.

The form — used by both students and their parents to apply for federal grants, loans and work-study arrangements — will be significantly shorter after the passage of the FAFSA Simplification Act, which was aimed at increasing access to aid for low-income families.

Still, changes in how financial need is calculated may alter a student's eligibility for aid.

“Just because there are fewer questions doesn’t make applying for FAFSA simpler— it’s just different,” said Jodi Okun, the founder of College Financial Aid Advisors. “Now, each question is that much more important in determining your aid.”

The online application typically goes live in October, but this year the new FAFSA form won’t be available until December. That means families still have time to prepare for the coming changes. Here’s everything you need to know, according to college finance experts.

Unique IDs, IRS Access

One of the biggest logistical changes families will face while filling out the new FAFSA is the application will now be “role-based,” said Paul Martin, the founder of financial education service College Money Method. That means that instead of creating one account that both the student and parent can access, each contributor must have their own Financial Student Aid ID (FSA ID).

In addition, all contributors must now give consent to the IRS to share tax information with the Department of Education. If any contributor declines to provide consent, the application will be considered invalid. This, in turn, will make the application much shorter, said Brendan Williams, VP of Knowledge at uAspire, a nonprofit that helps students with financial issues.

Goodbye Sibling Discount

One of the most highly-anticipated changes to FAFSA is the elimination of what’s best known as the “sibling discount.” Under the old FAFSA formula, a family with two or more members attending college at the same time — whether it’s two siblings or a parent and a child — would have their Expected Family Contribution, or the measure of the family’s ability to pay, divided by the number of family members pursuing a degree, Martin said. But not anymore.

“If a family's ability to pay was $30,000, but they happen to have two in college, then the ability to pay for each individual student would be $15,000. At three in college, it would be $10,000. That discount is going away,” Martin said.

Now, middle- and high-income families with siblings enrolled in college at the same time could see their eligibility for federal aid reduced dramatically. That’s why Mark Kantrowitz, an author and national expert on college financial aid, advises applicants with multiple college students in the family to write appeal letters to financial aid offices and consider applying to schools that use the CSS profile, an additional online application used by colleges to award non-federal institutional aid.

Divorced Parents Loophole

Another change is an end to a loophole separated parents used.

Previously, only one parent had to fill out a FAFSA form if they were no longer living with the student’s other parent. Often that meant the custodial parent, or whichever parent the student lived with more, filed the form — allowing some to declare only the income of a lower-earning parent.

But under the new FAFSA rules, the parent who provides the most financial support to a child should be reported on the 2024-25 application, Kantrowitz said. In the rare case that a dependent’s parents are separated but still living together, then both parents’ information must be on the form.

Assets Matter

Under the new FAFSA, the consideration of parent assets will change in several ways.

Previously, parents who owned a small business or farm with fewer than 100 employees did not have to report it. Now, any small business or farm must be reported under parent assets.

“This change can really swing families that would've been highly eligible to less eligibility or ineligibility because of the value of their underlying farm asset or business,” Martin said.

Then, when it comes to 529 plans, parents are now only required to report accounts that benefit the applicant, meaning 529s intended for siblings or other family members are no longer necessary to include on the form.

Pell Grant Eligibility Expands

Under the revamped FAFSA application, more students will qualify for federal Pell grants, or funds awarded to low-income students that don’t need to be repaid.

Some students applying for the 2024-25 year will automatically qualify for the maximum Pell grant — $7,395 in 2023 — based on new rules for parent adjusted gross income, family size and state of residence.

Plus, applicants with combined parent income of less than $60,00 will not have to report assets, making more people eligible.

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