Usually at this time of year, I’m neck deep in preparing and submitting financial aid documents on behalf of my students (note: these documents must be re-filed each year your child is in college – like a tax return but based on an entirely different and complex set of rules, regulations and formulas).
Typically both financial aid applications — the FAFSA which is required by all colleges, and the CSS Profile, required by some colleges and mostly private ones — become available on Oct 1. This year, however, we’re still waiting for the federal government to release the ‘new’ FAFSA – the Free Application for Federal Student Aid. Note that although they are very different forms, and utilize a different set of financial rules and calculations to determine eligibility, you want to ensure that the data you enter is the same on each AND that your contribution is as low as legally possible according to the formulas.
But this year the FAFSA won’t open until December. When, exactly, in December we still don’t know because the Department of Education, which manages the application, hasn’t confirmed publicly when the FAFSA will launch. They only said “December”. Today they confirmed that it will launch “by December 31”. Again, December. Your guess is as good as mine, but I’m thinking the 2nd half of the month, perhaps even after Christmas. That’s because the government is completely overhauling the FAFSA, and with budget cuts at the Department of Ed., they’re working overtime to deliver before the ball drops on New Years Eve.
With this delay will come a condensed preparation and submission process – colleges will likely not be offering filing extensions. High School seniors (and the parents who love them) should still plan to submit these applications in advance of priority deadlines (see below)! Financial aid can be a first-in, first-awarded proposition. Note that the CSS Profile, which must also be accompanied by the aforementioned FAFSA, in particular, is the gateway to the largest institutional scholarship awards – five figures in many cases. I have 17 years of multiple offers from all types of colleges to demonstrate. If you’re a middle and upper middle class parent with a college-bound teenager at home, and you’d like to pay substantially less than the sticker price for college, you’ll want to carefully and accurately prepare these documents and submit them as early in the process as possible.
As a preparer I’ve had a chance to preview the new FAFSA, and though I’ve covered FAFSA Simplification before, I’d like to revisit those changes again now to help not only current 12th grade families who may be scrambling soon, but to offer some proactive advice for younger families as well. All families should know that the income year considered on these applications (and in the scholarship formulas) begins January of 10th grade and runs through December of 11th grade.
That said, here’s a little background in this year’s FAFSA delay. It’s connected to the FAFSA Simplification Act of 2020, a piece of legislation that was attached to a Covid relief bill and, at the time, received scant attention outside of higher education. But now, with Covid mostly a memory, it’s time for that FAFSA legislation to go into effect.
As the name on the legislation suggests, the FAFSA is being simplified (at least in theory), streamlined from 108 to about 36 questions. Truth is the form remains rather complicated; and it’s more than 36 questions, and now, depending on your marital status and/or tax filing status, it can get even more complicated. I won’t bore you with those details.
Once again, although the FAFSA will not be open until next month, the Financial Aid deadlines will not change. As mentioned, the FAFSA will open sometime in December. If the launch is early in the month, it should still give families ample time to meet financial aid deadlines. These can be as early as January 1, but more commonly February 1 or even March 1. If the FAFSA launches later in December, then families will feel more pressure with deadlines looming. While there is no need to panic, families should be prepared for the launch of FAFSA and begin working on their applications soon after. (There’s nothing like filing a FAFSA in your Christmas PJs with a glass of eggnog, with Bing Crosby or Mariah Carey singing in the background). Even if there is some flexibility on the part of colleges when it comes to submitting the FAFSA by financial aid deadlines, for many colleges, especially the private schools, financial aid season “opened” on October 1 with the CSS Profile. Unlike the FAFSA, the CSS Profile has not changed much since last year, and it remains a lengthy and intrusive financial aid form. You should check to see if the schools on your (or your child’s) list require the CSS Profile — and if so, you should already be preparing it. As well, you can begin to put together your FAFSA information so it’s ready to go. To do so, you’ll need to understand some of the key changes, so here they are:
Key Changes to the FAFSA formulas
1. The new formula emphasizes wealth over cash flow
There are some key changes to the FAFSA formula which will impact who is considered “needy” and therefore eligible for financial aid. The income protection allowance is increasing, which will reduce the impact that income has on the Student Aid Index (SAI). I should also mention that the SAI is replacing the EFC (expected family contribution) as the key acronym which defines how much a family can afford to pay for college, according to the new government formula. An increase in the income protection allowance combined with some key changes to asset protections, places a greater emphasis on wealth relative to income. For example, in the past small business owners and farmers did not have to disclose the net worth of their businesses or farms, respectively. That’s no longer the case for families with an Adjusted Gross Income over $60,000.
2. The new formula no longer takes into account the number of children in college at the same time
This change is a huge detriment to families with multiple children in school simultaneously. In the past, for such a family with multiple children in college, the expected family contribution was proportionally reduced. That’s no longer the case, as if suddenly these families have more to spend on higher education (NOT!). The CSS Profile formula (known as the Institutional Methodology) has not changed on this issue, which will create major confusion come spring time when financial aid is awarded. Some schools will hide behind the new federal formula and decline additional aid, while others may be more flexible. This is where a proper, well-prepared and well-executed admissions strategy can prove to be favorable in delivering a more generous aid package.
3. For divorced families, the parent who provides more financial support should complete the FAFSA, as opposed to the parent where the child lives over 50% of the time
In the past, the FAFSA was usually completed by the parent whose household the student lived in over 50% of the time. That has changed, so that now it’s the parent who provides “more financial support”. If such support is equal, then it’s the parent who earns more or has more wealth. But what if one parent has a higher income and the other has more net worth? The new formula isn’t clear, creating both confusion and an opening for interpretation. I expect more confusion, delay, and opportunity for financial aid appeal on this question.
4. The definition of “untaxed income” will change
Untaxed income used to be a killer when it came to the financial aid formula. This included contributions to retirement plans (i.e. 401K, etc.), child support, untaxed social security, and military/clergy housing benefits, all of which were added back to the adjusted gross income to determine “available income”. Going forward, 401K contributions are exempt but IRA contributions are not; military/clergy housing benefits are exempt, and child support is now treated as an asset, with a reduced impact on the formula. Overall, these changes to untaxed income should benefit most families.
If you’re the parent of a high school student, these changes and more may impact how much you will pay for college. The time to get educated on this is NOT when your child is a 12th grader. By then it’s almost too late.
You need to wake up to this in 10th grade, because that’s when you’re “on the clock”. The first base income year, or the tax year under examination by colleges for your child’s freshman year, is referred to as the “prior prior” year return, or two years before your child graduates high school. So if your child is in the Class of 2026 (hello, 10th grade parents!), then the first base income year is 2024, which is just six weeks away (I can hear Auld Lang Syne already). And remember, you apply for financial aid each year your child is in college, using the “prior prior” tax return. We have software that can run projections on your contributions for each school on your list. Often the earlier you start in the process, the greater your financial (scholarship/grant) opportunities.
If you have questions about paying for college, applying for financial aid, or the complex and competitive college admissions process, we’re only a phone call or email away. This isn’t an exercise where you can just wing it, nor should you. A four year college education can cost anywhere from $90,000 to $360,000 depending on the school. But most families don’t pay this, and the average discount rate is 56% according to the latest NACUBO data. We can help you increase your chances at such a discount.
As you’re building your holiday shopping lists, consider this an opportunity where you can save a bundle. I look forward to chatting!