College Pete

Huge Changes in Financial Aid Rules- What Every Family Needs To Know!

Huge Changes in Financial Aid Rules- What Every Family Needs To Know!

In 17 years of helping students and parents navigate the college admissions and financial aid landscape, I have personally prepared and submitted around 4,000 financial aid applications. During that time, there have been a few, relatively minor tweaks to the main financial aid application – the Free Application for Federal Student Aid. Well that’s about to change.

What we are about to see with the next admissions cycle (2023-24) and, in particular, the changes to the Title IV financial aid rules, represent the most significant change to higher ed access in years. Parents of current 11th graders and younger students should pay close attention.

A few years ago (December 2020) Congress passed the FAFSA Simplification Act, a piece of legislation that was long in the works and was attached to a Covid relief bill. The new rules incorporated in that law are scheduled to take effect in the Fall 2023, impacting the academic year 2024-25. Like most legislation, if you know the loopholes and the landmines inherent in the rules, you can greatly benefit. If you don’t, there is a much greater risk you’ll needlessly suffer. Below are some highlights – including our researched analysis of its likely impacts.

1. The FAFSA will be simplified (hence the name of the law), with questions reduced from 108 to 36. This is very good, and it should make it easier for families at all income levels to apply for aid and not be deterred by a complicated application. On the other hand, with fewer data points to feed the algorithm, it becomes even more critical that your application is completed/submitted sans any mistakes – particularly in the interpretation of what information is being requested (i.e., never ever identify a 529 or Prepaid plan as your child’s asset AND you don’t value your business in the same manner as you would on an IRS document or on a loan application).

2. Pell Grants should be available to more families. This is also good, making college more affordable to low-income families. Separate from the legislation, the maximum Pell Grant is likely to increase, benefitting the most needy families. That said, it’s important to remember that while Pell Grants offer the largest aggregate of grant dollars available, they are distributed in relatively small increments (currently the max Pell Grant is around $7,395) and are only available to lower income families (generally, AGI less than $60,000). Many of our readers and the families we work with will be unaffected by this change as they enjoy the largest discounts — as in sizable five figure scholarships –  in the form of Institutional (not Federal) grants. At the ‘right’ schools, these are available to families with considerably higher incomes – even to those whose AGIs are greater than $200k.

3. The definition of “untaxed income” is changing, with the most common types no longer reported on FAFSA. Untaxed income is a traditional killer when it comes to financial aid, as these amounts are added back to a family’s income when calculating what the family can pay. Examples include 401K contributions and child support. While some untaxed income will still be reported, the definition is changing which will benefit many families, particularly those where child support is a primary source of income.

4. Colleges must be more transparent when disclosing their costs. Many families are confused by the published information about how much a school actually charges. Some colleges have been traditionally (and intentionally?) opaque when it comes to sharing their cost of attendance. Starting next fall, colleges must adhere to federal guidelines when disclosing how much they charge. It remains to be seen how well this new regulation will simplify the cost structure but I will stay optimistic for now.

5. For divorced or split households, the definition of a “custodial parent” is changing. This new rule may impact which parent is required to disclose financial information on the FAFSA, which in turn could negatively impact how much financial aid a student will receive.  Prior to this change the FAFSA only required the financial data of the household where the child resided 51% of their time. The new law defines the custodial parent as the one who provides the most financial support. This definition may be subject to interpretation.

6. The new FAFSA formula no longer considers the number of students in the family who are enrolled in college. This is perhaps the most significant, most problematic and possibly the most devastating change, especially for middle and higher income families with multiple children attending college at the same time. Under the current rules, when families report income and assets to determine what they can pay, the federal formula divides that amount by the number of students who will be enrolled. For example, let’s say your family’s AGI is $150k and the FAFSA determines that you have an Expected Family Contribution of $40k. If you have two students enrolled in college then each contribution would be $20k, which makes sense. But that rule is going away, and you would be expected to pay $40k for each child. So, on the face, this change seems devastating… BUT… and it’s a big BUT… the CSS Profile (the Institutional financial aid application) is NOT changing this rule — and according to my sources, colleges who use the CSS Profile to determine institutional aid have no intention to follow the FAFSAs lead on this matter. Equally important, it is the CSS Profile (a very complex and intrusive financial aid form with about 250+ questions) and the colleges/universities that require it, that offer the highest amount of scholarship and grants! CSS Profile schools are also the most generous schools. So, net net when you apply to the right (as in generous) colleges, your opportunity to reduce the cost of your child’s education increases significantly.

And, the average ‘discount rate’ has reached an all time high of 56%, so don’t let these changes deter you. So, while sticker prices are rising and financial aid rules are making it more challenging for some families, the schools themselves (especially private ones) are still finding ways to offer significant discounts which allow middle class families more opportunities to afford what appear to be very expensive universities.

In fact, over the past 17 years, our students have received approximately $33,500 per student per year in institutional, federal and state grants. So, while there is most certainly going to be disruption in the financial aid system this coming year, it need not be a negative experience for your family. Financial aid is somewhat of a high stakes game in that when you know the rules – of both Title IV finance regulations AND college admissions, you know how to work those rules to your family’s advantage. When you don’t, you do risk missing out on opportunities and needlessly leaving thousands of scholarship dollars on the table.

For parents with current 11th grade students, we will be discussing these changes and exactly what you/your child can do to take full advantage of them during our summer application bootcamp. Specifically, we will be incorporating the changes and how it should impact your child’s college list during our Parent Orientation which will take place on June 15. As this program is guaranteed to all of our Platinum and Gold families we have limited seats still available. You can click here to see our syllabus and to ensure your child can participate.

As always, please call my office (954-659-1234) or send me an email if you have any questions about the new Financial Aid regulations or any other college planning question or concern.

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