It is college decision time for many students and parents. The award letters are arriving and families are comparing award letters. This year is a little different due to the upcoming financial aid changes related to FAFSA Simplification. As a result of this change, families need to take some additional steps when analyzing their Financial Award letters, especially when trying to project the total cost and debt to graduation.
The major concern for families this year is that the financial aid package rules will be changing significantly. It will impact the amount families will pay for college beyond the freshman year to graduation. This article will explain the extra steps families should take this year to avoid financial surprises next year.
Financial Aid Changes
This year’s graduating high school class and any current college student that will be graduating after 2024 may be facing changes in their financial aid. The change will begin in school year 2024-2025. This year’s financial aid awards are using the old rules which are substantially different for most middle and upper-income families. If your current award includes need-based scholarships or grants some of these will be reduced starting with the school year 2024-25.
EFC/SAI Calculations (Expected Family Calculation/Student Aid Index)
The first change is found in the EFC/SAI Calculation. This is the resulting number received when a family or student completes the Free Application for Federal Student Aid or FAFSA. Starting next year there will be two major changes to this calculation. Families will lose the multi-child college discounts and the inclusion of the family-owned business and farm value will now be part of the calculation. For most families, their financial position may change resulting in cost increases in the outer years due to higher EFC/SAI.
Loss of the Multi-Child Discount
Under the current FAFSA calculation rules the number of children in college at the same time would be a factor to help lower the total costs of college or Cost of Attendance (COA). It would reduce the parent’s side of the calculation. This is still in effect for the school year award 2023-24. Starting in the school year 2024-25 the multi-child discount will be eliminated.
Using the chart below, say a family had twins entering college in September 2023. Since their EFC/SAI for the upcoming year would be $20,000, it would allow each child to qualify for $30,000 of need-based financial aid at the $50,000 school.
Starting in the student’s sophomore year, the EFC/SAI will go to $40,000 for each child. As a result, each child will only qualify for $10,000 of financial aid. Based on the chart below this will increase the cost significantly for both students and the family in general in the future years. This is why it is so important for families to understand the details of the need-based financial aid parts of this year’s award letter.
Impact of Multi-child Discount Loss Chart
Inclusion of Family Business and Farm Value
Since July 2006, parents who own a family-owned business or farm with less than 100 employees were not required to report this asset on the FAFSA. Starting with the FAFSA 2024-25, this asset will be added back as a parent asset. This is another major change in the FAFSA which will increase future EFC/SAI numbers. As a result, reducing the amount a family can qualify for need-based financial aid with this type of asset.
The problem with this type of asset is the lack of liquidity and why it was eliminated back in 2006.
College Financial Decisions Differences Summary
The college financial decision is important and confusing for most families. It is also a very emotional decision. This decision is one of the few financial commitments that we make on our own without a third party approving the loans. The college process is based on access and affordability which is part of the problem. Which financial decision do we make without knowing the total cost or what our repayment amount will be at the end?
The colleges are expecting families to make this commitment with only a one-year estimation of the cost. This year is even harder due to the future changes to the FAFSA calculation process. Families need to project the four-year cost and debt at graduation. At PayForED, we call it the “WHAT” and “HOW” Approach.
If you are looking for a tool to help you compare the financial awards, the PayForED College Cost Analyzer can help you compare this four-year cost and debt. If you have already made your college decision, our In-College Payer will help you project the debt at graduation and what repayment will look like after graduation.
Here is a link to our College Financial Award Letter Webinar that may help you in your analysis and decision process.
