FAFSA Simplification

FAFSA SimplificationFor years, financial aid professionals, parents, and students have been complaining about how complex the FAFSA process is.  FAFSA is the abbreviation for Free Application for Federal Student Aid.  It is the cornerstone process for need-based financial aid.  This year, the first steps to FAFSA Simplification were taken by including it as part of the Consolidation Appropriation Act of 2021. These changes will not go into effect until the school year 2023-24.

The list of items in the FAFSA Simplification is substantial.  Many of the simplification changes started with the Futures Act of 2019.  In this act, the ability to share data between the IRS and the Department of Education was improved.  Much of the FAFSA financial analysis requires income, family size, and tax information as part of its calculation, so this data share laid the foundation for the simplification.

FAFSA Simplification List of Changes

FAFSA Simplication Effective Date

With the passing of the Consolidation Appropriation Act, the official FAFSA Simplication implementation date is for school year 2023-24.  That may seem like a long time away but in reality, for high school families, it actually started on 1/1/2021.  The first high school class to face the full changes are the graduating class of 2023 or current sophomores.  For these students, 2021 will be their FAFSA base year.

Within the financial aid process, the FAFSA uses a tax timing method called Prior Prior.  This rule was implemented in 2015 and developed to help families have their completed tax information in hand to complete the FAFSA financial information.

Knowing this timing, the financial aid that will be distributed starting in July 2023 will be associated with the FAFSA submission process that will begin in October of 2022.  The FAFSA 2022 submission will be using tax year information from the tax year 2021.

Here is a table that may help better explain the timing of these events.

FAFSA Simplification Effective Date Chart

 FAFSA 21-22FAFSA 22 – 23FAFSA 23 -24
 
Financial Aid Start Date7/1/20227/1/20237/1/2024
FAFSA Available10/1/202010/1/202110/1/2022
Tax Year Used201920202021
HS Graduating Class202120222023

EFC becomes SAI (Student Aid Index)

Under the FAFSA Simplification, the EFC or Expected Family Contribution will now become the SAI or Student Aid Index.  The EFC term had been a debated term among financial aid professionals for years.  For many families, the EFC number is unrealistic as an indicator of what a family should be able to pay.  The term was misleading.

A student’s EFC or Expected Family Contribution is the resulting number of completing the FAFSA.  The number is used by colleges to identify the financial need of each student.  The basic formula is:

Cost of Attendance (COA)
Minus EFC (Future Name SAI)
Equals Financial Need

The name change to the Student Aid Index (SAI) is a better reflection of what the number is used for rather than an estimate of what a family could pay.

FAFSA and IRS Data Sharing

Most of the FAFSA confusion and complexity is due to a family’s income, taxes paid, and asset questions.  In recent years, the availability to simplify some of these income and tax questions have occurred.  The process is called DRT or Data Retrieval Tool.  It was initially not perfect but has improved each year.

Through the Future Act, various Department of Education statements, and now the FAFSA Simplification direction, we believe that DRT will become the default rather than an option in FAFSA.  This is a significant change in submitting the FAFSA.

Under the current FAFSA submission process, the DRT is an option of filling in the income and tax information for both parents and students.  For the college financial aid offices, it sets a DRT flag on each FAFSA who uses it.  This reduces the colleges’ need for additional income verification.  The colleges are required to have a formal financial verification process since they are indirectly disbursing federal funds.  The Department of Education regularly audits the college’s procedures.

With FAFSA Simplification, the IRS data will be linked through the FSA ID information.  The FSA ID is required for every person to submit and sign a FAFSA.  It is expected that once a person signs into the FAFSA their IRS information will be populated automatically into the FAFSA.

The one concern is the current DRT submission method is a blind FAFSA submission.  This was done to protect people’s personal identifying information such as the Adjusted Gross Income.  With it being a blind submission, people will need tools to help them better plan for college funding, financial aid, and student loan decisions.  Tools like PayForED’s College Cost Analyzer can help families get the transparency they will need if the FAFSA will only provide the new SAI number.

Need Formula Changes

We are still in the early stages of this part of the FAFSA Simplification.  There are a few majors changes that we can identify but the actual details were not clear.  With the formula changes, the colleges will also need to adjust their financial aid packaging since some of the numbers will be generated for them such as the Pell Grant for lower-income students.

Here is a list of the FAFSA need formula changes:

  • Pell Grants will be calculated outside the need formula (More Details Below)
  • The new SAI could have a value of $-1,500. The current EFC lowest value is 0.
  • Simple Means Test Income will move up to $60,000 from the current level of $49,000. This will eliminate the need to report any asset values.  This income level will be applied based on the student’s status as either an independent student and a dependent student.
  • Elimination of Subsidized Usage Limit Applies (SULA) rules. This rule is a return to the unlimited use of subsidized loans for need-based students.  In 2013, a limit was set on the number of terms a student could receive federally subsidized loans.
  • Expansion of the Financial Aid Profession Judgement rules. This will give the financial aid offices some additional flexibility in helping certain students that have unique family situations.  It is unclear what documentation will be required as part of this new flexibility.
  • New requirements on how the Cost of Attendance (COA) is defined. As stated above, COA is the starting point of the need-based formula.  Schools will need to make more information available which includes other items such as specific loan fees and other costs for non-residential students.

Pell Grant Changes

As you can see many of the changes are to address accessibility for lower-income students.  The Pell Grant program is specifically designed to help those types of students.  The Pell Grant formula changes will allow more students and families to qualify for this type of need-based financial aid.

Maybe the most important change is the new transparency to what a student will receive based on their family’s income.  The Pell amount will be available to the student since it is calculated outside the need-based formula.  The new Pell award will use the annual maximum award less their SAI to project their award.

For most students, this will be the maximum award since most Pell recipients have a zero EFC under the current rules.  Here is the proposed list of students who would qualify for the maximum Pell Grant under the new rules.

  • Independent student tax nonfilers
  • Dependent children of non-filing parent(s)
  • Independent students who are single parents and whose student AGI is below 225% of the annual poverty level
  • Dependent children of a single parent whose parent AGI is below 225% of the annual poverty level
  • Independent students who are not single parents whose student AGI is below 175% of the annual poverty level
  • Dependent students with parents who are not single parents whose parent AGI is below 175% of the annual poverty level
  • Students under age 33 whose parent died serving in the armed forces after Sept. 11, 2001
  • Students under age 33 whose parent died in the line of duty as a public safety officer

 

Another change is Pell Grant access for incarcerated students.  This was eliminated under the Violent Crime Control and Law Enforcement Act of 1994.  This would restore Pell Grant access under specific rules and programs for certain students.

Student of Divorced/ Separated Parents

As the FAFSA Simplification depends on existing information within the IRS system, students of divorced and separated parents will need to do some additional planning.  We have always recommended that families in this situation, plan ahead and include their dependent on the correct tax return based on who would be submitting the FAFSA.

With the elimination of the dependent deduction, this decision made it easier for many divorced and separated parents.  Under the new rules, the FAFSA parent will be based on who provides the most financial support and not who the child lives with.

It is unclear how this will be determined and audited by the Department of Education.  The first step in preventing an issue is listing the dependents correctly on the tax return.  Remember the FAFSA Prior Prior rule which would be starting with the tax year of the high school sophomore (second semester) and the high school junior (first semester).  The tax years and school year do not match.

Elimination of Selective Service and Drug Conviction

Under the current FAFSA application, there are two questions that many parents were reluctant to answer which may have caused them not to submit a FAFSA.  The first was that male students were required to register for selective service to qualify for federal financial aid.  Many students and parents would hesitate when this question was asked.  Many college financial aid officers also complained since they were the ones that often needed to answer the questions.

The other question was the drug conviction question.  This was an issue not just for financial aid but could impact a student’s admission opportunity.

As part of the FAFSA simplification, both of these questions will be eliminated.

FAFSA Simplification Summary

We are in the early stages of sorting through all of these changes and details.  We are expecting more clarity and additional modification over time.  These changes are a step in the right direction to simplifying a complex problem for many families.

The PayForED staff is committed to keeping you up to date on information as it evolves.  Most of these simplifications are due to a spending and funding bill.  We could still see additional changes that are related to the Higher Education Act.  That act has been up for revision since 2008.

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