What is FAFSA Simplification?
In 2019, Marie Kondo helped us declutter our personal spaces. You might remember her tidying method and perhaps participated in asking yourself the then popular phrase, “Does this spark joy?” The Department of Education also did a little tidying with the passage of the 2020 FAFSA Simplification Act, which represents a significant overhaul of the federal financial aid process and systems used to award aid. It also reduces the number of question on the FAFSA from 108 to fewer than 50. With the last major FAFSA changes dating back to 1994, I hope hearing the words FAFSA and simple in the same sentence sparks a little joy for families.
Here are the top ten FAFSA changes and what to expect:
- The Expected Family Contribution (EFC) is changing to Student Aid Index (SAI): The term EFC was misleading to families. Many thought this number indicated what they would be expected to pay. The switch to SAI better represents what this number actually is: an index to indicate how much need-based aid a student might qualify for. SAI could show a negative number for particularly needy students. This new way of capturing eligibility will aid schools in identifying students who need the most help.
- Number in college:The FAFSA will ask how many students are in college but will no longer consider this number in the formula for a family’s SAI. In the past, if a family had two students in college, the EFC formula would divide the number in half. Families should check with colleges’ financial aid offices to see if they will allow aid appeals for those with multiple students in college.
- Untaxed income: In the past, pre-tax contributions to a 401k or other retirement plan were reported on the FAFSA. For 2024-25, untaxed income of any kind will not be reported or added back as income.
- Farm/small business: Previously, if a farm was the family’s principal residence and they participated in the farming, the value of the farm was not reported on the FAFSA. A small business was not reported if it had fewer than 100 employees and the family owned more than 50% of the business. For 2024-25, the net worth of both farms and small businesses will be reported.
- 529/Qualified tuition Plans and payments made by others: No longer will parents have to report 529/college savings accounts owned for all children as parental assets—they will report only the accounts for the student filling out the FAFSA. Another change is that payments made by others on behalf of the student by are no longer reported on the FAFSA.
- Custodial parent: Previously, the custodial parent was defined as the parent with whom the student resided the most in the previous 12 months. Going forward, the custodial parent is defined as the parent who provides the most financial support for the child. If parents split financial support, then the higher income earner is the custodial parent. For families who are unsure which parent’s information to report, FAFSA will have a tool available to help.
- Child support: In the past, child support received was reported as untaxed income. Going forward, child support received is reported as an asset and has a smaller impact on the SAI.
- IRS Data Retrieval Tool changes to IRS Direct Data Exchange (DDX):The Direct Data Exchange (DDX) will replace the Data Retrieval Tool and will import federal tax information (FTI) directly from the IRS into the FAFSA for each contributor. Each person must provide consent to transfer data from the IRS to the FAFSA for the student to be considered for financial aid.
- FSA ID:
previously required to complete the FAFSA. Due to the new Direct Data Exchange and information sharing between FSA and the IRS, theFSA ID will be required for all individuals who enter information on the FAFSA form. The FSA ID must be created and, for the first time, individuals without a Social Security number can create an FSA ID to access the FAFSA and add their information to the form. - FAFSA timing: Previously, the FAFSA opened for processing on October 1. For the 2024-25 cycle, the FAFSA will open sometime in December (exact date to be announced.)
- Create FSA ID(s).
- Make certain you understand deadlines and all forms required for scholarships/financial aid for each university or college on your list.
- Check the official Federal Student Aid website for SAI calculator availability (fall 2023) to estimate your SAI.
- Watch our blog for updates and breaking news.
- Check with schools to see how having multiple students enrolled in college simultaneously will be treated at the institution for aid purposes.
