New FAFSA Form Now Available

The window of opportunity for filling out the Free Application for Federal Student Aid (FAFSA) is open. In the recent past, the FAFSA was available on October 1 for the upcoming school year. But the start date for applications was pushed back to December 31 for the 2024—2025 school year to give the U.S. Department of Education extra time to update the form as required under the Consolidated Appropriations Act of 2020.

Important: The FAFSA isn't just for high school seniors who plan to attend college next year. It must be completed by June 30 each year the student attends college. For the 2024—2025 school year, the form must be completed by June 30, 2024.

Filing Requirements

Historically, answers to FAFSA questions were used to determine the "expected family contribution" (EFC). Some factors used in this computation were:

• The size of the household,
• Family income, and
• The values of most family assets (excluding retirement funds).

To fill out the form, you'll need detailed income and expense data from the prior year (referred to as the "base year") for the student and his or her parents. Examples of income items are:

• Wages, salaries, commissions and tips,
• Self-employment income,
• Taxable interest,
• Dividends and capital gains,
• IRA and 401(k) distributions,
• Pensions and annuities,
• Rental income, and
• Income from alimony payments.

Certain information can now be imported directly from the IRS, making the process easier for students and parents to navigate. This information is used to compute the EFC. Typically, the lower the EFC is, the more financial aid a family will be entitled to receive.

Important: The base year—not the year the child will be entering school—is what counts. So, you should try to lower your income in the base year, if possible. Be aware that the parents' income counts more heavily on the FAFSA than a child's income does.

Latest Changes

For the 2024—2025 school year, the FAFSA has been simplified, and the number of questions has been reduced from a total of 108 to 36. Besides saving time, families may benefit from other enhancements for current and future years—but there are also potential pitfalls.

Here's a brief overview of four key changes to the FAFSA:

1. Opening date. The postponement of the start date from October 1 to December 31 means that parents will have less time to complete the form this year. If you haven't completed the FAFSA for the 2024—2025 school year, do it as soon as possible.

Fortunately, the condensed application period is only temporary. The U.S. Department of Education announced it intends to move the start date for the 2025—2026 school year back to October 1, 2024.

2. New methodology. The most noteworthy change is that the FAFSA relies on a new formula to compute the amount of available financial aid. The EFC metric has been replaced by the Student Aid Index (SAI). Although the SAI is comparable to the EFC in many respects, there are some significant differences.

Notably, you may no longer have to include certain income on the FAFSA application, such as money received from grandparents and other relatives. Other sources of untaxed income—for example, housing and living allowances paid to service members—also don't count.

For students considered dependent on their parents' tax returns, a Section 529 account for higher education will be treated as a parental asset only if the account is designated for the student. Previously, if a parent had education savings accounts for their other children, the value of those funds also had to be counted. Applicants who have a single Sec. 529 plan for multiple children might want to divide the funds into separate accounts designated for each child.

When reporting asset contribution components, the net worth of a business is no longer limited to those with more than 100 full-time employees. Applicants must report the net worth of all businesses, regardless of their size. Farms also count in this calculation.

Furthermore, a student must now report the income of the parent who provides the most support, not the income of the parent he or she resides with for most of the year. This could have a significant impact on children of divorced parents.

Finally, there's no longer a benefit from having multiple children in school at the same time. This change could possibly reduce financial aid awards for families with children close in age.

Important: The revised computation will provide an unexpected break for certain families. Under the revised rules, 401(k) contributions will no longer count toward a family's income. Therefore, the more you contribute to your retirement savings this year, the lower your SAI will be—and the more financial aid you may qualify for—for the 2026—2027 school year.

3. Security issues. Beginning with the 2024—2025 school year, anyone required to fill out part of a student's FAFSA—including a spouse, parent or stepparent—must create a Federal Student Aid (FSA) ID and password. This provides a digital signature on your application for security reasons.

You can easily set up the FSA ID on the FAFSA website. To do so, you must provide your name, date of birth and Social Security number (SSN).

While you can now import data directly from your federal tax returns to the FAFSA, the transfer requires consent from each application contributor. So, if a spouse or parent needs to fill out part of the FAFSA, that individual must agree to provide their tax information. If the contributor doesn't agree to have the IRS information transferred, students can still apply for aid, but they may not qualify without consent.

4. Broader reach. The revised FAFSA allows students to include more schools than before. Previously, you could list up to 10 schools on the form. Beginning with the 2024-2025 school year, you may include up to 20 schools. (However, if you fill out the PDF version of the FAFSA, you're still limited to 10 schools.)

Greater Access to Pell Grants for Lower-Income Families

The maximum Federal Pell Grant award for the 2023—2024 award year (July 1, 2023 to June 30, 2024) is $7,395 per student. This amount is indexed annually. Notably, Pell Grants don't have to be repaid. The U.S. Department of Education awards them to students with pressing financial needs based on information provided on the Free Application for Federal Student Aid (FAFSA) form.

The eligibility rules for Pell Grants were recently revised to reflect family size and adjusted gross income (AGI) in comparison with federal poverty figures. Currently, independent and dependent students below the poverty threshold may automatically qualify for the maximum Pell Grant.

Students in single-parent households may be eligible for the maximum Pell Grant if their adjusted gross income (AGI) is less than or equal to 225% of the poverty guideline for their family size. Those from a two-parent home (and independent students without dependents) may qualify for the maximum amount if their AGI is less than 175% of the poverty line.

In addition, recent changes have opened up more avenues to those in financial need, including students who:

• Are incarcerated and participating in prison education programs,
• Have had a drug-related conviction in the past, and
• Didn't complete a program of studies because of a school closing (for example, due to COVID-19 or financial reasons).

The new rules for Pell Grants have resulted in increased financial aid for more students. It's been estimated that almost a quarter million additional students have already benefited from the changes. However, the grants are still not available to many families.

Ready, Set, Go

Full processing of FAFSAs for the 2024—2025 school year won't begin until late January. Despite the recent simplifications, filling out the FAFSA remains daunting. So, start as soon as possible.

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