26 Jan I’ve heard the FAFSA is changing. What’s different now?

Q. I’ve read that the FAFSA is changing but I haven’t had time to start it. What’s new or different and how can I use those changes to get the most possible aid?
— Mom

A. You’re right.

There have been some important changes.

The new FAFSA — short for Free Application for Federal Student Aid — form was released in December 2023 for the 2024-2025 academic school year.

The changes made to the application were part of the Consolidated Appropriations Act of 2021 with the goals of allowing more aid to be granted to a broader number of applicants, said Claudia Mott, a certified financial planner with Epona Financial Solutions in Basking Ridge.

An estimated 610,000 more students will be eligible for federal Pell Grants with nearly 1.5 million additional students receiving the maximum amount, she said.

For those living in New Jersey, it’s important to know that for the 2024-25 academic year, data will not be directly transferred from the FAFSA form to the state aid system, Mott said. Instead, a link will be provided to enable applicants to complete the state forms.

The direct link is expected to be in place for the 2025-2026 academic year, she said.

For the current FAFSA form, the number of questions was reduced to 36 from 10, Mott said.

Then, the Expected Family Contribution (EFC) has been reformulated and is now known as the Student Aid Index (SAI).

“The formula no longer takes into consideration the number of family members enrolled in college and eliminates the allowance for state and federal taxes,” she said. “Additional changes include adjustments to the Income Protection Allowance (IPA) that shelters a certain amount of parental income (20% increase for parents and 35% more for students) and a negative SAI is allowed.”

So need-based aid will now be defined as:
Cost of Attending (COA) – Student Aid Index (SAI) – Other Financial Assistance = Financial Need

She said the parent who must complete the form may change for those who are divorced.

“The new form uses information for the parent that provided the most support rather than who the student lives with for most of the year,” she said.

Also, untaxed income received from family members may no longer need to be included, Mott said.

“This enables grandparents and other relatives to fund and use 529 accounts to help pay college expenses without impacting the FAFSA form,” she said.

An account at studentaid.gov will be required for each contributor to a student’s form, she said. A contributor is a new term and refers to the student, the student’s parents whether biological or adoptive and possibly step-parents, she said.

Also, data can now be directly transferred from the IRS into the FAFSA form once consent is given and approved.

“Whether the changes will result in more financial aid will depend entirely on a family’s financial circumstances,” Mott said. “However, it’s important to be as timely as possible with the filing of the forms as some schools may have a first-come, first-served approach to providing aid.”

Mott said you should make sure all of the appropriate online accounts are in place before starting the application and be aware of exactly which forms the schools require.

Mott offered a few more tips.

If a family has one 529 account that is meant to cover multiple children, the account should be divided and each child named as a beneficiary, she said.

“The new FAFSA only asks for 529 accounts held in the applicant’s name rather than what the parent’s hold in total,” she said. “This will reduce the parent’s reported asset value.”

With income as a main input into the financial aid decision, taking full advantage of pre-tax retirement savings and avoiding realized capital gains can help lower taxable income, she said.

“Student-owned assets are assessed at 20% while parent-owned assets are valued up to 5.64%,” she said. “Therefore putting large amounts in UTMA/UGMA savings or investment accounts will impact the financial aid calculation more than if the parent set aside a separate savings account for the child.”

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This story was originally published in January 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.