The 2024-2025 school year FAFSA (Free Application for Federal Student Aid) forms being released in December of this year will contain numerous substantive changes. Understanding these changes and how they will impact current and future students’ financial aid is important for college planning and funding.
Key highlights to know about the new FASFA:
- Fewer questions than previous iterations
- A new eligibility formula and calculation, the Student Aid Index (SAI) will replace the Expected Family Contribution (EFC).
- Cost of Attendance (COA) reported by schools has been redefined, expanded and standardized to reflect true cost.
- The FAFSA Submission Summary replaces the Student Aid Report.
- IRS tax returns automatically transfer from the IRS directly to the FAFSA.
Most impactful changes:
- 529 college savings plan assets held in parents’, grandparents’ or other family members’ accounts will no longer be reported on the FAFSA and therefore, 529 assets will have no impact on financial aid calculations.
- Several sources of untaxed income will no longer be reported as income, such as veterans’ benefits, workers’ compensation and cash child support by a divorced parent as well as contributions to 401(k)s and 403(b)s. (Note: SIMPLE and SEP contributions will continue to be assessed as income.)
- The number of children in college will no longer be reported; therefore, the parental contribution of the SAI (formerly EFC) will not be divided by the number of children enrolled in college.
- For students with divorced and separated parents, the parent responsible for providing information on the FAFSA will be the parent providing more financial support to the student, instead of the parent with whom the student resides most of the time.
- “Asset exclusions” are eliminated for small business owners and for families that reside on a family farm; going forward, they must report their assets on the FAFSA.
- Cost of Attendance (COA) has been redefined and expanded to include an accurate COA. It will now include tuition and fees, housing and meals (previously called room and board), books and other course materials, transportation, personal expenses, loan fees and costs associated with obtaining professional licensure, certification or credentials.
All students, even those from high-net-worth families, can benefit from filing a FAFSA. Many types of student aid programs available from federal and state governments and from colleges, including loans, grants and merit awards require the filing of the FAFSA. For example, all students regardless of income are eligible for a Direct Student Loan. Most colleges require a student to submit a FAFSA before they award institutional aid including grants, loans, and merit awards.
With the launch delayed this year from October to December, and since institutional aid is on a first-come, first-serve basis, a student can increase their chances of maximizing financial aid awards by filing as early as possible. Filing early will also give students more time to negotiate and appeal a college’s financial aid decision and so be able to compare college aid packages before the college’s decision deadline.
Keep in mind that financial information required on the FAFSA is based on the “prior-prior” tax year. For example, the 2024–2025 FAFSA—and thus financial aid awards—will be based on income information from the 2022 tax return. Although 2022 tax returns have already been filed, understanding these changes will be important for families with current or future college students. Contact our office to discuss what proactive financial and tax planning steps you can take now to maximize your students’ financial aid eligibility in the future.