The “Simplified” FAFSA

The more things change, the more they remain the same. The more we simplify them, the more complex they become. According to our SOCA member Jim Houser, who used to work at the US Department of Education, the Expected Family Contribution (EFC) was called “Need Index” prior to 1972. The name changes but the concept is the same: FAFSA remains “the Pell qualifier.” The simplifications were passed as a parting gift to retiring Senator Alexander in December 2019. He dedicated much of his tenure to making FAFSA easier. The changes in “simplification” were many and the Department of Education (DOE) is rolling them out in phases. 

By now, IECs know that the EFC will be called SAI or Student Aid Index. It seems that the EFC concept misleads families into thinking it’s the net price they would pay. In fact, families pay much more than their EFC because most colleges can’t or don’t fund 100 percent of demonstrated need. However, the EFC helps families understand a more precise amount that is their responsibility to contribute. 

In my opinion, “Index” is a nebulous term that will make it harder to figure out gaps in funding when reading an award letter. For example, if the family’s ability to pay is between $40,000 and $50,000 (assume the college Cost of Attendance, or COA, is $70,000), what is the difference left to pay? If the EFC is $40,000, the amount left to pay is $30,000. If it’s $50,000, the difference is $20,000. An index is too vague, unless the Student Aid Report (SAR) lists a more precise amount. The DOE’s job is to assess students for Pell eligibility, so an Index works just as well. Their work is done. But for the rest of us who work with non-Pell-eligible families who still need financial aid to pay for college, it would be nice to know whether the demonstrated need is $20,000 or $30,000, because then families could gauge the level of financial support a college provides.

Hopefully, the DOE will clarify the “Index” so families better understand their award offers. As IECs, we can explain to our clients that the “Index” is an amount families must pay from their own resources and there’s no point asking a college to fund this portion with grants. However, with an Index it’s harder to tease out whether the demonstrated need is filled by grants or loans. Some colleges may say “we’re need-blind,” which is meaningless if they meet need only through federal or private loans.

To provide families with more understanding about college financial aid, the “federal shopping sheet,” now renamed “College Financing Plan” annotates the fields that colleges should complete to help families understand their aid offers. (There’s also a sheet for graduate students.) Unfortunately, I’ve seen only a couple of colleges use this form. The top box requires colleges to list the FAFSA EFC and Institutional EFC, and loans are listed at the bottom as a last resort. So, if colleges won’t list the aid on this form, then IECs and clients themselves can enter the amounts onto this form, which clearly separates federal aid for the student versus PLUS, alternative and payment plans for the parents. There are other forms to assess award letters but this one provides a solid starting point. 

Those who attended the IECA 2022 Spring Conference and went to Jeff Levy’s presentation on “The Simplified FAFSA” will know the following changes:

1. They affect current high school sophomores, the high school graduating class of 2024-25.
2. The financial aid “base year” is 2022.
3. More states are requiring seniors to file the FAFSA before they graduate.
4. Changes now better align with the DRT (Data Retrieval Tool) to help student file independently of parents.
5. Pell Grant will be available to incarcerated people.
6. Easier for undergraduates to get “dependency override” in the case of parental abandonment/estrangement.
7. “Other untaxed income” such as child support received will not be added to AGI (Adjusted Gross Income).
8. No EFC reduction for multiple siblings in college at same time. (See below)
9. Money received or paid on behalf of the student, including grandparents’ 529 Plans, will be assessed as parents’ lower assets rate of 5.64 percent.
10. The pass-through of inheritance will be assessed at this lower rate rather than the parent’s higher income rate, which advantages “trust fund babies” and students with inherited wealth.
11. Colleges will be required to consider Professional Judgment even if it’s not their policy (at least when awarding Title IV Federal funds).
12. Colleges have more wiggle room to award federal aid in case of emergency, natural disaster, recession, or business losses.

Let’s remember that financial aid based on the CSS Profile or an Institutional Methodology may not follow these new federal guidelines. To find out how a private college awards aid, a family needs to ask: “How am I being assessed for institutional aid?”

Changes Already in Effect

1. No requirement for males to register for selective service. (This question still appears on FAFSA just in case student wants to register that way.)
2. IECs can’t charge families for filing FAFSA. (To my knowledge, we as IECA consultants never charged nor did we take on this responsibility. It would require our signature on FAFSA. We’re not “form-fillers.” If clients get stuck on a question, they can call the toll-free DOE line open 24-7: 800-433-3243. 

The major controversy arising from these “FAFSA simplifications” focus on whether it’s fair to give a substantial break to parents with multiple children in college at the same time. The majority is in favor of keeping the reduction of EFC. In my opinion, it’s a loophole that favored parents with kids born closer together. To demonstrate the significance of this change, let’s look at the “Smiths,” who have three children spaced out every four years. Then, let’s compare the “Jones” family, who have triplets going to college at the same time. Assume they all got into a university that meets 100 percent of demonstrated need and that their EFC is roughly the same. 

The Smith family would pay more than twice than the Jones. I have sympathy for parents of triplets who probably started worrying about college costs at least 17 years ago, and I’m in favor of any savings when it comes to paying for college. However, the Smith family won’t get a break. Their EFC contribution isn’t reduced, and the Smiths will not be able to educate their children at a private university.

Takeaways

1. With the Student Aid Index (SAI), families may have a harder time determining how they’re being assessed.
2. The federal “College Financing Plan” is a valuable tool for our families to understand their aid offers. DOE is updating it each year.
3. The new FAFSA form is increasingly more automated to enable students to file without their parents.
4. 529 Plans will be assessed at the lower parental-asset rate regardless of who owns them.
5. A new loophole benefits students with inheritances.
6. Families with multiple children in college at the same time will not get a break.

By C. Claire Law, MS, CEP, IECA (SC), Chair, IECA Subcommittee on College Affordability