The Biggest FAFSA Changes Families Need to Know in 2024

Oct 6

How the FAFSA Simplification Act Will Affect Students and Families

The FAFSA Simplification Act is a new law that aims to make the process of applying for and receiving federal student aid easier and more equitable for millions of students and families. The law will introduce several major changes to the current system which will take effect starting with the 2023–24 or 2024–25 award year, depending on the specific provision. The Act stipulates that, to the greatest extent possible, the Department must make use of data received directly from the IRS to calculate a student's SAI and determine their Pell Grant award. This article will explain what these changes are, why they are important, and how they will affect students and families who seek financial aid for college.

The Biggest Changes to the FAFSA in 2024

Replacing the EFC With the SAI

One of the most significant changes that the FAFSA Simplification Act will bring is the replacement of the Expected Family Contribution (EFC) with the Student Aid Index (SAI). The EFC is a measure of a student’s or a family’s ability to pay for college, based on their income, assets, family size, and other factors. The EFC is used to determine eligibility for various types of federal student aid, such as grants, loans, and work-study. However, the EFC has been criticized for being confusing, misleading, and unfair, as it does not reflect the actual amount that a student or a family is expected to pay or can afford to pay for college.

The SAI is a new measure that will replace the EFC starting with the 2024–25 award year. The SAI will allow for a minimum value of -1500, which means that some students will qualify for more aid than they would have previously. The SAI will be calculated using a simplified formula that removes or modifies some of the factors that were used in the EFC such as:

Discount on Multiple Children in College

In previous years, families who had multiple students simultaneously attending college, even if on a part-time basis, enjoyed certain privileges in the financial aid assessment process. Specifically, when calculating the parent assessment, the contribution was divided by the total number of family members enrolled in college.

Similarly, independent students had their family contribution divided by the number of students attending college on a half-time basis.

The Student Aid Index (SAI) will no longer be divided based on the number of students from a single family pursuing higher education. As a result of this alteration, middle and high-income families may find themselves missing out on the advantages they once had when it comes to financial planning for college expenses. Note that each college and university can still decide to consider this factor but for federal purposes, it isn’t considered.

Reporting Assets

Child Support

Previously, child support received was reported as income in the EFC formula. The SAI formula will now include the annual amount of child support received as assets. The recipient of the child support will be asked to report the amount received in the last complete calendar year.

Small Businesses

Previously, only businesses with more than 100 full-time employees were required to be reported on the FAFSA. Under the SAI formula, the net worth of a business is no longer limited to those with more than 100 full-time employees. Applicants will be asked to report the net worth of all businesses, regardless of the size of the business.

Education Savings Accounts

For dependent students, education savings accounts will only be counted as a parental asset if the account is designated for the student. Previously, if a parent had education savings accounts for their other children, the value of those was also required to be counted.

2. The Role of Tax Returns in the FAFSA Changes

Reporting Income

Since the majority of income-related information can conveniently be located on a U.S. income tax return, the FAFSA will rely on the IRS. The tax return data of parent’s will be automatically imported into the FAFSA application through the FA-DDX, eliminating the requirement for applicants to manually input most income details. The following untaxed income items previously included in the EFC formula will no longer be included in the SAI formula:

Deductions and payments to self-employed SEP, SIMPLE, Keogh, and other qualified individual retirement accounts excluded from income for federal tax purposes, but excluding payments made to tax-deferred pension and retirement plans, paid directly or withheld from earnings, that are not on the federal tax return

Tax-exempt interest income
The untaxed portion of individual retirement account distributions (excluding rollovers)
The untaxed portion of pensions (excluding rollovers)
The foreign earned income exclusion

Family Size

The definition of family size has been adjusted to match the number of individuals reported as dependents on either the applicant's U.S. tax return (in the case of independent applicants) or the applicant's parents' U.S. tax return (if they are dependent on their parents). Applicants are also allowed to make updates to their family size if it undergoes changes after they have filed their tax return.

Timing

The FAFSA application opens in December 2023. This will allow less time than normal for students to get their FAFSA application submitted. The Education Department said it plans to return to an Oct. 1 start date next year, but the application for the 2024-2025 school year opens December 2023.

3. How the FAFSA Changes will Affect The Pell Grant

Pell Grant Eligibility

Families with incomes below 175% and single parents earning less than 225% of the federal poverty level will ensure their students receive the highest possible Federal Pell Grant award. Meanwhile, students from households falling between 275%, 325%, 350%, or 400% of the poverty level, depending on their family structure, will still be eligible for minimum Pell Grants. The specific amount of Pell Grant awards within this range will be determined by SAI.

Pell Grant Calculation

The Pell Grant Scheduled Award is the highest amount a student can get for a full academic year when attending college full-time. This rule hasn't changed, but the way we figure out this amount has.

Starting in the 2024-25 academic year, each student's Scheduled Award falls into one of these categories:

Maximum Pell Grant Award (Max Pell): This is an automatic grant amount. $7,395 is the new maximum Pell Grant.
SAI-calculated Pell Grant: Takes the annual Max Pell amount and subtracts the student’s Student Aid Index (SAI) from it.
Minimum Pell Grant Award (Min Pell): This is another automatic grant amount.

Whether you qualify for the Maximum or Minimum Pell Grant depends on various factors like your tax filings, family size and structure (single-parent or not), income based on poverty guidelines, and where you live.

Conclusion:

Families can prepare for the FAFSA changes in 2023-24 by applying to colleges early, allowing time to setup the new required data exchanges, and submitting the FAFSA as soon as it is possible to be considered for as much aid as possible.

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