The student financial aid system has always been complex. With this year’s new FAFSA and its inept rollout by the U.S. Education Department (ED), it will be even more baffling for all parties — students, parents, guidance counselors, Federal and state agency staffers, admissions and financing consultants, and the college financial aid officers who face unprecedented issues with new rules and tight deadlines.
We reviewed the status of the FAFSA rollout in the last post. It remains unclear when actual FAFSA data will be provided by the ED to colleges so that they can determine who to admit and send offer letters with full financial aid information.
In this post, we review three important rule changes in the 2020 FAFSA Simplification Act (the Act) that took effect this year. The goal of the Act is to simplify the process of applying for student financial aid, primarily by reducing the number of questions on the FAFSA from 108 to 36. The Act also made changes to the formula that determines the amount of aid to which students are entitled. These changes significantly impact the Net Price of College (NPC),which is a college’s Cost of Attendance less the average amount of free financial aid such as scholarships and grants given to admittees.
Three key provisions of the Act that took effect on January 1 are described below. They are:
- Eliminating the Discount for Siblings in College,
- Increasing the Amount and Income Threshold for Pell Grants, and
- Increasing the Amount of Family Income Exempted in Determining Need.
- Eliminating the Discount for Siblings in College
In the interest of fairness, an allowance was made in the past for families with two or more siblings enrolled in college at the same time. The FAFSA allowed parents to take the money that they would be required to pay for college and divide it among siblings in school at the same time. But for 2024-25, the Act changes the rule so that families with two or more siblings in college will no longer receive special treatment and will need to pay more for college. The reason for the change is that the Act substantially increases Pell Grant spending and Congress wanted to recover as much of that new spending as possible by making cuts elsewhere. One such cut is the retraction of the special treatment afforded families with more than one sibling in college.
Ron Lieber, writing in the New York Times on February 3, used an example to explain the change: “Say a family has two children in college at once and can afford to pay $25,000 per year total according to the figure that the FAFSA and its formula produce. Last year, that got split in half — the assumption being that a family could pay $12,500 per child. Now, it doesn’t get halved, which could theoretically double the annual college cost for that family.”
This doesn’t mean that all colleges will penalize families with two or more siblings in college because Congress has chosen to do so. The FAFSA formula only computes aid eligibility. What a college might add to that amount is up to them. To compensate for the impact on multi-student families, colleges may lower the NPC with additionall scholarship funding.
- Increasing the Amounts and Income Threshold for Pell Grants
The Maximum Pell Grant award is increased to $7,395 for 2024-25. A student may be eligible to receive Pell Grant funds up to 150% of his or her Pell Grant award. The Act removed the requirement that students be enrolled at least half-time to receive Pell Grant funds of more than 100% of their award. Therefore, to receiver additional funds, a student need only be eligible to receive any Pell Grant funds for that award period.
According to ED’s Student Financial Aid agency’s website, the metric upon which the amount of a Pell Grant is based is the Student Aid Index (SAI). The SAI is the amount that a student and family is considered by the ED to be able to afford on college spending per year.
Eligibility for a Maximum Pell Grant is explained below:
A dependent student whose parents are not required to file a Federal income tax return OR an independent student (and spouse, if applicable) who is not required to file a Federal income tax return for the prior-prior tax year is assigned an SAI equal to -$1,500. Others eligible for a Maximum Pell Grant will be assigned an SAI equal to 0 or the Calculated SAI, whichever is less.
A Calculated Pell Grant is also based on the student’s SAI. Essentially, it’s the Maximum Pell Grant of $7,395 less the amount of the student’s SAI.
A student who does not qualify for a Maximum or Calculated Pell Grant because his or her SAI is too high can still be eligible for a Minimum Pell Grant of $740 if any of the following conditions are true:
- In the case of a dependent student, if the student’s parent is single and has taxable income less than or equal to 325% of the poverty line for the applicant’s family size and state of residence OR if the student’s parent is not single and has taxable income less than or equal to 275% of the poverty line for the applicant’s family size and state of residence, the student is eligible for a Minimum Pell Grant.
- If an independent student is a single parent and has taxable income of less than or equal to 400% of the poverty line OR if the student is not a single parent and has taxable income of less than or equal to 350% of the poverty line for the applicant’s family size and state of residence, the student is eligible for a Minimum Pell Grant.
- If the student is not a parent and the student’s (and spouse’s if applicable) taxable income is less than or equal to 275% of the poverty line for the applicant’s family size and state of residence, the student is eligible for a Minimum Pell Grant.
- Increase in the Amount of Family Income Exempted in Determining Need
Before the Act was passed, a family’s need for financial aid was calculated by the FAFSA formula and provided to them as the Expected Family Contribution (EFC). The EFC incorporated income, assets, family size, and the number of children enrolled in college. The lower the student’s EFC, the more financial aid the student received.
Since the Act was passed, the EFC has been replaced by the SAI. Although the calculation of the SAI differs slightly,it’s similar to the EFC in the sense that the lower the SAI, the more financial aid a student is eligible to receive.
The Act also increased the Income Protection Allowance (IPA), which is the amount of student and family income that is shielded from inclusion in the SAI. For example, using the EFC, the IPA for a family of four for the 2023-24 awardyear was $32,610. For the 2024-25 award year, the same family can exclude $35,870, which protects an additional $3,260 of their income from inclusion in the SAI, thereby lowering the student’s SAI and raising the amount of financial aid that the student is eligible to receive.
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