Legislation Could Mean Less Financial Aid for Middle-Class and Above 

Legislation Could Mean Less Financial Aid for Middle-Class and Above

February is Financial Aid Awareness Month, and it’s a good time to make you aware of changes that occurred with the passing of the Consolidated Appropriations Act of 2021 – changes that will directly impact students and their parents in 2023.

Though this was another relief package in response to the pandemic, the bill also changed aspects of education funding and financial aid qualifications that will go into effect when this year’s high school sophomores begin entering college.

In the short term, colleges and universities will receive $22.7 billion in new funds to provide emergency financial help to students who have been affected by the pandemic. However, the changes directly impacting students and their parents will not be felt until 2023.

American Council on Education President Ted Mitchell said in a statement, “We applaud the bipartisan agreement to simplify the process of applying for federal student aid, which will make it significantly easier for students and families to complete the Free Application for Federal Student Aid (FAFSA) form and increase the number of individuals who receive aid.”

The FAFSA Simplification Act, a smaller bill included in the overall Consolidated Appropriations Act of 2021, makes good on promises to simplify the Free Application for Federal Student Aid, including:

 

  • Fewer questions. The bill significantly reduces the overall number of questions on the FAFSA, including eliminating questions about drug convictions and Selective Service status.
  • Changes to cost of attendance. In an attempt to standardize the term among colleges and make it more favorable to families, the bill makes several changes to the definition of “cost of attendance.” Room and board will be split into separate allowances for housing and meals, with the allowance for meals based on three meals a day and the housing allowance for students living in college housing based on the average or median housing charge (previously it used the lowest charge), whichever is greater. What’s more, colleges can no longer set the housing allowance to zero for dependent students who live at home with their parents, and colleges must include an allowance for loan fees for federal student and parent loans. Colleges will be required to disclose all the elements of the cost of attendance on their website.
  • Expanded income protection allowance. The “income protection allowance,” which shelters a portion of income from the FAFSA, will generally be more favorable for parents and students. Also, the income protection allowance will no longer be reduced based on the number of children in college.
  • Changes to untaxed income and benefits. For purposes of the FAFSA formula, the definition of “untaxed income and benefits” has been streamlined and several types of untaxed income and benefits have been omitted, including child support (this will be considered an “asset” instead), workers’ compensation, veterans’ benefits, and any money paid on the student’s behalf. In addition, income from a federal work-study job, the American Opportunity tax credit, and the Lifetime Learning credit will not be counted as “income.”
  • Multiple children in college at the same time loses preferential treatment. This change has the potential to significantly reduce the amount of financial aid offered to middle-class and high-income families who have multiple children in college at the same time. Currently those families who have children in college at the same time see a benefit, because the EFC is typically cut in half (or divided by the number of children in the family simultaneously in college). But that’s what will change. Starting in the 2023-2024 school year, the number of children in a family attending college at the same time on at least a half-time basis will no longer be a relevant data point. The FAFSA will still collect this information, but it will no longer divide a parent’s assessment by the number of children in college.
  • Expanded Simplified Needs Test. There is an alternate formula within the FAFSA that exempts certain families from having to report their assets (i.e., only income is counted to determine aid eligibility) that is called The Simplified Needs Test. It has been renamed to Applicants Exempt from Asset Reporting. There will now also be multiple ways to qualify, including a higher income threshold that will be raised from $50,000 to $60,000.
  • Expanded Pell Grant. The bill widens the net of students eligible for a Pell Grant, and allows them to use basic information, like adjusted gross income and family size, to see if they qualify.
  • Goodbye EFC terminology. The Student Aid Report generated by the FAFSA will no longer refer to the end calculation as the Expected Family Contribution, or EFC. Instead, this figure will be called the Student Aid Index, or SAI. The purpose of the name change is to more accurately reflect what this number represents — a measurement of aid eligibility rather than a guarantee of what families will pay, because families often pay more than their EFC amount.

The 2023-2024 FAFSA that will include these changes will be available to file beginning October 1, 2022. This will give the U.S. Department of Education time to implement the changes. The 2022-2023 FAFSA, which will be available to file on October 1, 2021, will follow the current definitions and rules.

The Consolidated Appropriations Act of 2021 contains other provisions that affect the FAFSA, making Financial Aid Awareness Month even more important this year. For more information on the FAFSA in general, along with news and updates, visit the official FAFSA website.