Broker Check
Trouble Ahead — The New FAFSA’s Impact on Student Aid

Trouble Ahead — The New FAFSA’s Impact on Student Aid

January 16, 2024

Submission of the Free Application for Federal Student Aid (FAFSA) is an essential step for all students seeking Federal, state, institutional, and private financial aid. To improve the financial aid process, the FAFSA Simplification Act was enacted by Congress on December 27, 2020. Its dual purpose is to make it easier for students and families to complete the FAFSA and to make the allocation of Federal student aid funds more equitable.

When the Act was passed, Congress recognized that much time and effort would be necessary for the U.S. Education Department (ED) to prepare for the sweeping changes included in the legislation. As a result, the Act’s provisions were not scheduled to become effective until July 1, 2022. Even so, the ED announced in June 2021 that the most of the Act’s provisions would not be implemented until the release of the FAFSA in 2023 for the 2024-25 academic year. This postponement proved to be insufficient. The project has been beset by problems that ED blames on the complexity of the changes. Student advocates and lawmakers who were initially sympathetic to the ED’s plight have become frustrated with its repeated delays and oversights.

A Significant Omission

The 2023 version of the FAFSA is expected to be released by December 31. However, the new FAFSA will not include an important adjustment in the calculation of eligibility for financial aid. Specifically, the FAFSA will not account for the impact of inflation since 2020. This omission will result in many students receiving less in financial aid than they are entitled to for 2024-25.

According to Danielle Douglas-Gabriel of the Washington Post, “The mistake is the latest hiccup in the agency’s implementation of a three-year-old bipartisan law to simplify and ease requirements for the Free Application for Federal Student Aid.”

Impact on College Affordability

The new FAFSA makes use of a calculation called the Student Aid Index (SAI) to determine how much a family will be required to pay for college. Students and families completing the form are allowed to exclude a certain amount of income before their SAI is calculated. This excluded amount is intended to increase every year in accordance with the rise in the Consumer Price Index (CPI). However, the 2024-25 FAFSA fixes the value of money at the end of last fiscal year prior to the enactment of the Act — October 31, 2020 — even though the Act stipulates that ED should update the income exclusion amounts annually based on the increase in the CPI. Given the high rate of inflation since 2020, the income exclusion amounts for 2024-25 should have been adjusted upwards by 18%. Instead, the ED has announced that it is using the income exclusion amounts for 2020 as the basis of the SAI calculation for 2024-25.

Families with a high level of income are usually not eligible for financial aid and low income families with a SAI of $0 are always eligible. This leaves middle-income families as the most affected by the omission. For example, a family with an adjusted gross income of $100,000 will have an SAI that calls for them to contribute $12,943 to annual college costs. If the adjustment for inflation had been made, they would have been expected to contribute only $9,162. This is a difference of $3,781, a significant amount for most families.

We’re going to see lower Federal, state and institutional aid across the board because the formula isn’t keeping up with the inflationary impact on income and costs over time,” according to Bryce McKibben, Senior Director of Policy and Advocacy at the Hope Center at Temple University. McKibben estimates that families with dependent students will see anywhere from $6,000 to $10,000 of additional income unfairly added to their SAI.

The Impact on High-Need Students

The ED has pointed out that the SAI tables have no bearing on the lowest-income students who receive Pell Grants, a form of aid for undergraduate students with exceptional financial need. The Act ensures that families earning less than 175% and families earning less than 225% of the Federal poverty line will automatically qualify for the maximum Pell Grant, which is $7,395 for the current academic year and will rise in 2024-25 in line with inflation. The ED projects that 1.5 million additional students will receive the maximum award this year, bringing the total number of students eligible for the full Pell Grant to more than 5.2 million.

However, students applying for partial Pell Grants may not be as fortunate. Under the Act, students who do not qualify for Pell Grants solely on the basis of income may become eligible for a full or partial grant after the SAI has been applied. About 2.1 million students ineligible for Pell on the basis of income were expected to qualify as partial recipients, but their eligibility is now jeopardized. Without the 18% inflation adjustment, these students could receive either a lower Pell Grant than they should or no Pell Grant at all.

Compounding an Existing Problem

The problem arising from the omission of the adjustment for inflation compounds another problem with the FAFSA for 2024-25; the release date is not until December 31. The customary FAFSA release date is October 1, three months earlier. Deadlines for the acceptance of offer letters from colleges have not been delayed to accommodate the FAFSA delay since colleges need a certain amount of lead time to prepare for the incoming freshman class. They have retained their traditional enrollment deadline of May 1.

Cascading delays mean that students will receive their financial aid notifications late and will be forced to decide hastily which college to attend by the May 1 enrollment deadline. This is the best-case scenario. In the worst case, students will be forced to leave financial aid unclaimed. 

Lack of a Remedy for 2024-25

In a normal year, a student may appeal to the ED if they can make a case that their Federal financial aid, including grants, loans, and work-study programs, is less than they are entitled to receive under pertinent laws and regulations. However, since the lack of the inflation adjustment is the official policy of ED, this will not be considered a legitimate basis for appeal in 2024.

As a consolation, the ED has announced that they will be “…helping colleges interpret the SAI” as they make their own institutional decisions on financial aid. Rep. Robert Scott of Virginia, the top Democrat on the House education committee, expressed frustration with the ED’s failure to adjust for inflation and said the ED must find a way to it make up to families. He stated that “The Department could adjust next year’s allowance to account for any missed inflation adjustments since 2020. I will continue to use my oversight authority to ensure the department simplifies the FAFSA process and helps every American get the resources they need to access a high-quality education.” However, this course of action offers no remedy to the families that will be shortchanged in 2024-25.

If you have questions about your current college planning concerns please don’t hesitate to visit our site at www.genesiswealthplanning.com or email us directly at Michael.acosta@cplanning.com.

 

 

 

 

 

 

 

This material was prepared by an independent third-party. Their opinions are their own and not necessarily those of Guardian or its subsidiaries. Guardian and its subsidiaries are not affiliated with National Institute of Certified College Planners (NICCP).

Financial Advisor and Registered Representative of Park Avenue Securities LLC (PAS). OSJ: 6115 Park South Drive, Suite 200, Charlotte, NC 28210. Securities products and advisory services offered through PAS, member FINRA, SIPC.  Financial Representative of The Guardian Life Insurance Company of America®(Guardian), New York, NY. Park Avenue Securities is a wholly owned subsidiary of Guardian. Consolidated Planning, Inc. is not an affiliate or subsidiary of PAS or Guardian. CA insurance license # 0M50974. Guardian and PAS do not offer student loans to finance education nor do they offer legal to tax advice.  2023-166554 Exp. 12/25