FAFSA Changes On the Horizon

Changes are coming to the FAFSA.

The COVID relief legislation signed into effect by President Trump late last month included the FAFSA Simplification Act of 2021. This piece of legislation makes changes to the Free Application for Federal Student Aid (FAFSA) - changes meant to streamline the aid process and remove confusing language for students and parents. These changes will go into effect for the 2022-23 FAFSA application cycle.

Expected Family Contribution will become Student Aid Index

One of the key changes involves the Expected Family Contribution (EFC), a number that critics say muddles the financial aid process for families. The reason for the confusion? The number is not actually the amount that a family is expected to contribute. Even the official Federal Student Aid website admits this, saying that the EFC is “a number used by your school to calculate how much financial aid you are eligible to receive.” FAFSA calculates that number based on parent income and other tax information (for students who count as dependents on their parent or guardian’s tax returns). A student’s EFC is subtracted from the college’s total cost of attendance, and what’s left over becomes that student’s demonstrated financial need.

Starting in the 2022-23 application cycle, the EFC will be called the Student Aid Index. As Mark Kantrowitz notes in Forbes, “This name change does not actually simplify anything. But, it addresses a concern that the EFC is a bit of a misnomer, misleading families about the true cost of college. Some families think that the EFC is all they’ll have to pay for college.” In fact, families usually end up paying more than the EFC, either directly or through loans, because most colleges don’t cover 100% of students’ demonstrated financial need.

FAFSA will drop dozens of questions

The other big change coming to the FAFSA concerns the form’s length. The current version of the FAFSA has a whopping 108 questions. The new legislation will trim that down to around 3 dozen, according to Kantrowitz. Legislators hope that a simpler FAFSA will mean an easier process for families. FAFSA completion rates have been an area of concern for higher education advocates for several years: the Form Your Future FAFSA tracker indicates that fewer seniors are filling out the FAFSA every year, a trend thrown into overdrive by the COVID-19 epidemic. Lower FAFSA completion rates may indicate that fewer American students are seeking a four-year college education.

The new law tweaks Pell Grant eligibility

Pell Grants are the most common (and largest) form of federal need-based aid, but it hasn’t always been easy to predict how much Pell Grant money a given student may receive. That will change in 2022-23 for some students.

While the middle-level Pell Grant awards will still be determined via the Student Aid Index (replacing the EFC), students on both ends of the spectrum will be quickly identified by family size and adjusted gross income. According to the National Association of Student Financial Aid Administrators, this change will allow FAFSA or other entities to create tables that predict Pell Grant amounts for students based on their family’s income and size. Writing for the New York Times, Ron Lieber predicts that these changes will mean that more lower-income students will get the maximum Pell Grant award than in previous years. However, he also notes that the changes “may mean even more disappointment for higher-income parents” who will automatically be awarded the minimum amount.

FAFSA changes will place emphasis on highest-contributing parent, financially speaking

Students whose parents have separate households only list information for one of those parents on their FAFSA, but which parent may change when the new FAFSA debuts.

Currently, students filling out FAFSA are instructed to submit financial information for the parent who has had more custodial responsibility in the last 12 months. However, starting in 2022-23, FAFSA will instead use the information of the parent who contributes more financially to the student’s upkeep, regardless of who the student lives with on a day-to-day basis.

Families with multiple students in college may receive less aid than before

Right now, the FAFSA divides a family’s expected contribution by the number of family members who are currently enrolled in college. If a family has more than one enrolled student, that family tends to get more aid per student than a family with only one student.

Once the changes go into effect and the Expected Family Contribution becomes the Student Aid Index, families with multiple enrolled students won’t get that benefit. According to Kantrowitz, “This change will significantly reduce the amount of financial aid for middle- and high-income families who have multiple family members enrolled in college at the same time. It will not affect low-income applicants who already have a zero student aid index.” We may see more higher-income families given the minimum Pell Grant amount, even if they have multiple family members enrolled in college at the same time.

Will these changes make a difference?

It’s not yet clear exactly how these changes will affect the actual aid money most students will receive from the federal government. For students on either end of the economic spectrum, the changes to Pell Grant eligibility may have significant effects on their college financial planning. For the vast majority of American students, though, the FAFSA is only one piece of paying for college. As Lieber notes, “The federal financial aid system can’t solve for stagnant incomes, inequality or the high costs of the residential undergraduate experience that many families crave for their children.”