Financial Aid Is Changing. How Will It Affect Your Family?

The FAFSA Simplification Act is the biggest shakeup to federal financial aid in decades. For some students and their families, it will mean more aid; for a smaller but not insignificant number, it will mean less. So how will you and your family fare?

A new report from the Brookings Institute lays out how the upcoming changes will impact different students. Many students will end up better off, but some, especially those from families with multiple children in college at the same time, could receive less financial aid than they are used to.

The Free Application for Federal Student Aid (FAFSA) is the federal form you must complete to be considered for any financial aid from the federal government, your state, or one of the colleges you hope to attend. The form asks you to provide detailed financial information for yourself (and your parents if you are younger than 24 or meet some narrow exceptions). Once you have completed the application, you get your Expected Family Contribution (EFC) number. This number plays a significant role in determining what types of financial aid you qualify for and how much total financial aid you can receive. The lower that number, the more types of aid and total aid dollars you will be eligible for, and vice versa.

The FAFSA Simplification Act, passed at the end of 2021, changes how financial aid eligibility is calculated. Starting with the FAFSA that will open at the end of this year, students heading to college will see a lot of changes. The number of questions on the form is being reduced from over 100 to 46; EFC is going to switch to the Student Aid Index (SAI), which will serve the same purpose, but is less confusingly named; more students will be eligible to receive Pell Grants—the primary federal need-based grant; and some students will see their eligibility for aid decrease. Additionally, some of the formulas used to calculate aid eligibility are changing.

One of the primary goals of the FAFSA Simplification Act was to increase the number of students eligible for a Pell Grant. Based on Brookings’ analysis, that goal will be met. Under the current eligibility criteria, Pell Grants are awarded on a sliding scale, and students with $60,000 of family income and above are usually ineligible for the Grant. The changes are unlikely to make a big difference for students from the lowest-income families because they are already likely to qualify for the full Pell Grant. Still, the Brookings analysis shows that students from families in the $60,000-$70,000 income range, who are generally ineligible under current criteria, will likely receive some Pell Grant funds.

The eligibility improvements have been achieved through various changes, but one of the most significant is a large increase in what is known as the income protection allowance (IPA). IPA is the amount of money not considered in FAFSA calculations to ensure that families have enough resources to provide for a basic standard of living. The amount protected has long been far too small. An increase in the IPA means students become eligible for more aid.

Unfortunately, the changes to FAFSA have not fixed problems with the Asset Protection Allowance (APA). This is similar to the IPA but protects a small portion of a family’s assets from the FAFSA calculations. The APA has been declining for years due to a quirk in how Congress designed the calculations.

Families with multiple children in college are likely to end up less well-off under the eligibility criteria. Previously, families with more than one child in college at the same time would see their EFC lowered to reflect the fact that they were supporting multiple students in college at once. That is no longer the case. The rationale for the change is that families with more than one child who have a larger gap between children face the same total expenses as a family with the same number of children more closely grouped in age.

One of the report’s takeaways is that more needs to be done to inform students and families about the upcoming FAFSA changes. Families who already have multiple children in college, might be shocked when less help arrives next year and should have time to prepare.

As for the students who will be better off, they should be told that college will be cheaper for them as soon as possible.