How is the FAFSA going to change? How it'll mean less financial aid for some.
Medora Lee, USA TODAY
7 min read
As families finalize college decisions and line up financing for 2023-2024, some might want to start thinking about the following academic year because aid may be tougher to get.
While students overall will gain billions in funds, students with siblings in college likely could lose some financial aid, according to a recent analysis by the research group Brookings Institution.
“These changes, and others, will have profound effects on students’ eligibility for financial aid,” Brookings said. “There will be winners and losers,” and those students who may end up paying more “are unlikely to know that these changes are coming.”
Some students with siblings in college could be hard hit, researchers say.
Students at the lowest income levels won’t be affected, but people or their parents with incomes between $60,000 and $100,000 will see reduced Pell Grants, according to nonpartisan EconoFact, a publication that analyzes economic and social policies.
Beyond that, the amount of aid from schools that these students will be eligible for “could be reduced by thousands, and perhaps tens of thousands of dollars, relative to the current formula,” EconoFact said.
The reductions are due to the elimination of what’s called the sibling discount. The expected family contribution is reduced proportionally to the number of that student’s siblings who are enrolled in college, but the new calculation doesn’t consider siblings.
For example, if a family had two members in college and had an expected family contribution of $5,000, that total was split between the two college-going individuals. Under the new formula, that contribution would be for each family member in college, increasing the financial burden for families with more than one member in college. In addition, it may affect their eligibility for some financial aid programs.
Brookings estimated that almost 900,000 students with one sibling in college will maintain eligibility for financial aid under the new formula. Those students stand to lose almost $3,000 each in institutional grant aid, totaling $2.5 billion. Another 157,000 will lose all eligibility, which could have provided up to $7,900 each in aid, totaling $1.2 billion, Brookings said.
“Students with siblings in college will ... stand to lose thousands of dollars in financial aid,” Brooking said. Students already in college “will be shocked by the large increase in their net price.”
Of course, schools could choose to reinstate temporarily or permanently the sibling discount, but that could create a budgetary problem. “Without the provision eliminating the sibling discount, FAFSA simplification will increase eligibility for institutional grant aid, not reduce it,” it said.
Families with an adjusted gross income of $60,000 and own farms or small businesses with fewer than 100 employees. Those items would now be added to what the government considers financial assets, which could then be used to pay for college on FAFSA. Currently, those assets are exempted.
For example, a family with a farm valued at $1 million would be expected to contribute more than $7,600 toward an education. Under the new rules, that same family would be responsible for more than $41,000, potentially making those students ineligible for some federal and state aid programs and more reliant on student loans.
In late April, U.S. Sens. Joni Ernst, R-Iowa, Jon Tester, D-Mont., and five others introduced the Family Farm and Small Business Exemption Act to reverse those FAFSA changes, saying farm assets are unlike other liquid assets that can be sold easily for cash.
The Department of Agriculture says family farms account for almost 96% of the farms in the U.S. and about 87% have gross annual sales under $250,000.
Most everyone else, especially low-income families.
“The formula overall has been more generous,” said Jill Desjean, senior policy analyst at the nonprofit National Association of Student Financial Aid Administrators. “More people will see more eligibility.”
Larger income protection allowances (IPA): IPA covers a family’s basic daily living expenses and is excluded from the financial aid eligibility formula. Larger IPAs lower the income students and parents can contribute to college expenses, which will increase their financial aid eligibility.
IPA will increase by 20% for parents, up to about $2,400 (35%) for most students, and up to about $6,500 (60%) for students who are single parents.
Automatic Pell Grants based on income and household size: Families making less than 175% and single parents making less than 225% of the federal poverty level will receive the maximum award, while minimum grants will be guaranteed to students from a household earning below 275%, 325%, 350%, or 400% of the poverty level, depending on the household structure. This makes it quicker and easier for people to know they’re eligible. The Pell Grant is the federal government’s primary grant aimed at low- and middle-income students, helping more than 6 million students afford college in the 2021-22 school year.
State Higher Education Executive Officers, a national association that helps develop education policies, projects that 42.9% of students previously ineligible for a Pell Grant may become eligible under the new calculation. That's approximately 2.1 million more students than under the old formula, it said.
Pell Grant awards in the middle ranges of eligibility would be determined the same way they are now, by using assets to calculate what families can contribute to college.
Restoring Pell eligibility: Incarcerated students and students who have been convicted of drug-related offenses will be eligible again for financial aid.
A negative contribution score: Family contribution amounts could be as low as minus $1,500, instead of zero. Although federal financial aid cannot exceed the cost of college attendance, the negative score could be used to distinguish among the neediest students, allowing states and institutions to more accurately target need-based aid.
Simpler FAFSA application: The application will be pared down to just 36 questions from an unwieldy 108, including detailed financial information, and make it easier to import income data from tax records. A shortened, streamlined FAFSA is expected to lead to increased completion rates and improve college access and affordability by making billions of dollars of financial aid available to students. A study by NerdWallet found that the high school graduating class of 2018 missed out on $2.6 billion in available federal aid because eligible students did not complete the FAFSA.
The changes mean decreases in aid eligibility for middle- and high-income families as FAFSA shifts focus from cash flow to a slightly greater emphasis on wealth, according to California’s summary of the changes.
It may hurt small pockets of people. But in the end, "more people will see more eligibility,” Desjean said. “The big picture moving forward is it’s a more fair treatment for everyone.”
Medora Lee is a money, markets, and personal finance reporter at USA TODAY. You can reach her at [email protected] and subscribe to our free Daily Money newsletter for personal finance tips and business news every Monday through Friday morning.