Major new changes to federal financial aid rules are going into effect this fall, and if you’re a high school guidance counselor, you probably have a lot of questions about the changes and what they mean for the students and families you advise.
The good news is that these changes will benefit most families. Depending on their income and financial situation, they might qualify for thousands of dollars more per year in federal financial aid. In fact, the U.S. Department of Education estimates that 930,000 more students will qualify for Pell Grants, and many families will likely see a significant increase in the amount of Pell Grant funds they will receive.
Other families won’t be so fortunate because the changes may negatively impact their aid eligibility and eventual award.
However, no matter which situation families are in, there may be adjustments they can make to their income, investments or assets that could help them qualify for much more aid.
In this quick overview article, I’ll walk you through the new changes and what you need to know, including who the big winners and losers will be. I’ll also provide advice on what you should tell students and parents right now, what links and resources you can share, and where they can get an accurate estimate of their financial aid qualification and award under these new rules.
All of this is based on the new financial aid rules and formulas released by the U.S. Department of Education, plus my own work as a Certified Financial Planner® and college planning specialist, where I’ve already been advising families on these new rules and how they can use them to maximize their financial aid opportunities..
To help you provide sound advice to students and families who may be looking to do the same, let’s start with a quick review of what’s happening and when it goes into effect.
What’s Changing with the FAFSA and Federal Financial Aid
First off, expect college chaos for the high school class of 2024. The Free Application for Federal Student Aid (FAFSA) will not be ready in October, and it has been delayed until December. The process of completing the FAFSA will also be much different, especially for families with older children who’ve already gone through the process and gone off to college. All of this will inevitably cause chaos and confusion for many students, parents, and college financial aid offices.
Despite these challenges, the new changes will ultimately be a positive for most students and families. Changes were made to the FAFSA and federal financial aid formulas for three reasons:
- To simplify the application process
- Make it easier to predict the amount of aid that families will receive in Pell Grants
- Help many families qualify for more aid
Here’s a quick summary of how the FAFSA form has been simplified:
- The number of questions on the FAFSA was reduced from 100 to 36.
- Many hard or confusing questions were eliminated.
- Families can now import financial data directly from their tax return using an IRS tool.
In addition to these changes, the U.S. Department of Education has introduced new formulas for calculating what is now known as the Student Aid Index (SAI), which is a number calculated as part of the FAFSA process. The SAI is used by many colleges to help determine a financial need and how much federal aid to offer them.
The SAI is the new name for what used to be known as the Expected Family Contribution (EFC). The name was changed because many students and parents believed the EFC was what they would be expected to pay toward college costs, and that’s not the case. The EFC, now known as the SAI, is used to assess a student’s financial need. It doesn’t necessarily equate to how much a student will end up paying for college.
The formulas for calculating SAI are changing, which will improve the results for most families, but not all of them. There will be winners and losers, with some families seeing moderate to dramatic improvements to their financial aid qualifications and award. Others will be awarded less federal financial aid, and some will see a dramatic reduction.
Let’s take a look at the big changes to the SAI formulas and who the winners and losers will be.
Big Changes to SAI Formulas and Federal Aid Awards
The new SAI formulas will benefit most families, and some will see their aid eligibility and award increase substantially; others will see a more modest benefit. In comparing results between the old and the new formulas, I’ve found that most will potentially qualify for a few thousand more dollars in federal financial aid, and some may qualify for significantly more than that.
Every family should submit the FAFSA, even if they failed to qualify for federal financial aid in previous years. The new formulas mean that many families who didn’t qualify for aid in the past may qualify for aid now and in the future. However, some families may be members of groups that are exceptions, and their aid qualifications and award could be considerably lower than what they may have received under the previous rules. But you don’t receive any federal financial aid if you don’t submit the FAFSA, so the key is to apply.
The Big Winners Under the New Federal Financial Aid Rules
The big winners under the new SAI formulas are families in the following categories:
- Families who contribute to retirement plans at work
- Families that receive child support
- Families that qualify for the new automatic maximum Pell Grant
- Families that qualify for the new automatic minimum Pell Grant
In the past, retirement plan contributions didn’t help you much in how your need-based financial aid qualifications were assessed. But now they can help quite a bit, and some families may be able to increase their retirement plan contributions and end qualify for significantly more financial aid. Generally, the benefit will be for those who contribute to retirement plans through an employer, and self-employed individuals or business owners may not qualify or may see less of a benefit.
Big changes have also been made for families that receive child support. In previous years, the SAI formulas classified child support as income, as if the parent had earned it, but now it’s considered a financial asset. This changes the math and can be very beneficial for families, allowing them to qualify for more federal grants or need-based scholarships.
This year, new automatic maximum and minimum Pell Grants have been introduced, and many families will qualify to receive these based on the new FAFSA rules and SAI formulas.
The Big Losers Under the New Federal Financial Aid Rules
In the past, business owners didn’t need to report the value of their business as a financial asset on their FAFSA form, especially if it was a small business with fewer than 100 employees. Now, the value of all businesses must be reported as an asset on the FAFSA, and that could significantly lower a family’s need-based aid qualification and their eventual aid award.
Business owners will need to figure out how to value their business so they can report the figure on the FAFSA. The FAFSA does verification as well, so the number needs to be an accurate estimate.
Families with multiple students enrolled in college could also be negatively impacted. In the past, families with multiple students in college at the same time would get a multi-student “discount.” Their SAI would be divided by the number of students they were supporting, and this increased their financial aid eligibility significantly, especially if they had a higher income. Now the multi-student discount has been eliminated, and while some of the other FAFSA and SAI changes will potentially compensate for the loss of that multi-student benefit, some families could still see a significant decrease in their overall aid eligibility.
There will also be a potentially negative impact for families residing in high-tax states, especially if they have a high income. In the past, families in high state income tax states such New York, California or Massachusetts would receive a credit for paying those high taxes. That benefit has been removed, so families in these states who earn $100,000+ may be net losers. The negative impact of losing their credit for paying high taxes may outweigh some or all of the benefits they would otherwise gain from the new SAI formulas.
The New Minimum and Maximum Pell Grant
New formulas and a new calculation are now in place to determine whether students and families qualify for a minimum or maximum Pell Grant. In the old system, it was very hard to know if you would qualify for a grant without applying for aid and waiting for the college to tell you. Now you can predict and calculate your grant award on your own.
Based on your adjusted gross income (AGI) from your tax return, how many parents are involved, and how many dependent children you have, you can use an SAI calculator to quickly determine whether you’ll qualify for a minimum or maximum Pell Grant.
If you’re below a certain AGI amount, you automatically qualify for a maximum Pell Grant, which is currently $7,395 for the 2023-24 college year. Students who qualify for a maximum Pell have their SAI set to zero, and they are likely to qualify for supplemental grants, subsidized federal loan opportunities, and work study as well.
Even if you don’t qualify for the maximum Pell, you might qualify for the new minimum, which is $800. Some families will fall between the minimum and maximum, so there may be some exceptions. But most families will be able to determine their Pell Grant qualifications and award by quickly calculating whether they’ll receive a minimum or maximum Pell.
The image below shows the new minimum and maximum Pell Grant tables and the AGI thresholds for families. There are two tables: one for families with two parents and another for families with one parent. The dollar figures show the maximum AGI amount a family can earn and still receive a minimum or maximum Pell Grant, based on the number of parents and dependent children they have.
NOTE: The tables are based on family AGI in 2022, which will be the base year for determining financial aid eligibility for graduating high school seniors entering college in the fall of 2024-24.
Importantly, this is a huge opportunity for families to potentially plan ahead and improve their financial aid qualifications by making adjustments to their finances that lower their AGI. For example, you may be able to contribute more of your income toward retirement or make other changes that will lower your AGI and get you under the line to qualify for a minimum or maximum Pell Grant.
Examples of Huge FAFSA/SAI Impact
In the image below, let’s take a look at a family with a single parent, three dependents, and $82,000 in AGI, with three columns to show the three different ways the family’s financial aid award could be much different under the new rules.
Let’s start with the first column of numbers. Under the old EFC formulas, if the household made $82,000, then the EFC would be $14,011, and the family would have $12,989 in financial need, which colleges would attempt to fill with some combination of need-based grants and scholarships as well as federal loans and other forms of financial aid. But the family would not qualify for a Pell Grant, and the college may or may not be able to offer enough aid to cover the remaining cost.
However, under the new SAI system, the SAI is $9,069 instead of $14,011, and the family’s financial need is $17,931 rather than $12,989. This means the family would qualify for a minimum Pell Grant of $800, and it would likely receive several thousand dollars more in aid from the school.
This is great for the family, but it isn’t the end of the story. If the family can manage to lower its AGI by shifting more of its household income into retirement plan contributions through an employer, the numbers could get even better.
For example, in the second column, in the retirement contributions row, if the family were able to put $19,000 of annual income into retirement, this would lower its AGI to $63,000, which would lower its SAI to $2,575, increase the Pell Grant to $4,900, and increase the family’s financial need to $24,425. That would almost certainly mean thousands of dollars more in federal financial aid.
Looking at the third column of numbers, if the same family can increase that $19,000 retirement plan contribution to $20,000, which would lower the AGI to $62,000, it would put the family under another threshold. In this case, the family’s SAI becomes zero, it qualifies for the maximum Pell Grant of $7,395, and it has a financial need of $27,000, further increasing its potential financial aid award.
This is just one example involving a single-parent family with three dependent children, but similar opportunities are available to families with two parents, one parent, and different numbers of children. Most families will benefit from the new FAFSA and SAI changes, and the potential differences in financial aid could potentially save them thousands of dollars per year toward their college costs.
How to Learn More and Get Future Updates for Counselors
Hopefully this article has helped you get up to speed on all the big changes to the FAFSA and SAI process. If you’d like to stay up to date on all the changes and access my current and future resources for counselors, visit my FAFSA and SAI Resources for Counselors page, bookmark it, and use the signup form to subscribe to my free future email updates.
I’ll send you email updates whenever I have a new article, video or resource ready to share, and you can always find my current FAFSA and SAI resources for counselors on this page. You can also visit the rest of my website, Taming the High Cost of College, to access many more articles, calculators, podcast episodes, and other resources that are helpful for counselors, students and families alike.
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