Article by Katherine O'Brien, MA CCPS, Founder, Celtic College Consultants
Photo by John Schnobrich
In 2021, Congress passed a law calling for simplification and reform of the federal financial aid access process. The FAFSA Simplification Act has been being incrementally implemented; full implementation must be done by 12/31/23. The most significant change is the shift from the EFC to the SAI as metric by which a student's financial aid eligibility is determined.
Because of the complexity of the changes, the Department of Education is completely rewriting the underlying processor. Therefore, the 2024/2025 FAFSA will not be available until 12/31/23 and the data will not begin to be released to the colleges until the end of January, 2024. While this is a delay, it was the norm until just a few years ago to open the FAFSA on 1/1. Financial aid offices should manage to produce aid packages in a timely manner this year, just as they did in the past.
For those with students in college already, please remember that the FAFSA MUST BE FILED EVERY YEAR. Financial aid awards are only for one year.
What is the SAI?
The SAI or Student Aid Index more accurately describes what the figure calculated by the FAFSA formula is for. The EFC (Expected Family Contribution) was misnamed; families paid more than the EFC. The SAI is the number colleges and governments will use to determine how much and what types of aid a student is eligible to receive.
The information the student and parent(s) enter into the FAFSA are used to calculate the SAI. The index, like the EFC, is based on the parents' available income, the student's income, and assets. Colleges determine each student's financial need by subtracting the SAI from their official COA (Cost of Attendance - the total cost to attend for one year). A student with a lower SAI, then, will be eligible for more federal financial aid, including grants (like the Pell), student loans, and federal work-study. States and colleges determine eligibility for their own grant and aid programs, too.
Plan to spend an hour or so in early January, 2024 to complete the FAFSA online at https://studentaid.gov/h/apply-for-aid/fafsa The student and one parent will need an FSA (Federal Student Aid) ID in order to electronically sign the FAFSA as well as any subsequent federal loan papers. Create an FSA ID here: https://studentaid.gov/fsa-id/create-account/launch
What's the Difference between EFC and SAI?
The formula to calculate the SAI is different from the one used to calculate the EFC. Here are the most significant changes:
Number of Students in College
While this question remains on the FAFSA, the number of students in a family is not part of the SAI calculation. The number of college students in a family no longer impacts the FAFSA output (at least at the federal level). While approximately one-third of families have more than one student in college, this reality is no longer part of the calculations. DO report the number of college students your family has, however, since states and colleges can use this information for their own aid allocations. Financial aid officers do have the ability to reduce the SAI because of the number of students in college.Financial aid officers do have the ability to reduce the SAI because of the number of students in college; this change, when effected, would increase a student's eligibility for federal aid programs. The removal of the consideration of the number of collegians is offset by the increased income protection allowance. I am aware of some testing of this and the offset has been found to work well.
Income Protection Allowance
Embedded in the FAFSA formula are various tables, including the Parent Income Protection Allowance (IPA). The IPA is significantly higher in the SAI formula than it was in the EFC formula. The IPA amounts depend on the number of people in the household. In general, the IPA is about 20% higher now than it was in the EFC formula.
The SAI can have a Negative Value
The lowest EFC was zero; the SAI can go as low as -$1500. This change allows the neediest students to be identified and more effectively helped. Some hope that financial assistance beyond the COA will be offered in order to help these students cover other college related expenses.
Pell Grant Eligibility
Eligibility for Pell grants is tied to the SAI, along with adjusted gross income and has been increased. Some students who would not have qualified for a Pell based solely on AGI may now qualify with their SAI.
Income Inclusions are Changing
401k contributions (which do not appear on the 1040), clergy and veterans benefits will no longer be included in income. Child support will be counted as an asset. Child support paid will factor in, as will combat pay, co-operative education earnings, state tax allowances, and SEP, SIMPLE, and Keough contributions (because they appear on the 1040).
For divorced families, the parent who provided the most financial support in the prior prior year (NOT the twelve months prior to filing) will be the parent to report information on the FAFSA. For the 2024/2025 school year, 2022 is the base year, the prior prior year.
A Note about 529 Accounts
With the changed formula, only parent owned 529 accounts with the student as beneficiary will be considered as assets. The EFC formula considered ALL 529 assets, no matter the beneficiary, since beneficiaries can easily be changed.
DRT is being replaced by the DDX
The Data Retrieval Tool (DRT), used to transfer income tax data from the IRS database to the FAFSA is being replaced by the Direct Data Exchange (DDX).
Differences at a Glance
How will People be Affected by SAI Changes?
Generally, the SAI formula is expected to result in increased aid eligibility for most students. Of course, the impact of the changes will differ from student to student.
Students from middle- and high-income households with multiple children in college may see a net loss in the total aid they receive. (However, when testing for this, my colleagues only saw such an increase for high-income families.) Additionally, people living in high income states may well see some negative impacts (be eligible for less aid) since state and local taxes are no longer considered in the calculations. Again, higher income families will be more adversely impacted by this change than other families.
Low-income students, particularly those with the greatest need, may well see the most benefit from the changes. Having an SAI which is negative will, hopefully, result in an increased amount of financial aid for these students. The hope is that this will happen, thus making college affordable for them.
Help with your Future Planning
Determining how the SAI will impact your cash flow during your child(ren)'s college years is a complex calculation and may well influence both your financial planning and college planning. Contact me today to schedule a consultation for guidance on cutting college costs and financing higher education. Email Katherine: KOB@CelticCollegeConsultants.com
So if my child is in their 2nd year of college right now and we are middle to high income earners, is there any point in filling out the new FAFSA? If we do so and her aid package is less, I assume they would offer her less the following year. Is that correct?
ReplyDeleteThe FAFSA must be filed each year. They are only good for one school year.
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