Later this year, students and their families will fill out a Free Application for Federal Student Aid (FAFSA) that features profound changes. The FAFSA changes a little every year, but courtesy of the 2020 FAFSA Simplification Act, these upcoming changes are bigger in nature and are finally taking effect for the 2024–2025 academic year. It’s the largest FAFSA design overhaul in decades.
Colleges use the FAFSA to determine how much your family should be able to pay for college, along with eligibility for grants, work-study, federal student loans, and sometimes merit scholarships. To be considered for available aid, you need to fill it out. Students who have never filed the FAFSA don’t know what came before, but for students in college already, the changes could come as a happy or unhappy surprise. Here’s what to know about some of the biggest changes.
Before diving into the more in-depth changes that require more explanation, let’s run through a few straightforward updates you can easily file in your notes for later.
- Different opening date: Because the new changes to the FAFSA are so complex, the form won’t open until December 31. But that’s for 2023 only; it’s supposed to return to opening on October 1 like usual in 2024.
- Fewer questions: The application is shrinking from 108 total questions to fewer than 40. That’s a big deal for reducing barriers for families trying to complete it with little prior knowledge—and a primary reason for the simplification.
- Custodial parent definition changes for divorced families: The FAFSA only requires one parent to fill it out. On the old FAFSA, it was the parent the student lived with more than 50% of the time if the parents were separated or divorced. Now, it’s the parent who provides the most financial support. Remarried parents still need to report stepparent income.
- IRS data retrieval now mandatory: On the old FAFSA, the IRS Data Retrieval Tool (DRT) linking your FAFSA to your IRS tax return was optional. On the new form, the IRS Direct Data Exchange (DDX) is mandatory, which is more convenient for families.
Now that you have some of the basics, let’s dive into the more complex changes.
“Expected Family Contribution” changing to “Student Aid Index”
The FAFSA uses your family’s income and non-retirement assets to calculate what was called your Expected Family Contribution (EFC) on the old form. It’s now called Student Aid Index (SAI). Your EFC/SAI represents the amount you’re able to contribute to college. But it’s not what you actually pay; it’s just the number financial aid offices use to determine possible financial aid offered to a student. However, many families thought their EFC was what they would pay. EFC and SAI are basically the same thing, but the hope is families will find the terminology of SAI less confusing and daunting to their wallets—at least for some.
New formula increasing Income Protection Allowance
What is new and noteworthy about the SAI is the formula used to generate it. For many families, their SAI will be lower than the previous EFC formula, increasing eligibility for financial aid. Why? The new formula increases the Income Protection Allowance (IPA), ensuring more income is protected from being counted toward the SAI. For parents, the IPA increases 20% from about $30,000 to almost $36,000 for a family of four (IPA depends on several factors and adjusts annually). For dependent students, a fixed amount of $9,410 is protected, according to a recent Brookings Institute report. Unfortunately, if you have two kids in college or own a farm or other small business, you might be worse off…
Small business and family farm values no longer excluded
On the old FAFSA, parents who owned businesses with 100 or fewer employees or family farms didn’t need to report their business value or the value of the farm the family lived on. On the new FAFSA, you must report these values, and the change could raise your SAI—possibly significantly. “It’s going to hurt farming families who maybe have a million dollars’ worth of equipment but only make $60,000 or $70,000 per year,” says Luanne Lee, owner of Your College Planning Coach. It’s even worse for farm families with multiple students in college (more on that below). Legislation has already been introduced to restore the exemption for small businesses and farms.
Siblings in college no longer receiving increased aid
This is a very big change that will affect many families. On the old FAFSA, your EFC was divided roughly in half if a family had two kids in college, in thirds for three, etc. On the new FAFSA, the SAI doesn’t divide. If you have an SAI of $15,000 for one student, you can add another one for your second student. The new formula may somewhat offset the increase, but the change still means middle-income families with two kids in college could lose financial aid.
“Families in the $80,000 range who would have fallen outside of Pell Grant eligibility with one child in college might just dip into that range with two,” says Jill Desjean, Senior Policy Analyst for the National Association of Student Financial Aid Administrators (NASFAA). "For 2024–2025, they could lose their Pell eligibility." They may also lose institutional aid. According to the Brookings analysis, “Students with siblings enrolled in college with a family income of $120,000 may need to pay roughly $10,000 more to attend either a public or private institution.” Even families in the $70,000 range may be negatively affected. Low-income families generally won’t be. (Please note that sibling discounts may not be affected at schools using the CSS Profile, another financial aid form required by some colleges. Some schools plan to continue using the old formula, while others say they don’t know yet.)
Expanding Pell Grant eligibility
The more generous SAI formula means more students will qualify for a Federal Pell Grant. Under the old formula, the lowest possible EFC was zero. Now, the new SAI floor is -$1,500, and parents who aren’t required to file a tax return will receive it automatically. The maximum Pell Grant ($7,395 in 2023–2024) is the same regardless of your SAI, but students in the negative could be offered additional state or institutional aid. “The increased IPA and expanded Pell eligibility are two of the biggest wins of this whole initiative,” Desjean says.
“The new formula ties Pell eligibility to adjusted gross income (AGI) and family size rather than EFC, which used to be a complicated calculation for families,” she adds. For 2024–2025, the AGI to qualify for a maximum Pell is $51,818 for a family of three. The new FAFSA formula also raises the income threshold from $50,000 to $60,000 for not having to report assets. That’s good for reducing your SAI and increasing your aid eligibility. The SAI formula means more students are also eligible for additional state and institutional aid. However, Lee notes that “Many schools, including ‘meets need’ schools, don't give aid in the form of all grants—free money—so a large component of need aid may be offered as loans.”
Some untaxed income off limits
Certain types of untaxed income no longer need to be reported on the FAFSA or are counted differently. That’s good for your SAI. Three notable changes are as follows:
- Child support is now reported as an asset: This has less impact on your SAI; if you fall below that $60,000 threshold and meet other qualifying attributes, you won’t need to report it.
- Contributions to retirement accounts aren’t counted: While 401k and 403b contributions aren’t reported, most IRAs still must be.
- Cash support isn’t counted: This includes examples such as money from a relative or a 529 contribution from a grandparent.
What you can do now
You won’t know your official SAI until December, but you can estimate it in advance with the Big Future EFC Calculator or the Federal Student Aid Estimator, which are both updating to reflect the new SAI formula. Knowing your SAI will help you determine schools that are a good fit financially. For families that have a student already in college and another heading in, contact your college’s financial aid office to ask if aid packages will be affected by the new formula. “If they can’t tell you, that could be a red flag for affordability,” Lee says.
Another way to maintain affordability when paying for college is finding free money! Students and parents can use our Scholarship Search tool together to find a ton of opportunities.