FAFSA Simplification for 2023-24

We recently received a request from a high school counselor for a recap of the upcoming FAFSA changes. Happy to help! We reached out to our colleague Michele Kosboth, Oberlin’s Director of Financial Aid, for her expertise and thoughts.

Simplifying the Simplified FAFSA

By Michele Kosboth, Director of Financial Aid
March 8, 2023

In the college financial aid world, things are often complicated and confusing. Thanks to the (somewhat ironically named) FAFSA Simplification Act, things are going to get even more complicated. 

In an effort to reduce the number of questions on the Free Application for Federal Student Aid (FAFSA) application process, and to correct what some feel are problems with the way we assess need for federal financial aid, the next two years will bring some significant changes.

Changes in 2023-2024

  1. Selective Service/drug conviction questions. The FAFSA will no longer contain selective service or drug conviction questions. In addition, students will no longer be able to register for Selective Service through the FAFSA process. The financial aid community has been asking for these two changes for a long time, so they are welcome. However, this may complicate things for many state grant programs which still require Selective Service enrollment to qualify for those grants. Colleges will have to confirm eligibility separately. Students may still be asked to document that they are enrolled in Selective Service. 

  2. Previous determination of independence due to homelessness. For students with a previous determination of independence due to homelessness, their answers to the three existing homelessness questions on the FAFSA form are eligible for renewal beginning with the 2023-24 application. This means they won’t have to re-prove their status in subsequent years. 

  3. Required sex/gender and race/ethnicity questions. In preparation for the required sex/gender and race/ethnicity questions that will be part of the 2024-25 FAFSA form, the Department will collect student responses about these topics through FAFSA on the Web via a voluntary, post-application survey during the 2023-24 processing year.

  4. Change in circumstance/professional judgment. This change addresses the fact that there have been some colleges that simply refuse to consider a change in a family or student circumstance.

    1. Institutions may not maintain a policy of denying all professional judgment requests but must consider all such requests. Therefore, institutions must develop policies and processes for reviewing those requests.
    2. Institutions must disclose publicly that students may pursue an adjustment based on special or unusual circumstances.
    3. Institutions may use a dependency override determination made by a financial aid administrator at another institution in the same or a prior award year.

  5. Pell grant eligibility for incarcerated students. If an institution has an approved educational program being delivered to incarcerated students, they may be able to award Pell Grants to eligible students in the program. 

Changes in 2024-2025

More changes will take place in the 2024-2025 academic year. First, be aware that the federal government has stated they may not have the FAFSA ready to launch by the Oct. 1, 2023 date for the ‘24-‘25 academic year. For colleges that rely solely on the FAFSA to determine eligibility for aid, this could present challenges. If a college uses the CSS Profile, they likely will not experience any delays in awarding aid for the incoming Fall ’24 class. 

The new FAFSA and Federal Need Analysis formula will have fewer questions and will expand eligibility for the Federal Pell Grant. 

What we previously knew as the Estimated Family Contribution (EFC) will now be known as the Student Aid Index (SAI). Where the EFC could be anything from $0 to $99,999, the SAI can be as low as $-1500. Colleges will still use the SAI to determine eligibility for the Federal Pell Grant, Federal Work Study, Federal Supplemental Educational Opportunity Grant, Federal Direct Subsidized and Unsubsidized Stafford loans, and other federal programs. They will also still be able to use the SAI to determine financial need for their own need-based institutional funding. However, it is unclear whether colleges will be allowed to award beyond the student’s need for assistance or cost of attendance if the SAI is negative. We are waiting for further guidance on that. 

Other changes students and parents will see on the FAFSA:

  1. Multiple students in college simultaneously. Having more than one person in a given family enrolled in college at the same time will no longer impact the family’s eligibility for federal financial aid. Schools that use the CSS Profile form to award institutional need-based aid may continue to consider the financial impact of having multiple students in college when determining need. 

  2. Revised guidance on reporting of parent income. For students whose parents are separated or divorced, the guidance on which parent income to report has changed to the parent who provides the most financial support to the student, rather than the parent who lives at the student’s primary residence. We expect this to cause confusion as we need to define what is meant by “financial support.” Additionally, colleges which award significant institutional need-based aid will likely continue to collect and consider the “non-custodial” parent income when determining need for institutional funding.

  3. Definition of family size has changed. It will now include the student, the student’s parent(s), and dependents from the federal income tax return for the parent whose income is being used, from the prior-prior tax year. This is confusing for those who will report income from a parent with whom they do not reside. It may not accurately reflect the family financial situation. Colleges have been told they will be able to use professional judgment to address these issues, but additional guidance will be needed to understand what is allowable.

  4. Definition of dependents. Dependents are now defined as qualifying children AND any qualifying relatives reported on the tax return.

    Qualifying children:

    • Must live with the parent for more than half the year
    • Must not provide more than half of their own financial support
    • Must be under the age of 19 or 24 if a full-time student
    • Must not file a joint return with their spouse if they are married

    Qualifying relatives:

      Must live with the reported parent, and receive more than half their support from that parent

  5. Small businesses and farm values. Instead of being excluded from the FAFSA formula, small business and farm owners will now be required to share the value of their business or farm on the FAFSA. This value will be included in the SAI calculation.  The new valuation will work as follows:

    • For a net worth of up to $135,000, the adjusted net worth would be net worth x 40%.
    • For a net worth between $135,001 and $410,000, add $54,000 plus 50% of the amount over $135,000.
    • For a net worth between $410,001 and $680,000, add $191,000 plus 60% of the amount over $410,000.
    • For a net worth over $680,000, add $353,500 plus 100% of the amount over $680,000.

  6. Some income add-backs will go away. Currently, if you contribute to a pre-tax retirement plan, the federal formula will add those contributions to your AGI when calculating your EFC. Starting with the 2024-2025 school year, the pre-tax contributions you make through your paycheck will not be added back to your AGI. Child support received will no longer be added to your income. However, the amount of the payments will be added to your non-retirement asset total. This is good, as assets do not count as heavily toward the SAI calculation as income does. Students have been hit hard in the past when they received financial help from family members or friends as that was considered untaxed income to the student. Going forward, that will no longer be the case. 

These are the highlights of which students, parents, and counselors assisting students in completing the FAFSA should be aware. As always, students and parents should ask questions of the financial aid offices at the colleges to which they are applying. Also be aware that the financial aid community is still figuring some of this out as well. Again, colleges that use the CSS Profile will likely continue to use it to award their own institutional need-based aid. Some colleges that hadn’t previously required the form may begin using it, to address the concerns about the possible lateness of the FAFSA launch in October, and the significant changes to the need analysis formula including the removal of the number of students in college and the negative SAI. 

The primary message here is that we are all in this together, and when people have questions, they shouldn’t hesitate to ask!