As a parent or grandparent, you know firsthand the challenges of funding a child’s education. The Free Application for Federal Student Aid (FAFSA) Act was passed at the end of 2020 and has changed some of the qualifications for students to receive financial aid.
Unfortunately, these changes won’t affect those applying for financial aid for the 2021-2022 school year. They’ll be in effect starting in the 2023-2024 school year, and you’ll notice how they’re implemented when you begin the FAFSA process on or after October 1, 2022.
Still, it’s good for parents and grandparents to know about the most significant changes since they may affect the kinds of gifts they’ll give to students for college.
Gifts from grandparents are no longer counted as cash against financial aid
One of the most confusing parts of the FAFSA process was how to account for cash funding. Currently, one question requires applicants to disclose education-related cash gifts to students from grandparents, non-parent family members, or friends. A portion of these gifts are factored into the equations that determine financial aid availability. When the new changes come into effect, this question will be eliminated. Applicants will not be required to disclose cash gifts from those who aren’t the student’s parents.
This change won’t impact how 529 College Savings plans are factored into FAFSA calculations. Parent-owned 529 plans have to be disclosed during the FAFSA process. Fortunately, FAFSA only counts 5.64% of the balance as available for college use. 529 plans established by grandparents do not need to be disclosed today and won’t have to be when the new changes come into effect.
A simplified questionnaire
The FAFSA has been greatly reduced in size, from 108 demographic, educational, and identification questions to a maximum of 36 questions. Part of the restructuring was aimed at clearing up confusion as to who is and is not a dependent student, and what type of assets need to be included.
EFC becomes SAI
One of the most misunderstood acronyms in FAFSA is the Expected Family Contribution, or EFC. This calculation determines what types of funding and how much a student is eligible for based on their financial needs. However, many parents interpreted it to mean how much they would have to pay for college costs not covered by financial aid. For this reason, the term has been renamed the Student Aid Indicator (SAI) to more clearly communicate that its purpose is to show the kinds of financial aid a student is eligible for.
Still confused? Contact a professional
If you have any questions about FAFSA, 529 plans, or college financing in general, a qualified financial advisor can provide the answers you need.
Dan Flanagan is a financial advisor and Partner located at Canby Financial Advisors, 161 Worcester Road, Framingham, MA 01701. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at 508.598.1082 or firstname.lastname@example.org
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