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"Simplification" Of College Financial Aid Requires Attention Now

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The Consolidated Appropriations Act (CAA) of 2021, signed into law December 27, 2020, by President Donald J. Trump, was a massive $2.3 trillion spending bill. At 5,593 pages, Wikipedia says, it was also “the longest bill ever passed by Congress.”  

Buried in CAA is a section on college-student aid dubbed “FAFSA Simplification.” It reduces the number of questions on the Free Application for Federal Student Aid (FAFSA) form from 108 to 36. It affects your college funding financial plan starting in 2022.

A FAFSA form must be completed by current and prospective undergraduate and graduate college students to determine their eligibility for student financial aid for a given academic year. The form must also be submitted to determine eligibility for many scholarships and merit-based college funding programs, in addition to need-based college financial aid.

“The simplification of the FAFSA form effectively redefines how eligibility for aid will be determined,” says Kalman Chany, author of “Paying for College, 2022: Everything You Need to Maximize Financial Aid and Afford College.” “There will be winners and losers.”

In changing the eligibility criteria, “simplification” is expected to set off financial and administrative difficulties for many students. Many families eligible for needs-based federal aid under the current criteria will no longer be eligible under FAFSA Simplification.

Since 1986, Mr. Chany has authored and annually updated a book on college funding and financial aid. He says the new FAFSA formula will no longer boost aid for families with more than one child in college.  This single adjustment may slash the amount of aid families receive by thousands per student.

Another important change is that the FAFSA form will no longer consider pre-tax contributions to 401(k), 403(b) and other qualified retirement account assets. However, the FAFSA formula will continue to count contributions to traditional IRA, KEOGH, SIMPLE IRA, and SEP accounts in your adjusted gross income as untaxed income.  

The changes in the FAFSA formula were supposed to go into effect beginning with the 2023-2024 academic year. However, because of technology and other issues, the U.S. Department of Education has asked Congress to delay implementation of the law until the 2024-25 academic year.

“The 2024-25 school year may seem far off, but aid eligibility that academic year will be based in part on your 2022 income, due to a two-year look-back for income,” says Mr. Chany of Campus Consultants in New York City.

Aid calculations are based on individual student and family circumstances, and the new FAFSA formula that is scheduled to go into effect in 2024-25 could yet be delayed. However, it is prudent for parents and students to know about the major changes in the FAFSA formula coming in the months ahead and to begin planning now, even if you are not sure you will qualify for aid.    


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