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The Financial Implications of the New FAFSA

This is will be our fourth and final installation of the changes to the FAFSA coming up in 2023-2024, with some minor changes happening until that calendar school year. In the previous three blogs on the FAFSA changes, we have discussed the overall changes in broad strokes, the new way that Pell Grants will be distributed, and the changes in the length of the form and the implications that has on enrollment.


In this last piece we will direct our attention to the financial changes that the new legislation has put in place. The 5,593 page bill known as the Consolidated Appropriates Act of 2021 was passed by congress just before the start of the new year on December 27th, 2020. The bill makes sweeping changes to the way government will be appropriating funds for, amongst many other things that are related to the pandemic, college students and households with college students starting July 1st, 2023.


Expected Family Contribution


The EFC or Expected Family Contribution is being changed to the Student Aid Index. As mentioned before, this is part of the FAFSA that is simplified to reduce the length and breadth of the form This is done by calculating financial contributions from the family based upon previous year’s tax forms and family assets. Over the years, this term “Expected Family Contribution” has lead to a lot of confusion because it implies that families have X amount of money to help their child pay for college.


The real change is not simply the name, but the new function of the Student Aid Index. It is now essentially and “eligibility index for distributing funds, not a reflection of what a family can or will pay for college expenses.” This according to an Kiplinger article citing the National Association of Student Financial Aid Administrators.


The factors of which the SAI relies on are like the EFC, with a few changes. Some of the factors include:

  • Income

  • Non-retirement assets

  • Educational savings accounts

  • Household size

  • Marital status

For many families, this could mean that the family is responsible for paying much more than previously accounted with the EFC form of calculation. This is because middle to high incomes families often face the gap between the cost of the school and the aid package that the student receives.


The main reasoning for the change in name and function is to be able to identify students that have a greater financial need in order to attend college. There will be hiccups along the way because equity within college tuition financing is far from here.


Income Protection Allowance

The parent income protection allowance will increase by 20%, while the student income protection allowance will be 35% higher, except for students who are single parents, who will benefit from a 60% increase in the income protection allowance. The income protection allowance is basically “the amount of income shielded from the aid calculation.”


The new IPA guidelines for the 2023-24 academic year have changed as follows


-Most families increased from $4,000 to $8,000

-Dependent students increased by $2,400

-Independent students increased by $3,800

-Single parent increased by $6,500


The changes to the income protection guidelines may end up reducing the student aid index by roughly $3,000 for independent students and $5,000 for dependent students, ostensibly lowering the cost of college for students and parents.


With these changes to that are to come in 2023-24 families with more than one student enrolled in college will no longer have their income protection allowance reduced. To financially offset these changes for families with more than one student enrolled, a higher student aid index will be implemented, increasing the amount of funding per student in a household, rather than reducing the IPA for the family. This change will affect each family differently. According to Urban Wealth Management,


“The decreasing protection has had the most impact on middle-income families and some high-income families, as it makes college less affordable by reducing the student’s aid eligibility by thousands of dollars.”

Changes to Income


Certain types of untaxed income, such as cash support and money paid on the student’s behalf, will no longer be reported on the FAFSA. Cash support can occur, for example, when a grandparent gives a gift to their grandchild to help them pay for college or when the family takes a qualified distribution from a grandparent-owned 529 college savings plan.


Other types of income that will no longer be reported on the FAFSA include workman’s compensation and veterans’ education benefits. Child support received will be reported as an asset on the FAFSA, instead of as untaxed income. This yields a more favorable treatment.


The student aid index will be allowed to go negative by as much as $1,500. If a dependent student’s parent is not required to file a federal income tax return, the student aid index will be automatically set at negative $1,500.


WNY Certified College Planning Specialist


Admittedly, this entry has been a bit more dense than previous, but it is not nearly as dense as the actual bill signed into law. These topics are important to us at Send Your Kids To College, because they directly effect how college is paid for. This law does bring to light certain disparities in the college funding process, but it also introduces some new ones as well

Planning for college can be daunting, and we are here to help lighten the load.


In addition to planning help, our 2021 Young Achiever’s Scholarship is now open for applicants. If you or your child are preparing for the college years we encourage you to discuss your financial plans with a professional at Send Your Kids to College. SYKTC is Western New York’s non-profit college planning organization with specialists in many areas, from test preparation to financial planning. We are available to help you make the next step towards the future. Give us a call or leave your information here and we look forward to working with you towards a brighter future.

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