Grandparents’ and other family members’ accounts are no longer reported.
Retirement account assets and contributions are now excluded.
The new needs analysis formula will help some families more than others.
The Free Application for Federal Student Aid (FAFSA) Simplification Act of 2020 has transformed and streamlined how federal college financial age eligibility is calculated. The new legislation, which became effective for the 2024-2025 school year, has several implications that financial professionals and parents should be aware of as they seek to potentially maximize financial aid eligibility.
Let’s take a closer look at some of the key changes in the 2024/2025 FAFSA.
The old FAFSA form consisted of 108 questions that would often take several hours to answer, forcing parents to track down account statements and other documents that aren’t always easily accessible. That’s no longer the case—the new FAFSA contains no more than 36 questions, almost all of which draw directly from readily available tax forms.
The EFC/SAI indexes consider the income and assets of students and parents and are used to determine the amount of available aid a student can qualify for. As the EFC/SAI figures get higher, less aid becomes available. The new SAI formula can now result in a number as low as -1,500, providing colleges with greater visibility to families facing extremely difficult financial circumstances.
Under the new rules, 529 plans owned by anyone other than a parent or student are not included in aid calculations. Distributions from 529 accounts owned by grandparents, aunts and uncles, or trusted friends will no longer be counted as income for students.
Under the SAI, the parents’ assets and income contribution to the formula is no longer divided by the number of children currently in college. All else equal, SAI will result in less aid for middle and higher-income families with multiple dependent children enrolled in college at the same time.
A college’s cost of attendance (COA) directly influences the amount students can borrow. Put simply, loans cannot exceed the COA minus other aid. With the new FAFSA, the definition of COA will be more indicative of actual costs and, encouragingly, will increase the maximum borrowable amount for many students.
In summary, with smart planning, you can increase your potential for need-based aid. We believe the changes to FAFSA and the methodology used to determine financial aid eligibility have made 529 plans an even more compelling vehicle for college savings. 529 accounts offer numerous tax benefits, investment options tailored to various risk tolerances, and an opportunity for family members and friends to give the gift of education to loved ones.
Learn more about how to get started on your 529 journey here.
Don’t let misconceptions about 529 plans haunt your clients. With expanded qualified uses these plans are more adaptable than ever.
Saving for education is one of the most important parts of securing a bright future for your loved ones.
The recently passed Big, Beautiful Bill brings sweeping changes to how American families can save for the future.
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