College Financial Planning From Birth to Graduation
College Costs Are About To Double For Some Families!
There are changes ahead for families of college students.
Starting in the 2024-2025 school year there will be several changes to the FAFSA that will affect many families with children attending or planning to attend college. Beginning in the 2024-2025 school year, the calculation for determining financial aid is going to change, so I’m trying to alert everyone I can to make sure everyone understands the implications. The FAFSA is the form the federal government uses to determine your need-based eligibility for financial aid. So if you want to receive financial aid, including grants, low interest loans and work study you must fill out the FAFSA every year. The form, which asks for tax return information as well as savings and investment accounts, is also used by many states and colleges as well for this purpose.
Let’s take a look at a coiple of the changes:
Number of Children in College.
The biggest and potentially the most damaging is that beginning with the FAFSA available in October 2023, which is used for the 2024-2025 school year, the discount for families with multiple children in college at the same time disappears.
The FAFSA form is used to collect information such as your income and assets to determine what is called your EFC (Expected family Contribution). This is the dollar amount the Federal government feels you are able to pay for college. As an aside, I have very rarely seen a family feel that this is an accurate depiction of what they can really pay. The EFC will now be renamed the SAI (Student Aid Index).
To determine how much financial aid you are eligible for, you subtract your EFC from the Schools Cost of Attendance(COA) and what is left is your “need’ or how much aid you are eligible for. (The actual amount families pay can be substantially higher or lower than their EFC, depending on the college.) The formula looks like this COA-EFC=NEED
For example, if your EFC comes out to $25,000 per year, you would subtract your EFC from the cost of attendance to determine your family’s financial need.
So, if the cost of a college is $40,000, your first child would have a Need, or qualify for $15,000 in possible aid. ($40,000-$25000=$15,000)
Up until now, a family’s EFC has been divided equally by the number of children they have in college simultaneously.
So, when you have two in school at the same time, your EFC would be divided by two, which would equal $7,500 each ($15000 / 2). However, your family’s TOTAL EFC would still be $15,000. So, using the hypothetical example above, each child would now qualify for $32,000 in possible aid up from $25,000. ($40,000-$7,500=$32,500).
And if you have a third in college simultaneously, your EFC that year would be divided by three. And each child would qualify for that much more aid. Your EFC would be $5,000 for each student ($15,000/3) and you would qualify for $35,000 in aid. ($40,000-$5,000)
You can see how helpful this can be to families with multiple students in college at the same time. The FAFSA will still ask about the number of family members and the number of family members attending college, but starting in the 24-25 school year, the SAI will no longer give a discount for multiple children in college. This can have a major impact on families with multiple children in college.
The Income Protection Allowance
This is actually good news. The Income Protection Allowance (IPA), which shelters a portion of parent and student income, is currently reduced by a percentage for each additional child in college at the same time. So, this actually increases your EFC for each child and thus lower your eligibility for aid. For example, the IPA is reduced by $3,310 per child in college, causing your EFC to increase. Using the new method, the IPA will no longer be reduced when two or more children are enrolled in college simultaneously. This will give you a higher IPA per child, sheltering more parent income and lowering your SAI/EFC. As a result, the SAI (formerly the EFC) will be reduced by about $5,000 for dependent students and up to $3,000 for independent students.
A financial professional who specializes in college planning can help you determine the best way to navigate the system, keep tuition costs under control, and help your child minimize the debt they incur.
If you or anyone you know has college bound children, in high school or even middle school NOW is the time to start planning. Please feel free to reach out to me for any questions you may have at MGaer@CollegeFinancing.com