Decoding FAFSA : Understanding Its Purpose and Latest Updates

If college is on the horizon for yourself or someone you love, you have likely heard of the FAFSA – the Free Application for Federal Student Aid. Used by the government to award federal school aid, grants, and scholarships, the FAFSA is a form that is filled out annually for the upcoming academic year to determine how much a student and his or her family are expected to be able to contribute towards their college education.

For the 2024-25 academic year, the FAFSA has undergone its first major overhaul in more than 40 years. While many of the changes are intended to make the FAFSA more streamlined and easier to complete, the makeover has led to a delay in the opening of the application period. Typically, the FAFSA has been made available to students and their parents on October 1, however this year it is not available until December 31, compressing the timeline for completing the FAFSA, receiving and reviewing aid offers from schools, and committing to an institution.

It is a common misconception that high earners are ineligible to complete the FAFSA and/or that completing the FAFSA will not provide any benefit. In actuality, there is no income limit to complete the FAFSA. All students are encouraged to apply, and several states such as California and Colorado now have even mandated the FAFSA to graduate high school. While having a high family income may prevent the student from receiving need-based financial assistance, schools may require the FAFSA to award merit-based scholarships, and it can offer access to other benefits such as lower-cost government student loans as well. Furthermore, having a high income does not automatically equate to the assumption that the family can fully fund a student’s education; the formula also factors in the cost of attendance of the individual college or university itself. This means that while a student may not be eligible for financial assistance at an in-state, public university, he or she may qualify at a more costly private school.

It is also important to note that a student is not required to report his or her parents’ income in the FAFSA if any of the following applies to the student:

• Will be 24 years of age as of January 1
• Is married
• Has legal dependents
• Is a veteran or active duty in the U.S. armed forces
• Is pursuing a graduate or professional degree

What changes can one expect when filling out the FAFSA this year?

• The new FAFSA has been shortened significantly, down to 36 questions from 108.
• Applicants will be able to securely transfer federal tax information into the form, directly from the IRS. This will help reduce the number of financial-related questions students will need to complete and minimize errors.
• Parents’ pretax contributions to 401(k) and 403(b) plans are no longer includible as income.
• Distributions from a grandparent-owned 529 plan and other sources of cash support are no longer manually reported as income to the student. Rather, the student’s income reportable on the FAFSA will only be that which is ported over from the student’s tax return from the IRS.
• The new FAFSA uses the term “contributors” to refer to individuals who must provide information on the student’s FAFSA.
• Depending on the student’s responses to questions on the application, this can include the student, the student’s spouse, and/or parents/guardians (including stepparents).

All contributors will need a StudentAid.gov account. Verification of the social security number can take up to three days, so it’s a good idea to establish an account ahead of time, before sitting down to complete the FAFSA.

• The value of a small family business or farm is now includible as part of the family’s net worth.
• The formula computed by the FAFSA no longer considers the number of other family members simultaneously in college, a factor that previously reduced the amount that families were expected to contribute to education costs.

One last thing to note is the 2024-25 FAFSA will use 2022 tax year information. If a student’s family circumstances have changed and 2022 financial information is no longer representative of their situation, gather and prepare documentation to provide to schools directly to consider when determining aid for the student. This could include, but is not limited to, significant life changes such as job loss or a drop in income, high medical debt, separation or divorce, or the death of a parent.

It’s never too early to start planning for college! For tailored guidance on planning for and funding the education of a loved one, a Vision Capital Management Client Relationship Manager is a knowledgeable resource and ready to help you understand and explore your options.