3 Changes to the FAFSA for College Students to Understand

Students will see adjustments to when they can file the federal financial aid form and how their families’ assets are counted.

 

Some important changes are coming to the Free Application for Federal Student Aid. The changes, which will be implemented over the course of 2016, will significantly affect the process of filing for federal financial aid and, for some families, the amount of aid they’ll receive. As Megan McClean, the National Association of Student Financial Aid Administrators’ managing director of policy and federal relations, puts it: “There are some biggies this year.”

For families of current and prospective college students, here are the changes to be aware of – and how to manage them.

The current FAFSA filing system requires students and parents to complete the federal form as soon as possible after Jan. 1 – typically before they’ve filed the previous year’s taxes, which aren’t due until April. Families often have to estimate their income and other data and then update their information later. A new policy, announced by President Barack Obama in September, aims to rework that fraught process.

The fresh timeline will take effect beginning with those who apply for financial aid for the 2017-2018 school year. Applicants and their families will be able to start the FAFSA in October 2016, using the same data they reported on their 2015 tax returns. The use of older data means families can start the process earlier and most won’t have to rely on estimates.

The aim is to reduce inaccuracies and the need for verification, give institutions more time to review documents and potentially allow them to mail award letters earlier in the application cycle.

When the new process debuts, students may endure some rough patches as universities work out the details. “I’m afraid it may be a bit bumpy,” says Eileen O’Leary, assistant vice president of student financial assistance at Massachusetts’ Stonehill College, who, despite that concern, is an advocate for the change.

2. Asset protection will plunge

When parents report their financial information on the FAFSA, a portion of their assets – certain savings and investment funds – are not counted by the federal government toward the amount of money they are expected to contribute to their child’s education. That can mean a higher federal financial aid award than their student would otherwise qualify for. However, that protected portion will plummet next year, continuing a downward trend.

The sheltered asset amount varies, depending on the age and marital status of the student’s parents, among other factors. For the married parents of a dependent student, where the eldest parent is 48, that asset protection amount is $30,300 in 2015-2016, says Mark Kantrowitz, senior vice president and publisher at Edvisors, a higher education resource site. The next academic year will see their allowance nearly halved, to $18,700.

That change could hit families in the pocketbook. Kantrowitz estimates that every $10,000 decrease in asset protection cuts a student’s financial aid eligibility by up to $564. “It’s on the order, for most families, of a few hundred dollars from one year to the next,” he says.

While this is worrying news for middle-income families relying on need-based financial aid, those in the lowest income brackets should be spared. “Most of our neediest families don’t really have sufficient assets to make a difference,” says McClean from NASFAA.

But even those filers affected by the change shouldn’t direct too much angst toward this adjustment, say experts.

3. Schools will lose a data point.

That’s likely good news for students. Some experts worried that universities used the list to make financial aid decisions. For example, a school may have interpreted a student’s decision to list that institution first on the FAFSA as an indication the student would be more likely to attend and less likely to care about the financial aid package. School officials could have then used this as justification in awarding that smitten student fewer institutional dollars.

Now that schools won’t see their competition, this information isn’t going to be used against students. However, we caution that the list will still be visible to state agencies, and we suggest that FAFSA filers list a state college first on the form to maximize their chances of being considered for state aid.