The new FAFSA: Changes to college financial aid application are 'tectonic,' says expert

For a growing number of families, financial aid is key when it comes to paying for college.

With tuition on the rise, most college-bound students now rely on a combination of resources to make it work, including income and savings, free money from scholarships and grants, and, of course, student loans, according to education lender Sallie Mae.

But students must first fill out the Free Application for Federal Student Aid to access any assistance. And this year, the FAFSA will look a lot different.

The FAFSA serves as the gateway to all federal aid money, including loans, work study and grants, which are the most desirable kinds of assistance because they typically do not need to be repaid.

In ordinary years, high school graduates miss out on billions in federal grants because they don't fill out the FAFSA. 

Many families mistakenly assume they won't qualify for financial aid and don't even bother to apply. Others say a lengthy and overly complicated application is a major hurdle.

A plan to simplify the FAFSA has been years in the making. In 2020, the Consolidated Appropriations Act was passed to streamline the process. Those changes are finally going into effect.

A new start date

For the 2024-2025 school year, the FAFSA filing season will open in December, two months later than in previous years. (The Education Department said it plans to return to an Oct. 1 start date next year.)

"There's a delay in the start of the form due to the complexity of simplification," said higher education expert Mark Kantrowitz.

Despite the postponement, it's still advantageous to file as soon as possible, according to Rick Castellano, a spokesperson for Sallie Mae.

The earlier families fill out the FAFSA, the better their chances are to receive aid, since some financial aid is awarded on a first-come, first-served basis, or from programs with limited funds. "You want to get in line," Castellano said.

A new affordability calculation

The simplified form uses a calculation now called the "Student Aid Index" to estimate how much a family can afford to pay.

Historically, many factors, not just income, go into how much aid students receive, including the total number of people in the household and the number of children in college, as well as other financial commitments such as a home equity loan or child support payments.

Now, the formula will pull federal tax information directly from the IRS.

An end to the sibling discount

Going forward, the U.S. Department of Education will no longer give families a break for having multiple children in college at the same time, effectively eliminating the "sibling discount."

"The elimination of the multiple student adjustment is one of the many tectonic changes under FAFSA simplification that will take full effect beginning with the 2024-2025 academic year," said Kalman Chany, a financial aid consultant and author of The Princeton Review's "Paying for College." 

Up until now, "the multiple student adjustment has been the single most important data element affecting one's eligibility for federal student aid," Chany said.

Middle- and higher-income families with more than one student in college will be impacted the most, according to Kantrowitz. There will be less of an effect on lower income students whose expected family contribution was already $0.  

However, this change involves eligibility for federal student aid only, Chany noted. "Colleges, when awarding their own institutional aid money, are still able to make an adjustment based on the number of family members in college."

An expansion of federal aid eligibility

At the same time, the new FAFSA will raise the family income threshold, making more students eligible for federal need-based aid.

More than half a million additional students will qualify for a Pell Grant, a type of aid available to low-income families, according to Kantrowitz. And of those than qualify, more than 1.5 million will qualify for the maximum amount.

Currently, the maximum Pell Grant award is $7,395.

Under the new system, more students will have access to federal grants, but some — likely wealthier — students will miss out on the sibling discount, Kantrowitz said. "This is a good first step."

Kantrowitz predicts there will be the inevitable hiccups when the new FAFSA rolls out. "It has the potential to go well but any time there's a major change, there's always teething pains," he said.

With so many changes "it will be more important than ever for families to plan ahead for financial aid if they want to get the most aid possible," Chany advised.