The FAFSA Simplification Act

The FAFSA Simplification Act, passed by Congress in 2021, set in motion a series of reforms to the federal student aid system - the biggest changes in decades. These updates are now active and include revisions to the Free Application for Federal Student Aid (FAFSA), modifications to the way aid eligibility is calculated, and other changes that will affect millions of families.

FAFSA Changes

The FAFSA form must be completed by all students who seek federal financial aid. Major changes include:

• Simplified Application - The revised FAFSA includes approximately 36 questions, far fewer than the previous version's 108. Part of this simplification is due to the fact that students, parents, and parent spouses are now required to consent to direct access of their tax returns through the IRS Direct Data Exchange.

• Federal Student Aid ID (FSA ID) Changes – Because direct access to tax returns is required, students, parents, and parent spouses are required to register for unique FSA IDs.

• More College Choices – The maximum number of schools listed on the FAFSA form is doubled to 20.

• Removal of Selective Service and Drug Conviction Questions – To avoid preventing otherwise eligible students from applying for aid, questions regarding Selective Service and drug conviction eligibility are removed.

• Some Untaxed Income No Longer Reported – Families are no longer required to report untaxed support (for example, cash gifts from aunts, uncles or grandparents). Further, reporting of veteran's education and workman’s compensation benefits are not required.

• Improved User Experience - The redesigned site allows applicants to identify their role (student, parent, or preparer) and includes instructions embedded within the form, guiding applicants on the necessary details required. 

In addition, the myStudent Aid mobile app has been retired. Online FAFSA applications must be made using a web browser. 

Aid Eligibility Changes

Major changes to financial aid eligibility include:

• Expected Family Contribution (EFC) Replaced - The EFC, which determined how much families are expected to contribute to college, has been replaced with a similar Student Aid Index (SAI). 

• Income Protection Allowance Increased – The amount of student and parent income protected from college contribution calculations has been increased, meaning that financially independent students and families with only one student in college may be eligible for more federal aid.

• Multiple Students Benefit Removed – There is no longer an increase in the Income Protection Allowance for families with multiple students in college at the same time.

• State and Other Taxes Allowance Removed - There is no longer an allowance for state and other taxes, which previously decreased the amount of income available for college expenses and increased eligibility for aid. The effect of the change depends on the family’s state of residence, but may increase the income considered when awarding financial aid by between 1% and 9% - potentially reducing aid awards.

• Pell Grant Eligibility – Income requirements to qualify for Pell Grant aid have been revised to allow for automatic eligibility based on family adjusted gross income (AGI). This change allows students to estimate grant eligibility before completing the FAFSA.

• Newly Eligible Students - Requirements regarding Selective Service registration and the suspension of aid eligibility for those convicted of controlled substance offences have been repealed. This change affects eligibility for both loans and Pell Grants.

While income, family size, and dependency status are all used to calculate eligibility for financial aid, the other major factor is the cost of attending a particular school. Each school’s official cost of attendance is calculated by adding up the school’s tuition, dorm/meal plan costs (if applicable), and the estimated cost books, school supplies, transportation, and other factors such as off-campus housing for nonresidential students. 

The FAFSA Simplification Act gives the Department of Education more authority to regulate all cost of attendance components and requires that schools disclose those costs in a more prominent way. There are minor changes in the way cost of attendance is calculated, perhaps resulting in a slight increase in aid eligibility for some students.

The Act also gives schools more flexibility in assisting students with unusual circumstances by allowing them to change student dependency status from dependent to independent. For example, dependent students who are estranged from their parents may be eligible for aid when classified as financially independent students.

Understanding the Student Aid Index

The FAFSA Simplification Act discontinues the use of the term Expected Family Contribution (EFC) and replaces it with Student Aid Index (SAI). Like the previous EFC, the SAI is a figure that shows how much families are expected to contribute to college costs. 

Like the EFC, the SAI is a dollar amount that estimates how much each student should be able to pay for college in general (it doesn’t vary based on the cost of a particular school). The eligibility formula examines factors such as income, savings, and dependency status to determine how much each family should be able to pay each year. Colleges and universities then subtract that amount from their official cost of attendance to determine eligibility for aid.

The terminology change is intended to clarify that the dollar amount presentedin the SAI is not the total amount they are expected to pay for college. It is simply the number used to determine eligibility for school-administered financial aid – which may be different than to total cost of college for each individual.

In most ways, it’s fair to say that the SAI is the same thing as the previous EFC, but there are differences. As outlined in the Aid Eligibility Changes section above, the formula used for determining eligibility has been somewhat revised, so some families may qualify for more aid while others may qualify for less. Further, the lowest EFC amount was $0, but the new SAI can go as low as -$1,500 (that’s negative $1,500). By adjusting the financial aid formula to produce a number less than zero, schools can better identify the neediest students and could potentially provide them with additional financial aid.

The Takeaway

The FAFSA Simplification Act expands the number of students eligible for Pell Grants and streamlines the FAFSA application. The real test is whether it will assist more students and families – and that answer will likely vary. While the changes do appear to benefit low-income families, other families, especially those with multiple students in college, may receive less support than before.