I know there is another recent thread on FAFSA/college funding issues (
https://forum.mrmoneymustache.com/mini-money-mustaches/529-and-fafsa-is-529-still-a-good-idea/) but that was specific to the issue of saving in 529s and did not really target the upcoming changes to the FAFSA and how EFC will be calculated. My DD will most likely enter college in Fall 2023, so 2021 is the "prior prior" tax year we need to be focusing on for FAFSA purposes. I think we are in a good position and possibly moving into a better position, but just wanted to see what others are thinking and what adjustments y'all may be making to how your finances are set up in order to maximize financial aid (including merit aid).
Here's a good article that sums up the upcoming changes:
https://www.savingforcollege.com/article/how-fafsa-simplification-will-change-financial-aid-eligibilityIt looks like families who have more than one kid in college at a time will be hit hardest, especially if they have significant resources.
The income protection allowance for both parents and kids will go up, but not enough to make a significant difference for those with resources. This will allow families who have less savings to shelter more of it, though, which is a good thing in my book.
Cash support/gifts and amounts paid on behalf of the student by people other than their parents/legal guardians will not need to be reported on the FAFSA. If your kid has wealthy grandparents/aunts/uncles/friends they can now help with college costs without putting the kid's financial aid at risk!
Pell grant cutoffs are significantly higher if the child has a single parent. And maybe it was always this way but the way "custody" is defined for FAFSA reporting purposes is the parent with whom the child spent most of their time in the 12 months immediately prior to the FAFSA filing date, as long as that parent also provides over 1/2 the financial support for that student. This is huge for families with divorced or separated parents, especially those with vastly different incomes, because it means if you can arrange your custody schedule and child support arrangements so that the child spends more than 1/2 the year with the lower income parent but that parent also provides more than 1/2 the support, then you file the FAFSA based on that parent's income and tax returns. You do not have to file a separate form for the non-"custodial" parent and their income/assets/tax returns. This is doubly important because...
They are raising the income cutoff for simplified FAFSA processing to 60k from 50k, and for those parents who file a simple tax form with AGI under the 60k limit the FAFSA will not ask for info on other assets. I need to dig in more to the actual rules to see what the consequences are for filing some of the non-employment income schedules on this cut-off. But as with the "custodial parent" definition/application a few tweaks to how assets are distributed between divorced or legally separated parents could have BIG impacts on how much financial aid a given student qualifies for.
I may be missing or misinterpreting things here. But I guess I just wanted to get a thread going where we can all dig into this further, especially those of us who need to be planning NOW for kids who will be starting college in the next few years.
Also note this kind of financial planning/strategizing for those of us who are FIREd is only going to apply to schools that only use the FAFSA -- which is mostly public institutions. If your kid wants to go to a school that uses the CSS you have a whole different and more complicated process to go through.