Author Topic: Has anybody dug into the new FAFSA/EFC rules yet  (Read 1477 times)

lhamo

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Has anybody dug into the new FAFSA/EFC rules yet
« on: February 03, 2021, 10:20:01 AM »
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-eligibility

It 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.

secondcor521

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #1 on: February 03, 2021, 01:11:46 PM »
Posting to follow and to make a few comments.  Single parent of two college students (one sophomore, one freshman).

I agree that 2021 is the first tax year where the new "simplified" FAFSA rules take effect.

The current custodial-parent rule is just whichever parent the kid spent more time with in the 12 months immediately prior to the FAFSA filing; I don't believe there was any requirement for that parent to have provided more than 1/2 the kids' support.  Note that whether a high school / college age kid is a dependent for tax purposes has a completely different definition than the FAFSA definition of dependent.

If you can get your AGI under the applicable poverty level for the applicable tax years (2021 through 2024 in @lhamo's case), you can get maximum Pell Grant and auto-zero SAI.  This is a boon.  You can probably do this if you're FIREd with a paid off house and cars and/or lots of tax-free savings to live on.  Beware, though, colleges which are not fully needs-blind as they may reject your "needy" student in preference for a full pay kid with a slightly lower SAT.

It's not in the linked article, but I thought I either saw another article or read in the law that one can still qualify for SNT (simplified needs test) if income less than $60K and anyone in the family receives any means-tested federal aid program (food stamps, Medicaid, reduced price school lunches).

No longer dividing the SAI by the number of students in college is kind of crummy for me.  It also seems like a pretty dumb simplification:  A family's SAI is $10K, so with two kids in college they can afford $20K - how does that make sense?  But it's good to know for tax planning purposes for 2021 I guess.

teen persuasion

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #2 on: February 06, 2021, 08:51:58 AM »
DS5 will also be affected by the changes - we'd already been on alert to manage this year's AGI to target auto EFC zero.  So I'd been trying to parse the spaghetti code COBOLesque legalese for details.  Thanks for the link; it confirmed much of what I'd read (loss of state tax proxy, acronym changes, PELL as basis for auto zero, increase in income protection chart but loss of multi-child discount, etc), but added lots I'd missed about changes in family size, outside payments/gifts, etc.

It's really confusing trying to figure out "when" something applies - it sounds like most of it is as of the prior-prior tax year, not as of filing FAFSA date.  That's really strange, if you think about it.  How many family members count is based on data 2 years old?  That % of poverty line # for PELL eligibility - which year's poverty line?  Presumably prior-prior, to be consistent. 

There's a bunch of nit-picky details I'll have to dig into to rewire my internal pseudo-code FAFSA brain.  I've been doing the current FAFSA since 2008, and though there's been tweaks and changes here and there, I intuitively understand the base assumptions with just the numbers shifting each year. This article leads me to believe I have to rebuild my logic tree, not just plug in new numbers.  But without the formula guide, I'm fuzzy on the actual implementation at this point.

Which makes it hard to pick a target AGI for this year's income.

teen persuasion

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #3 on: February 06, 2021, 09:17:55 AM »
Honestly, for us it looks like the easiest route is just target auto SAI zero via AGI < 175% FPL for family of 3 and call it a day.  AGI < $38k is much easier than current AGI < $27k, and much less convoluted than a calculated SAI if we do Roth conversions plus some contributions to a SIMPLE IRA (DH retires, I continue part-time for EITC perks plus increased SS base and retirement savings in my name).

But rereading the article more closely, it looks like grandparent 529s are now much more valuable - don't count as assets, and don't count as income when withdrawn.  But who knows how long that situation will last before it's changed, again?

secondcor521

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #4 on: February 24, 2021, 09:22:44 AM »
I have a question that I thought I'd pose on this thread.

Let's say that I'm aiming for the 225% of FPL situation since I'm a divorced parent.

When I go to fill out the FAFSA in fall 2022, I'll port over my 2021 tax information, which will have my AGI on it.  And they'll compare that AGI to the FPL for my family size and location.  It would be logical for them to use my 2021 family size, 2021 AGI, and 2021 FPL.  But they might also use my 2021 AGI, my 2022 family size, and the 2022 FPL.

So which will it be - 2021 or 2022?

Not that it makes a great deal of difference, I suppose, but I am curious if anyone has dug into that detail yet.

teen persuasion

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #5 on: February 25, 2021, 08:49:01 AM »
I've been wondering about the details, too.  It would make sense to match AGI year to FPL year and family size in that year, but past FAFSA used prior-prior year AGI and current asset values (as of the day you filed), so hard to predict. 

We are currently family of 4, but DS5 may or may not be our dependent at any time in the near future, so I'm planning by using family of 3 to be safe.

I wonder if they changed *who* is included in family size.  It wasn't intuitive whether older siblings counted or not.  DS2 was included in our family until he hit age 24, even though he was independent living in another city from age 20 or so, just because he didn't hit one of the disqualifiers (married, military, grad school, own dependents, etc).  You could still be supporting a grad student, but they wouldn't count as a FAFSA dependent or family member - made no sense.

Guess I need to find a link to the legalese text to parse it out...

lhamo

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #6 on: February 25, 2021, 09:33:10 AM »
I don't want to take on such a big task but there seems to be a good opening here for a blog or podcast (or maybe an ongoing series for an established outlet like ChooseFI) that focuses on financial planning strategies for the FI-minded parent of college bound kids.... 

teen persuasion

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #7 on: February 25, 2021, 01:23:50 PM »
I have a question that I thought I'd pose on this thread.

Let's say that I'm aiming for the 225% of FPL situation since I'm a divorced parent.

When I go to fill out the FAFSA in fall 2022, I'll port over my 2021 tax information, which will have my AGI on it.  And they'll compare that AGI to the FPL for my family size and location.  It would be logical for them to use my 2021 family size, 2021 AGI, and 2021 FPL.  But they might also use my 2021 AGI, my 2022 family size, and the 2022 FPL.

So which will it be - 2021 or 2022?

Not that it makes a great deal of difference, I suppose, but I am curious if anyone has dug into that detail yet.

I found this link that summarizes the legalese: https://www.aau.edu/sites/default/files/AAU-Files/Key-Issues/COVID-19/FAFSASimplificationActof2020_%20SECTIONBYSECTION_CLEAN_lms12.17.2020.pdf
On page 23 it discusses the Pell eligibility formula, and says
Quote
 All of these factors will be measured using the second tax
year preceding the academic year for which the student is
applying (e.g., tax year 2018 for the 2020-21 academic
year), sometimes commonly called “prior-prior year” 

So I'd interpret "all of these factors" to mean not just the AGI from prior-prior year tax returns, but also family size and FPL.  But elsewhere in the document, it clearly talks about how the new FAFSA should be implemented, that is, it is not yet implemented, so these are just guidelines - no one will know what it actually asks until the 2023-24 FAFSA is released.

secondcor521

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #8 on: February 25, 2021, 03:55:43 PM »
^ Thank you!!

secondcor521

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #9 on: March 08, 2021, 09:27:27 PM »
Next question:

I have two kids in college now, DS20 and DD19, who are both approximately sophomores.

For the 2021 tax year, we're considering arranging the facts and circumstances so that DD19 does not qualify as my tax dependent, because it is advantageous, net of everything, for us to do so.

In a careful reading of the new law, it seems that when we go to complete the FAFSA in October 2022 for DS20, our family size would exclude DD19, because they would not be my dependent in 2021 and wouldn't be the student in question.

However, the FAFSA in October 2022 for DD19 would include DS20, because he will be my dependent in 2021.

So I'd have a family size of 2 in one case and a family size of 3 in the other.  I'd rather have my family size be 3 in both cases.

Anybody read it differently?  Any comments?  I'm probably going to call the FA office at my son's school and see what they say.

secondcor521

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #10 on: March 09, 2021, 01:36:31 PM »
^ Hmmm.  I called and spoke with the FA office and they weren't even aware of the law.  That was just one person, so maybe I should try back.  But I'm not sure how to handle the situation because I don't want to be a dweeb who is jockeying for FA a year and a half ahead of time.  Sigh.

Still interested in anyone's thoughts here.

la Condessa

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #11 on: March 12, 2021, 07:26:24 AM »
The change to expected contribution from parents of multiple kids in college is going to be huge for many large families with closely spaced ages.  It will definitely affect us, but we at least have time to adjust our planning.  It will be a huge blow to my nephews, who will graduate high school in 2022, 2023, 2025, 2026, and 2027.  Adding to this that their parents are recently high income (their dad is a doctor), but without having had much time to save up to be able to help, and the boys are going to have to foot significantly higher bills themselves because of this change.

MayDay

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #12 on: March 12, 2021, 08:11:07 AM »
Ignoring grandparent contributions seems stupid to me. And I say that as someone whose kids have a grandparent-funded  529. That should absolutely count in the calculation!

lhamo

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #13 on: March 12, 2021, 09:53:10 AM »
Ignoring grandparent contributions seems stupid to me. And I say that as someone whose kids have a grandparent-funded  529. That should absolutely count in the calculation!

Agreed.   It is going to be a big boon to those with family wealth.  My grandkids (should I have them) are going to have huge 529s....

seattlecyclone

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Re: Has anybody dug into the new FAFSA/EFC rules yet
« Reply #14 on: March 12, 2021, 10:30:34 AM »
Ignoring grandparent contributions seems stupid to me. And I say that as someone whose kids have a grandparent-funded  529. That should absolutely count in the calculation!

I definitely see the unfairness here. I also know one of the biggest stated goals was to make the FAFSA simpler. The only way to make it simpler is to reduce the amount of data you need to input. The benefit of counting grandparent contributions must have not been seen as worth making everyone collect this information. It's not like the old way was great at tracking these; grandparents can save a couple years' worth of expenses in there without counting it as long as they back-load the distributions.