Student Aid Eligibility Changes Under FAFSA Simplification

A new Free Application for Federal Student Aid is less than a year away, and colleges and universities are already planning for the expected overhaul of federal student aid.

To help with that effort, the National Association of Student Financial Aid Administrators created a modeling tool and released a white paper Tuesday with seven case studies that show how the changes affect student aid eligibility. In most cases, a student's financial aid eligibility is not expected to change that much, but the case studies show some of the instances in which eligibility would change.

“Every single student isn’t going to be in the financial aid office saying, ‘What happened to my Pell Grant?’ Every school isn’t going to be facing huge budget shortfalls,” said Jill Desjean, senior policy analyst for NASFAA, who designed the case studies in the white paper. “For many students, they’ll get the same amount of Pell Grant as they usually did. Their eligibility for other aid will be about the same as it was.”

The U.S. Department of Education will release a new version of the Free Application for Federal Student Aid next October that’s expected to be shorter and simpler and go into effect for the 2024–25 academic year. The new application, which is the first step for millions of students to receive federal financial aid as well as need-based state and institutional aid, is one of several changes called for in the FAFSA Simplification Act. The act expanded Pell Grant eligibility, simplified the application and its underlying requirements, and repealed the limitations on subsidized loan eligibility for undergraduate Direct Loans. Additionally, the expected family contribution, which is used to measure how much students can afford to contribute to their college education, will be replaced by the student aid index.

“The impact of these changes is really far-ranging for schools, certainly for planning institutional budgets,” Desjean said. “If they’re going to have more students with more need, they’re going to have to have higher institutional budgets to meet that need.”

NASFAA and other groups are still waiting for more concrete guidance from the department about how to implement the various changes.

“We’re definitely anticipating greatly the Department of Education’s student aid index formula guide,” Desjean said. “That was supposed to be out in the summer, and we’re still waiting on it.”

That formula guide will show how eligibility is calculated. NASFAA’s modeling tool is based on its interpretation of the FAFSA Simplification Act.

“The FAFSA is the key to unlocking billions of financial aid dollars for millions of students each year, and these changes will not only make the form easier to complete, but also result in more students qualifying for Pell Grants,” NASFAA president and CEO Justin Draeger said in a news release. “However, in the world of policy tradeoffs where we’re balancing equity and simplicity, some students may also qualify for less federal student aid. It is important for financial aid administrators to understand how these formula changes will impact their students so they can plan for them today.”

One group that will likely see significant changes in student aid eligibility is families that have more than one child in college. In NASFAA’s example, a student whose parents have three children enrolled in college has an expected family contribution of $5,600 in the current model and would receive $695 in Pell Grant aid. But when the formula for disbursing federal student aid changes, that student’s student aid index, which is a measure of how much they would have to pay, would be tripled, to $18,400.

“Families with more than one kid in college right now are going to see this change as very unfair, but I think there’s a good argument to be made the other way—that the current treatment where if you have more than one kid in school at the same time is not fair. Because if you have two kids who are four years apart, you pay twice as much, but if you’ve got twins, you get this discount.”

The current formula is driven by a family’s income, but she said the new formula will better reflect how individuals pay for college.

“The truth is now that with the cost of college, families are paying for college over many, many, many years, they’re drawing out of their savings,” she said. “They’re drawing from their current income, and they’re drawing from future earnings by borrowing.”

In another scenario, a student who earns $196,000 and has $6,000 in savings would be eligible for the maximum Pell Grant under the new formula because his single parent has a total income of $27,000. Under the current model, the student would be expected to pay $61,000. The new model will determine Pell Grant eligibility by first looking at family income, household size and the federal poverty guidelines. Pell Grant eligibility currently is tied to what families are expected to contribute as determined by the formula.

“While a dramatic change from the current Pell eligibility and [federal methodology] formulas, this is also a very unusual case and financial aid administrators should only rarely expect to see situations like this,” the report says.

The new formula also will take into account the value of a family’s small business or farm, both of which are currently exempt. How exactly the inclusion of the small businesses and family farms would affect the student aid index depends on a family’s adjusted gross income as well the value of the business or farm. For example, a family of five with an income of $61,000 and a business valued at $200,000 would have an expected family contribution of $1,975 in the current model but a student aid index of $2,870 in the new model.

NASFAA’s case studies build off previous studies that detailed how the FAFSA simplification would change student aid eligibility.

“If you have a real-life scenario in front of you, I feel like it clicks a lot faster than when you’re trying to imagine this hypothetical formula,” Desjean said.

Desjean said financial aid administrators can use the case studies as a guide for using NASFAA’s modeling tool and analyzing their own institutional data.

As institutions prepare for the financial aid overhaul, Desjean said administrators will have to make decisions about how to help students and families who see sudden shifts in eligibility and budget for related impacts.

“That’s why we really developed the model and these case studies, so that it can help schools to plan so they don’t get surprised in ’24–25 by all of these huge changes that are coming,” she said.