If you or a family member has a college student, you may be aware of the recent changes to the Free Application for Federal Student Aid (FAFSA) and various student loan forgiveness programs that have been implemented over the past few years. These changes have aimed to streamline the application process and enhance accessibility to financial aid. However, the 2024-2025 application cycle brought significant timeline adjustments, which understandably caused some confusion among families regarding what these changes entail and how they might affect their financial aid eligibility.
Recognizing the complexities involved, our team at Total Wealth Planning has created a comprehensive summary of the modifications to the FAFSA process. This summary is designed to provide clarity and guidance, outlining the specific changes that could impact your family’s financial aid opportunities:
What Major Changes Have Been Made?
- There are significantly less questions. The number of questions has dropped from over 100 to around 40.
- Change in terminology:
- Expected Family Contribution is now Student Aid Index.
- Parents are now called “Contributors.” Contributors are you, your spouse, your biological or adoptive parents, or your parent’s spouse. (Important note: unless the student has been legally adopted, grandparents, foster parents, legal guardians, siblings, and aunt/uncles are not considered contributors even if they helped provide for or raise the student applying.)
- Student Aid Index will no longer consider certain types of untaxable income when calculating a student’s eligibility for aid. Examples of this include any “cash support or any money paid on the student’s behalf,” such as contributions from grandparents.
- Student Aid Index calculations will increase the threshold for the income protection allowance (IPA), which reduces the total amount of income considered in this calculation.
- Student Aid Index calculations will no longer account for multiple students in college at the same time.
- Students with AGI lower than either 175% or 225% of federal poverty guidelines—depending on the student’s dependency/marital status–automatically qualify for a maximum Pell grant. Students who do not qualify based on this standard then move to the Student Aid Index calculation to determine Pell grant eligibility.
How Can This be Relevant to Me?
- Individuals with 529 accounts for grandchildren, nieces and nephews, etc. will be able to use these assets without them being accounted for in financial aid.
- With increased eligibility for aid, there is more incentive for higher income earners to fill out FAFSA.
Student Loan Forgiveness
While a hot topic in the last few years, not much has changed regarding student loan forgiveness as we know it. What has changed involves your options for repayment. Specifically, your ability to get an Income-Driven Repayment Plan (IDR) for your loan.
- President Biden implemented new student loan repayment and forgiveness programs, such as the SAVE program. However, these plans, along with all Income-Driven Repayment Plans, are on a federal court-imposed injunction as of 9/4/2024. Anyone on these plans currently has their loans in forbearance, meaning you don’t have to pay but interest will still accrue.
- The On-Ramp for student loans is ending. This On-Ramp program was intended as a time of transition for those going from no payments to having payments again after COVID 19. This program protected borrowers from having their credit affected by missed, late, or partial payments of loans. This also prevented them from falling into default of their loans. This program officially ends September 30th.
Understanding the recent changes to FAFSA and student loan forgiveness is essential for families navigating the financial landscape of higher education. With streamlined applications and new terminology, the revised FAFSA process aims to make securing financial aid more accessible. While the landscape of student loan forgiveness remains uncertain with ongoing legal challenges affecting repayment plans, staying informed about your options is crucial.
As we move forward, our team at Total Wealth Planning is committed to helping you navigate these complexities. Whether you have questions about your FAFSA application or need guidance on managing student loans, we’re here to support you. Stay tuned for more updates, and feel free to reach out for personalized advice tailored to your unique situation using info@twpteam.com.
About the author
Abby Daly is an Associate Financial Planner with Total Wealth Planning, a fee-only fiduciary financial planning firm in Cincinnati (Blue Ash), Ohio. She is unbelievably passionate about her craft and focused on serving her clients and the team overall. Abby is excellent in her service to others, including the team of CERTIFIED FINANCIAL PLANNER™ practitioners and the clients they serve, so they can live their greatest life through well informed and prudent financial decisions. Abby can be reached at abby@twpteam.com
