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New FAFSA rules: How changes may affect your student’s financial aid eligibility

Plan for college expenses with more confidence by staying informed of the recent FAFSA changes.

June 2024

The Free Application for Federal Student Aid (FAFSA) looks different from previous years due to a change in U.S. law.

Submitting the FAFSA is a critical step for those students interested in procuring either merit (or need-based) financial aid for post-secondary education expenses. It’s a form that should be filled out by all prospective students — regardless of their family’s income.

If paying for college is one of your financial goals, your Ameriprise financial advisor will work with you to develop a plan to save for these costs. Here’s how the new FAFSA changes may impact you:

1. A streamlined FAFSA form

Long perceived as complex and time-consuming, the FAFSA should now be easier and faster for families to complete. The new application has far fewer questions to answer, and more of the responses can now be automatically filled from federal income tax returns.

Advice Spotlight

All families should fill out the FAFSA to ensure their children do not miss out on any merit-based scholarships. Many high-income households assume that they won’t receive financial aid because they earn too much. However, states, schools and private scholarship programs rely on the FAFSA when distributing merit-based aid.

2. A new Student Aid Index

The Expected Family Contribution formula — which had been used as an estimate of the family’s financial strength — has been reformulated and renamed the Student Aid Index (SAI). The index takes a more accurate cost of attendance into consideration and no longer considers multiple children in college, among other changes. Overall, the new SAI is intended to reflect a more accurate financial assessment for use in aid calculation.

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Understand how your family’s financial situation is weighted in the FAFSA and how financial aid eligibility is determined.

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3. Students no longer penalized for gifts

Gifts or contributions from family members or loved ones other than the applicant’s parents, such as funds from 529 plans, will no longer negatively affect a student’s financial aid prospects. This type of financial assistance previously was categorized as untaxed income and raised an applicant’s adjustable gross income, effectively reducing the amount of aid they could receive. This change is good news for those who want to help a loved one with education costs, but also don’t want to hurt their prospects for receiving financial aid.

4. Changes for students with divorced or separated parents

Students with parents who don’t live together may see an impact in financial aid eligibility due to the new FAFSA. Previously, the custodial parent — the parent with whom the student lived with a majority of the time — was required to fill out the FAFSA, meaning that only their income and assets were counted toward financial aid eligibility. Under the new rule, the parent who provides more financial support — regardless of whether they are the custodial parent — will now be required to fill out the FAFSA. Under the old rules, it could be advantageous for a student if their custodial parent earned less, as they could be eligible for more financial aid opportunities.

5. Number of children in college no longer considered

The new FAFSA will no longer consider the number of family members enrolled in college at the same time, which could impact financial aid for families who have children close in age. Previously, the FAFSA gave increased financial aid eligibility to these families, ultimately giving them a bigger discount on costs.

Let’s plan for your family’s education goals

College expenses can be significant — reach out to your Ameriprise financial advisor today for help with planning and saving for education.

Can you help me create a savings plan for my student’s educational expenses? How should I account for financial aid in my college savings plan? What strategies can I use to maximize the amount of financial aid my child will be eligible for?

When you’re ready to reach out to an Ameriprise financial advisor for a complimentary initial consultation, consider bringing these questions to your meeting.

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