By Phil West, WCI ContributorIf you are in a high-income bracket and have a child in college or about to enter college, you may think you’re ineligible for financial aid for your college student. You might assume that the Free Application for Federal Student Aid, or FAFSA as it’s better known, might not be something you’ll need to complete. However, there are good reasons for your child (and, ultimately, for you) to fill out a FAFSA form and get your student into the system.
First, What Is FAFSA?
For prior generations of students, ever since the Higher Education Act of 1965 was enacted to address student aid programs and federal aid to colleges, filling out the Financial Aid Form (or FAF) was the route to determining Pell Grant eligibility and other need-based and merit-based financial aid for college students. In 1992, when the Higher Education Act was reauthorized — as it periodically is by Congress — the application form was changed to the FAFSA, and over time, it became a notoriously difficult form with a number of questions that had to be answered thoroughly before a student’s financial aid inquiry could move forward.
In December 2023, a new, streamlined form was launched per a federal mandate. When the announcement first came out, the New York Times assessed:
“The new form aims to simplify the process of applying for college aid because it’s been found that those who complete a FAFSA are more likely to attend college. Along with updating the form, the federal government is expanding eligibility for federal aid in the biggest overhaul in decades.”
But the rollout was fraught with issues, to the point where, according to Inside Higher Ed, smaller institutions, described as “more reliant on tuition revenue than ever,” have been adversely affected. In fact, “the enrollment consequences of the bungled FAFSA launch have pushed some [schools] to make more drastic cuts than they otherwise might have.”
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What’s Different About the New FAFSA?
Perhaps the biggest change to the revamped FAFSA is that the Expected Family Contribution (EFC) value is replaced by something called the Student Aid Index (SAI).
According to NerdWallet, “The index equals the sum of your parents’ available income, your income, and assets. Unlike the EFC, the SAI does not consider the number of family members in college. This means that parents will no longer receive a ‘sibling discount’ for putting multiple kids through college at the same time.”
Many of you may also be concerned with the new requirements around factoring small businesses into parents’ assets. If you’re a parent owning a small business (one with less than 100 employees), you’ll have to figure out the value of your business to help determine the SAI. That means that students who previously qualified for certain types of need-based aid may now fail to qualify per the thresholds, based on what adding that in does to the SAI.
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What’s in It for My Children?
Despite the recent concerns around FAFSA and the perception that high-income household kids don’t benefit from completing the form, it’s still a good idea to fill out one.
For one thing, if your child will need student loans to pay for college, the FAFSA is what unlocks loan options. If your child has the grades and test scores to be eligible for a merit-based scholarship, filling out the FAFSA unlocks those as well. Not filling out the FAFSA could mean you would give up the chance for merit-baed aid.
One financial expert quoted in that article pointed out that “unusually high medical expenses” or “number of children in the household” can impact how much your family should contribute. Using a calculator like this one can be a good prelude to filling out the whole form so you can estimate how much federal student aid might be available to you and for you to start understanding the potential costs of college.
But the bottom line is that you won’t know how much aid your child will be eligible for at the schools being considered, the school your child’s in now, or the school your child might transfer to until you go through the FAFSA process.
If you’re in a high enough income bracket where you think you can’t get need-based aid, you may have already invested in a 529 account. If you haven’t, it’s a good idea because it serves as an investment vehicle where you can place some money and even take more risks with it. It also provides a valuable teaching moment for you to impart investing wisdom to your college-age child.
By discussing what your child might bring to the table in the way of school contributions, it’s a good opportunity to talk about being thrifty and to keep focus on the bigger picture.
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