New FAFSA Changes for Parents & Grandparents: What to Know for 2024-25

Key Points:

• Grandparents should now consider opening a 529 plan in their name, a significant shift from previous recommendations. This is because distributions from grandparent-owned 529s will no longer impact a student’s eligibility for federal financial aid.
• The sibling discount has been eliminated. This means that families with multiple children in college will no longer receive a reduction in their EFC.
• The FAFSA opens in December for the 2024-25 academic year. This is a change from previous years when the FAFSA opened in October.
• The Student Aid Index (SAI) is replacing the Expected Family Contribution (EFC). The SAI is a simpler and more transparent formula for calculating financial aid eligibility.
• More students will be eligible for Pell Grants, including some for the maximum amount. The income threshold for Pell Grant eligibility has been raised.

Introduction

Navigating college financial aid was already a complex affair, and now there is a massive change to the rules—especially for parents and grandparents eager to support their child’s or grandchild’s academic journey. Congress approved major revisions to the Free Application for Federal Student Aid (FAFSA) in 2020, and those changes are set to take effect this fall for the 2024-25 academic year. With new rules in the mix, previous advice on how to approach college funding may now be outdated.

The good news? Some of these alterations simplify the financial aid application process and could make more aid available to more families. But understanding the nitty-gritty details is crucial, particularly for those who are residents of states with state tax deductions to 529 plans.

In this blog post, we’ll zero in on the key alterations to FAFSA, how they affect you, and actionable strategies for both parents and grandparents to capitalize on these changes. The crux of our message pivots around one central piece of advice: Grandparents should now consider opening a 529 plan in their name, a significant shift from previous recommendations.

Whether you’re a parent planning for your child’s educational future or a grandparent looking to lend a substantial financial hand, read on to make sense of these game-changing reforms. Your next steps in college financial planning could look quite different and potentially more beneficial than before.

Key Changes

Tips for Planning with the New FAFSA Program

These changes create new opportunities at each stage of the college planning journey, from parents who are early in the college planning process to those with high schoolers or kids already in college. Whether it’s restructuring 529 plans to take advantage of tax efficiencies or recalibrating income to improve aid eligibility, precise planning can yield significant rewards. Moreover, understanding the interplay between FAFSA and other forms of financial aid, such as the CSS Profile for private schools, can further refine your strategy. Let’s go:

If you have children not yet in college:

• 529 plans: 529 plans are still one of the most tax-efficient ways to save for college, but how distributions from the plans are handled for aid calculation has changed. Previously, distributions from grandparent-owned 529 plans were considered untaxed income for the student, reducing their aid eligibility by as much as 50%. This is no longer the case.
• Action item: If your child’s grandparents are contributing to their college savings, they should set up a 529 of their own with the child being the beneficiary. This will reduce the amount of 529 plan assets owned by the parents, which can improve the student’s aid eligibility.

If you have a high school child:

• File early: The FAFSA opens in December for the 2024-25 academic year. File your FAFSA as early as possible, as some aid is awarded on a first-come, first-served basis.
• Estimate SAI: Use the SAI calculator to estimate what your aid might look like. This can be done any year and will help you to target schools accordingly. The US Department of Education has an online calculator here: https://studentaid.gov/aid-estimator/.
• Control income in FAFSA year: The FAFSA calculation uses income from the prior year’s tax return. If your child is not applying for aid until next year, you can reduce income by maximizing pretax employer retirement accounts this year or deferred compensation plans. Other options for income reduction could include receiving compensation in equity, restricted shares, or other means to defer it.
• Sibling discount: The sibling discount has been eliminated, so you must adjust your financial planning accordingly if you plan on having multiple children in college at the same time.

If you have a child already admitted or committed to a college:

• Consider switching to a prepaid 529: Prepaid 529 plans can protect you from tuition escalations in future years. However, they are not recommended for everyone, as there are penalties or low conversion rates if your child decides to transfer schools.
• State school note: Each state, if they have a prepaid plan, has different rules. Make sure you understand how far in advance you need to contribute.
• Private school note: There is a prepaid plan, the Private College 529 Plan, that allows college savers nationwide to buy prepaid ‘certificates’ at the current cost of tuition at current rates at nearly 300 private colleges. The purchase needs to be at least three years before use, which will only protect against the cost increases for one year or possibly two.

A final word on private schools: They typically use their own financial aid formula, the CSS Profile. Around 250 colleges, primarily private ones, rely on this to gauge how much institutional aid a student could get. So, if you’re eyeing private schools, expect to fill out both the FAFSA and the CSS Profile.

Since this information is relevant to multiple generations—primarily parents and grandparents—don’t hesitate to share it with family members who could be impacted by these changes. And if you have any questions or want to explore how a Flat-Rate Fee-Only structure can help you achieve your goals, set up a time to talk. Your financial well-being is too important to leave to chance. Choose wisely.

Frequently Asked Questions (FAQ)

Q: What are the key changes to the FAFSA for parents and grandparents?

A: The key changes to the FAFSA for parents and grandparents are as follows:

• Grandparents can now open a 529 plan in their name without impacting their grandchild’s financial aid eligibility. Previously, distributions from grandparent-owned 529s were counted as untaxed income for the student, which could reduce their aid eligibility by up to 50%.
• The sibling discount has been eliminated. This means that families with multiple children in college will no longer receive a reduction in their EFC.
• The FAFSA opens in December for the 2024-25 academic year. This is a change from previous years when the FAFSA opened in October.
• The Student Aid Index (SAI) is replacing the Expected Family Contribution (EFC). The SAI is a simpler and more transparent formula for calculating financial aid eligibility.
• More students will be eligible for Pell Grants, including some for the maximum amount. The income threshold for Pell Grant eligibility has been raised.

Q: How will the new FAFSA changes impact my family’s financial aid eligibility?

A: The impact of the new FAFSA changes on your family’s financial aid eligibility will depend on your specific circumstances. If you have grandparents who are considering opening a 529 plan for your child, you may be able to save money on financial aid. However, it is important to note that the new FAFSA changes will also negatively impact the amount of aid that is available to students, such as parents who have multiple children in college.

To get a better estimate of how the new FAFSA changes will impact your family’s financial aid eligibility, you can use the Student Aid Index (SAI) calculator. The SAI calculator is available on the Federal Student Aid website.

Q: What can I do to prepare for the new FAFSA changes?

A: The best way to prepare for the new FAFSA changes is to learn as much as you can about them. You can find information about the new FAFSA changes on the Federal Student Aid website. You can also talk to your child’s financial aid counselor at their school.

Here are some specific things you can do to prepare for the new FAFSA changes:

• Gather your financial information. The FAFSA will ask for information about your income, assets, and liabilities. You can use your tax return and bank statements to gather this information.
• Create a FSA ID. A FSA ID is required to complete the FAFSA. You can create an FSA ID on the Federal Student Aid website.
• Complete the FAFSA early. The FAFSA opens in December for the 2024-25 academic year. However, it is important to complete the FAFSA as early as possible, as some aid is awarded on a first-come, first-served basis.

Q: What are some tips for saving for college with the new FAFSA changes in mind?

A: The new FAFSA changes make it more important than ever to start saving for college early. Here are some tips for saving for college with the new FAFSA changes in mind:

• Consider opening a 529 plan. 529 plans are a tax-advantaged way to save for college. If you have grandparents who are considering opening a 529 plan for your child, encourage them to do so.
• Take advantage of pre-tax savings options. Pre-tax savings options, such as 401(k)s and IRAs, can help you reduce your taxable income. This can reduce your EFC and make you eligible for more financial aid.
• Invest wisely. It is important to invest your college savings wisely. Consider working with a financial advisor to develop an investment strategy that meets your needs.

Q: What are some resources available to help me learn more about the new FAFSA changes?

A: There are a number of resources available to help you learn more about the new FAFSA changes. Here are a few suggestions:

• The Federal Student Aid website. The Federal Student Aid website has a wealth of information about the FAFSA and other financial aid programs.
• Your child’s financial aid counselor. Your child’s financial aid counselor can answer your questions about the new FAFSA changes and help you develop a financial aid plan.
• Independent financial advisors. Independent financial advisors can help you develop a comprehensive financial plan, including a plan for saving for college.

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