With the new academic year right around the corner, now is the time to review the changes to the Free Application for Federal Student Aid (FAFSA) process. The recently updated FAFSA form for the 2024–2025 academic year, released later than usual on December 31, 2023, has several notable modifications that could negatively impact financial aid eligibility. Below are three significant updates:

1. Elimination of the Sibling Discount. One of the previous advantages for families with multiple children in college was the sibling discount, where each student’s Student Aid Index (SAI), the figure used to determine financial aid eligibility, was reduced. The lower the SAI, the higher the chances that the student would receive financial aid. The updated FAFSA rules have eliminated this discount. Under the previous system, if one student had an SAI of $30,000, it could drop to $15,000 with a sibling also in college. Now, each student’s SAI remains at $30,000, potentially affecting their federal financial aid.

2. Changes for Divorced or Separated Parents. Before, the parent where the student lived for the majority of the year would complete the FAFSA, regardless of support or income. The new rule designates the parent providing the most financial support as the parent who must complete the application, regardless of custodial status. This shift may disqualify families from aid if the supporting parent has higher income and assets.

3. Inclusion of Business and Farm Values. Small businesses and farms owned by parents are now considered assets in FAFSA calculations. The valuation includes land, machinery, buildings, and inventory. Depending on the value of these assets, families might see reduced eligibility for need-based financial aid.

While these changes will pose challenges for many families, there are still avenues to explore for financial assistance. It’s best to complete the FAFSA application each year as close to the opening date as possible—typically around October 1st—as this form provides access to federal financial aid, favorable federal student loans, merit scholarship opportunities, and more.

There are also positive changes that should benefit more families and make the application more accessible. Here are five changes:

1. FAFSA Simplification. The application has been reduced from 108 questions to 46.

2. IRS Direct Import. Tax return information will be directly imported to fill in the FAFSA, making the application process more efficient for families.

3. Outside Support. Support from outside the immediate family (including grandparents) will no longer be treated as untaxed income to the student. In the past, that could significantly reduce aid eligibility. One caveat: outside support will probably still be considered by schools using the CSS Profile.

4. Retirement Plan Contributions. Contributions to pre-tax employer-sponsored plans for W–2 employees will no longer count as untaxed income. Funding pre-tax retirement plans will help reduce a family’s income for the year, the heaviest weighted factor on the FAFSA, while also shielding assets, as retirement plans are not included in the calculation to determine aid eligibility. However, contributions to self-employed plans (such as SEP plans) will still be included.

5. Additional Access. The FAFSA will allow students to complete the form in up to 11 languages and list up to 20 colleges, up from 10 schools in previous years.

While the rollout of the new FAFSA has caused some concern given the recent changes and delays in providing financial aid, we offer many resources—webinars, articles, financial aid software, and personalized consultations—to help guide you through these updates and help you make informed decisions about financial aid. 

If you have questions, please contact me to schedule an appointment.

This post was written by Ryan Muscatella, CFP®, APMA®, Financial Planning Specialist, Cassaday & Company, Inc.