The FAFSA formula that determines how much financial aid a family will qualify for is undergoing two behind-the-scenes financial aid formula changes for the 2023-24 school year. These changes are in addition to the massive changes happening for the 2024-25 school year for families with multiple children in college, grandparents, etc.
First, the good news. The income protection allowance, or the amount of income that is exempt from being assessed on the FAFSA, is rising.
The income protection allowance is inflation adjusted, so the higher than average inflation rate of the past year caused it to rise from $30,190 to $32,610. Depending on one’s income bracket, that change could result in a decrease of up to $1,137 in a family’s expected family contribution (EFC).
Potentially offsetting that good news is the complete disappearance of the asset protection allowance, or the amount of reportable assets that were exempt from the FAFSA.
Assets such as the value of your primary residence and qualified retirement accounts have always been exempt and remain so, but other assets such as the amounts in your checking and savings accounts and non-retirement investment accounts are disclosed on the FAFSA.
The asset protection allowance is tied to the age of the parents. According to Mark Kantrowitz, the median age of parents with college-aged children is 48. For these parents, the asset protection allowance has dropped from $52,400 in 2009-2010 to $3,700 last year, and now to $0.
Assets are assessed at a much lower rate than income in the FAFSA formula. Depending on one’s income bracket, this change could increase a family’s EFC by up to $208.
The longer term view of financial aid formula changes reveals a more painful statistic: The disappearance of the asset protection allowance has increased family’s EFC’s by up to $2,955 since 2009-10.