Jay Benanav Q&A: Imminent Financial Aid Tasks & the 2023-2024 FA Landscape

Q: Jay, what is new and reportable in the 2023-2024 financial aid landscape?  What have we learned in the last application cycle? 

The later you complete and submit your forms, the longer you wait to get your financial aid award. Schools are expecting them much earlier than they used to. If a school requires the CSS Profile, we recommend that our clients submit their CSS  to coincide with the first Early Action deadlines for their child, usually Nov 1.  

In addition, they must check the financial aid page of every school on their child’s list, as colleges are increasingly requesting additional specific supporting financial documents, such as bank account statements. Previously, the FAFSA was available on Oct.1, but because of the overhaul of the form, the FAFSA will not be available until sometime in December 2023. DON”T complete the FAFSA before that, or it will not be accepted.

Even though many schools are test-optional not all of them are test-optional for merit aid.  Families have to be aware of which schools are truly test optional for both admissions, and merit money.

Q: Clients are increasingly applying Early Decision.  Speak for a moment about financial aid and ED.

Ask your financial aid office to do an “early read” of what you will receive in the way of financial aid, if your student wants to apply ED.  Some colleges last year, like Case Western and Tulane, wrote to our students saying: you have the best chance of admission if you switch your application to ED, but we will not predict merit aid for you. This is an enormously egregious consumer practice, like saying to somebody: If you want to buy this house, then buy it, but we will not tell you how much it costs until after you own it.  Many of our parents were fairly offended by these letters.  

College cost calculators are notoriously inaccurate. The government says colleges have to have one, but that doesn’t mean it has to be a good one. If they are only asking you three or four questions, forget it.  The more questions they ask, the more accurate the prediction of aid. I would call the school and say: this is the number I got from your net price calculator, is this an accurate number? Press them.

Q:  How should clients be working with their financial advisors right now?  What are the essential preparatory tasks?  I know that some families are worried about their 529s.

Grandparent contributions will no longer negatively affect financial aid, according to the new FAFSA rules. In the past, a grandparent’s contribution counted as income for the student; the student’s assets were considered higher.  That’s no longer the case.  In short, grandparent contributions do not have to be reported on the FAFSA. 529s in other children’s names were also counted as an asset in past years but the new FAFSA does not require you to list these 529s 

Talk to your advisor about the market specific impacts on the 529, and discuss whether it makes sense to shift plans in terms of college financing arrangements.

Make sure that your 2022 taxes are filed because that is what the FAFSA will look at. Have that ready to go by the beginning of October. For the CSS Profile, have all of your financial documents in hand, including: income tax form, 529 information, any other assets in savings or brokerage accounts – any assets with any cash, stocks, bonds. 

Q: Why do so many families have a problem figuring out how to use 529s? What is your single best piece of advice for these families?

A: The rules are complicated, and there is a 10% penalty for making a certain kind of mistake. Not all college expenses can be paid for with the 529.   For example, if a student moves off campus and lives in an apartment – the 529 cannot be used to pay for the rent – you can only reimburse for what it would have cost to live on campus. And, some parents want to pay off a student loan with the 529 – but there is a 10k lifetime limit on that.

Q: Let’s talk about the upcoming change in FAFSA for families with more than one child in college.

Previously, you got  a break for having more than one in college. That will change in 2024. The update eliminated what was effectively a discount for families with multiple children in college.  Part of the problem is we don’t know how this is going to shake out.

The FAFSA is a document colleges use as a starting point; it is not completely dispositive regarding what your financial aid package will look like.  When you get your financial aid offer, it may be worth it to you to speak to financial aid at your college of choice, because every college may treat it differently. Each will take the new Student Aid Formula and work the numbers. 

Q: Under the old rules, financial aid was calculated based on with whom the child spends the most time.  The new law states that financial aid will be calculated based on who provides the most financial support.  Should divorced parents prepare to provide proof of financial support?

The rules for this new law haven’t yet been written, so it’s unclear what “providing the most financial support” means. It may include the value the student received by living in a parent’s house, meals and other typical expenses of raising a child.  My advice is to keep records whenever possible and compare the cost to the amount of financial support the other parent provides. BUT, stay tuned for the rules as they are released.

Q: What are some of the other big changes in the new FAFSA?

A: The form will be much shorter, going from 106 questions to 36-46 questions, depending on your situation. The “expected family contribution” (EFC) will now be called “student aid index” (SAI). The value of a family-owned business or family farm will no longer be excluded & must be reported. Child support will no longer be considered income but rather an asset, which essentially means it is assessed at a much lower rate. The amount a student can earn from work before it impacts financial aid is increasing from $7,040 to $9,410.

Q: Moving on to financial aid applications:  let’s begin with the most mundane of questions: Who should file the FAFSA and the CSS Profile?

A: These forms belong to the student, not the parent, though adults often fill out the forms on the student’s behalf. Not all schools require the CSS Profile, so the first job is determining that. CSS Profile Participating Institutions and Programs

The question is not all that mundane.  Some people are resistant to the forms, the completion of which they may experience as invasive at worst or unnecessary at best.  There may be so much emotion around financial aid in some families that these forms can become a real roadblock to securing aid.

In terms of the FAFSA,  I tell families that many schools don’t require either form for merit aid, but unless you know that for sure, do it.  Do the forms, so  you don’t miss out on merit aid.  For families who do not qualify for need-based aid but want to take advantage of the federal student loan program, the FAFSA must be filed.

Q: Some families just don’t want to do the forms.

A: We always have some families who decline to fill out the forms for one reason or another, and that decision has no impact on the admissions decisions; but they have to accept the idea that it might very well impact their child’s merit awards, and perhaps dramatically impact them. At least one school declined to give at least one of our families a penny last year because the family would not fill out the FAFSA.   That was fine with the family.  If that is fine with yours:  ignore the financial aid forms.

Q: Some families with considerable financial means wonder if their child has a better chance at a highly selective school if – in addition to qualifying for no need-based aid- the family makes clear that they will not require merit aid. Does not asking for money of any kind increase the chances of admission? 

At most schools, the answer is yes. Not many colleges are need-blind. Are you a full pay student? That fact will likely increase your chances.  Colleges are businesses.  

Q: What is the relationship between need-based aid and the FAFSA?

A: In order to receive any need-based aid from the college or the government – which includes the federal loan – the FAFSA has to be filed. In addition – and we found this last year – some schools, if you don’t file the FAFSA the first year, in subsequent years if you lose your job and you haven’t filed the FAFSA you are not eligible for need-based aid.

Q: I don’t think my family will qualify for any sort of aid, including loans; do I still need to do the forms?

A: Federal Student Loans (loans in the child’s name for the child’s education) are not dependent on financial need. Any student who files the FAFSA will qualify for the loans. What is determined by need is how much is in the form of a subsidized loan (where the government “subsidizes” the loan by paying the interest while the student is in school). The college decides that and will put that information in the official financial aid award letter. To get these loans, the student has to file the FAFSA and show up to school in the fall. Financial need is not part of that equation.

Q: How do these factors affect how you advise your student clients when you are reviewing individual applications with them? How should they respond to questions regarding financial aid on the Common App, for example?

A: The Common Application may well ask the student: are you applying for need-based aid. Some schools also ask if the student will apply for merit aid.   So, it is important to understand the difference.

To receive the best merit aid, the student generally has to be in the top quarter of the applicant class. Parents have to be aware that it isn’t only getting into the school that counts; for strong merit aid, the top quarter is the sweet spot.

Q: Any tips for making completion of the forms easier?

A: Sure. The Direct Data Exchange (DDX) which used to be called “Data Retrieval Tool (DRT), is now required.  This tool automatically populates the FAFSA’s questions directly from the federal tax return, making completion much simpler.  These populated fields are shielded from the filer, though college financial aid offices will be able to see the numbers.

Q: What else should parents know about the IRS tool?

A:  The only time you can enter financial information manually is if the DDX will not auto populate (e.g., tax return not yet filed, you have been a victim of tax fraud).

Q: Some of our families with very substantial financial resources hesitate to apply for need-based aid. Many clients come to us with well-funded 529s and ask: Should we still fill out FAFSA and check the YES box to both need-based and merit aid?  What do you say to those families?

A: I tell them if they are absolutely certain that they don’t want to take advantage of the federal loan, or that they will not require need-based aid in the future – don’t apply for need-based aid. But if you need or want to protect your child’s future in case of an unknown whack to your family’s financial situation:  apply for it, even though we know you won’t get it right now.

Somebody is furloughed, death in the family, change in fortunes – say a pandemic occurs and your money situation changes in ways you might never have anticipated when you were at the top of your game.  Dramatic changes happen in this life, unreimbursed and unexpected catastrophic health care costs happen. Sometimes, they happen in our families. So I say: Think about these issues carefully, then make your decision.

Q: And don’t feel embarrassed about applying, irrespective of your current financial picture.

A: Exactly. Understand the potential consequences.

Q: Thank you Jay!

A: My pleasure.

 

DISCLAIMER: Any advice provided by a College Inside Track (CIT) regarding the FAFSA, CSS Profile, or any other college or other financial advice is intended to be general advice and does not constitute advice specific to your situation. CIT does not offer financial, legal, or tax advice. Individuals are encouraged to discuss their financial needs with the appropriate professional regarding your individual circumstance.