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New 2024-25 FAFSA Will Cause Millions Of Families To Receive Less Financial Aid

The new 2024-25 FAFSA (Free Application For Federal Student Aid) is expected to launch by December 31, 2023, but there already are glitches even before the form is ready for release.

These glitches will cause millions of families to qualify for thousands of dollars less financial aid than they deserve.

All of the errors stem from the Department of Education failing to update various financial aid formulas for inflation. As a result, it will be harder for some families to pay for college.

Table of Contents

U.S. Department Of Education Punts On Inflation Adjustments
What Does The Law Say?
Incorrect And Correct Figures
Impact Of The Lack Of Inflation Adjustments
Other FAFSA Glitches
Bottom Line

U.S. Department Of Education Punts On Inflation Adjustments

The 2024-25 FAFSA will include three-year-old tables for assessing ability to pay for college, even though the Consolidated Appropriations Act, 2021 (P.L. 116-260) requires the U.S. Department of Education to update the tables for inflation.

In a normal year, modest inflation rates would result in small adjustments to these tables. But, inflation rates have been much higher recently, increasing by 18.32% from April 2020 to April 2023. 

The U.S. Department of Education has said that it doesn’t plan on making the inflation adjustments, even though it is required to do so by law, until the 2025-26 FAFSA. 

By keeping the April 2020 tables from the FAFSA Simplification Act, the Biden Administration is shortchanging American families.

This fumble with the formula will make it harder for families to pay for college, especially middle- and high-income families.

What Does The Law Say?

The tables published by the U.S. Department of Education in the 2024-25 DRAFT Pell Eligibility and SAI Guide are the same as the tables that appear in the Higher Education Act of 1965, as amended by the FAFSA Simplification Act, at 20 USC 1087oo, 20 USC 1087pp and 20 USC 1087qq, even though these tables are supposed to be adjusted for inflation per 20 USC 1087rr.

For example, 20 USC 1087rr(b) requires inflation adjustment to the income protection allowances:

INCOME PROTECTION ALLOWANCE ADJUSTMENTS.—For award year 2023–2024 and each subsequent award year, the Secretary shall publish in the Federal Register revised income protection allowances for the purposes of subsections (c)(3) and (g)(2)(C) of section 475, subclauses (I) and (II) of section 476(b)(1)(A)(iii), and section 477(b)(3), by increasing the income protection allowances in each of such provisions, by a percentage equal to the percentage increase in the Consumer Price Index, as defined in subsection (f), between April 2020 and the April in the year prior to the beginning of the award year and rounding the result to the nearest $10.

Incorrect And Correct Figures

The U.S. Department of Education will be using an income protection allowance of $9,410 for dependent students and $35,870 for a family of four. The income protection allowance shelters a portion of family income from the financial aid formula. A lower income protection allowance means more income will be counted when calculating the Student Aid Index (SAI).

The inflation-adjusted figures, however, should be $11,130 and $42,440, representing increases of $1,720 and $6,570.

In addition to the Income Protection Allowance (IPA), the U.S. Department of Education was supposed to implement inflation adjustments to the Employment Expense Allowance (EEA), the adjustment for the net worth of a business/farm, the Asset Protection Allowance (APA), and the calculation of the contribution from adjusted available income. 

The tables round the figures to the nearest $10, $100 or $5,000, depending on the table, after adjusting the figures for inflation.

For example, the adjustment for the net worth of a business/farm shelters 40% to 60% of the first $695,000 in net worth, which would have increased to $820,000 after the inflation adjustment and rounding to the nearest $5,000. 

Impact Of The Lack Of Inflation Adjustments

The impact of the lack of inflation adjustments on the Student Aid Index, however, is smaller than the changes in the income protection allowance would suggest. There are cross-currents in the lack of inflation adjustments that cause the final impact to be somewhat smaller. 

I calculated the student aid index for a family of four in New York at five different parent income levels, no student income, and no assets with and without the inflation adjustments. The results are shown in this table.

Impact Of Inflation Adjustment By Income

Income

SAI without Inflation Adjustments

SAI with Inflation Adjustments

Difference

$25,000

$0

$0

$0

$50,000

$1,658

$52

$1,606

$75,000

$6,179

$4,471

$1,708

$100,000

$12,943

$9,162

$3,781

$150,000

$29,475

$14,764

$4,711

This demonstrates that middle and high-income students will get thousands of dollars less financial aid than they would get with the inflation adjusted tables.

Some low and middle-income students will lose eligibility for the Federal Pell Grant or qualify for a smaller grant due to play in the joints between the new and old formulas for Pell Grant eligibility. 

In addition, planned changes in the financial aid formula will cause middle and high-income students to qualify for less financial aid. This includes the elimination of the sibling loophole, small business exclusion and family farm exclusion. 

Other FAFSA Glitches

Other glitches will cause financial aid award notifications to be delayed, since the colleges won’t receive their copy of FAFSA data until late January.

The FAFSA Submission Summary will not be sent to students until February, affecting their ability to apply for financial aid from more than 20 colleges.

Considering the college admissions process has already started at colleges nationwide, many students are flying bling as to whether they can even afford to pay for the schools they are admitted to.

Bottom Line

Americans going to college will get less financial aid as the result of the Biden Administration. 

There is nothing that families can do about this problem.

Appealing for more financial aid won’t work, because college financial aid administrators are not allowed to change the financial aid formula and a flaw formula does not represent a special circumstance that can justify a professional judgment adjustment.

Only the U.S. Department of Education can fix this problem, and time is running out as millions of students have already started applying to college across the country.

Editor: Robert Farrington Reviewed by: Ashley Barnett

The post New 2024-25 FAFSA Will Cause Millions Of Families To Receive Less Financial Aid appeared first on The College Investor.

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