October 14, 2021
The stimulus package enacted in 2020 includes some changes to the process of applying for financial aid, as well as changes to the formula that determines a family’s eligibility for aid. These changes are being phased in over the two academic years from 2023 to 2025. There’s some good and some bad to these changes for every family, and a significant change for divorced families.
First, the good news. The application form for FAFSA, the Free Application for Federal Student Aid, has been greatly simplified. The previous 108 questions on the form have been reduced to 36, making the process simpler and less intimidating for families.
The old FAFSA formula resulted in an “expected family contribution” which, as it sounds, is the amount of money the family is required to contribute towards the total cost of tuition, room and board. The rest of the cost is borne by the university or college, through grants, scholarships, and loans to the student.
The term “expected family contribution” has been replaced with the new “student aid index”. The change is in name only and doesn’t change the nature of the formula, which is a guideline for the amount the family is expected to pay and the financial aid that the student is qualified to receive.
However, there is a change to the formula that protects more of the family’s own income from being deemed eligible for use towards college expenses. In conjunction with this the government has expanded eligibility for federal loans such as the Pell Grant.
On the flip side, there is no longer a break in the cost of school for a family with multiple children in college at the same time. However, also related to the family size, Pell grants will factor in family size as determined by the number of children claimed on the parent’s tax return. If a divorced couple have multiple children and they split them up when claiming dependents, then the tax return will not reflect the true family size.
Of particular importance to divorced families, the formula no longer asks for the income and assets of the custodial parent - the parent who houses the student for the majority of the 12-month period ending on the day the FAFSA application is filed. Under this rule it was advantageous to have the child live with the lower-income parent, thus qualifying for more aid. Under the new rule it doesn’t matter where the child lives, or which parent makes more money. Now the parent who provides the most financial assistance to the child is deemed the custodial parent. Thus, who has legal custody, or which parent claims the child on their tax return, do not by themselves satisfy the FAFSA definition of custodial parent.
Sometimes it is clear which parent provides the most support for the student. But in situations where it is not clear (as could be the case with shared custody), the government may look to the tax return to see which parent claims the child. We will be watching for more clarification in early 2022 as students fill out the new FAFSA form.
We foresee many issues related to divorced families as the new FAFSA is introduced. Stay tuned for future newsletters on this topic.
