Take KARE of Your Money: Big Changes in Financial Aid and Education Savings Plans

Four big changes are taking place in the way parents and students apply for financial aid and save for college.

MINNEAPOLIS – The dreaded form of FAFSA has haunted the dreams of many parents over the years.

Jody Thuli knows the nightmare all too well.

“A little scary. A little overwhelming,” Thuli said.

She filled out the form about two years ago when her 21-year-old son started applying to college.

“It was useful. We were able to receive a small loan,” says Thuli.

While it helped, Thuli says the process could have been easier and less confusing.

Chris Wills of College Inside Track totally agrees.

“It’s just too long and complicated,” said Wills.

This is one of the main reasons the federal government decided to change the financial assistance process.

Wills says there are several big changes happening to the FAFSA and financial aid.

Here are the four changes that will have the biggest impact on families:

# 1: The app gets smaller and easier to complete

Wills says the current FAFSA app includes over 100 questions.

“It’s now down to less than 40,” Wills says.

This change will likely save parents and students a lot of time and stress, Wills says.

“By making it much easier to complete and more accessible, more low-income families will fill it and reap the benefits.”

# 2: New requirements for divorced families

Under the old rules, Wills says the parent the child lives with the most is the one who fills out the FAFSA form.

But under the new rule, he says the parent who pays the most must do so.

“The government may be trying to close a loophole there,” Wills said.

The loophole is that parents could theoretically hide part of their income depending on who the child lives with.

Consider a situation where the child lives with a parent who earns less than $ 30,000, but also receives child support from another parent who earns six figures or more.

Under the current rules, the income of the richest parent would not be included on the FAFSA form.

However, under these new changes, the wealthier parent who provides the majority of the child’s financial support would have to complete the FAFSA form.

“With these changes, I can predict that some families who would have qualified for financial assistance under the old rules may not be eligible for financial assistance under these new rules,” said Wills.

# 3: Less penalties for college savings accounts

College savings plans like the 529 accounts are a popular investment option for families saving money for college.

Wills says under current rules, every dollar saved through these plans must be reported to the government when it comes to applying for financial assistance.

And depending on the amount of money in those accounts, that money could potentially interfere with the financial assistance a child might receive.

“The way the financial aid formula worked in the past is that the student was in some ways penalized for this contribution because it reduced their ability to qualify for financial aid,” Wills said.

Under the new rules, any money saved by a non-parent parent, such as a grandparent, aunt or uncle, no longer has to be reported on financial aid forms.

So, theoretically, a grandparent could give their grandchild thousands of dollars for their education and none of that money would show up on the child’s FAFSA form.

However, any money saved by parents should still be declared.

# 4: Parents who have multiple kids in college at the same time will no longer get bonuses on financial aid

Wills says the federal government uses a mathematical formula to determine how much money students should receive in financial aid.

This formula examines several variables, including a family’s wealth, income, and the number of children it has enrolled in university.

Wills says this formula is changing to no longer include a benefit for families who have multiple children enrolled in college at the same time.

“You used to take a break from it and now you don’t,” said Wills.

This latest change will likely affect Thuli the most.

She says her two sons are three years apart and they’ll likely overlap in college for at least a year or two.

“It will be a big adjustment for us,” said Thuli.

“I have a feeling it’s going to affect a lot of people, because you had a bonus for it.”

So, not all changes are good, it all depends on your family’s unique situation.

But it’s important to keep in mind that these changes won’t take effect until 2024.

So parents have a little time to make adjustments, but you shouldn’t wait too long.

Wills says that when you apply for financial assistance, the government reviews your last two tax returns to see if you should qualify.

So, with the changes coming into effect in 2024, that means what you do next year in 2022 could affect your chances of getting money from financial aid.


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