If the financial situation of a family remains the same, the financial assistance must remain the same. But, sometimes, the financial assistance will decrease. The causes of a change in the provision of student financial aid can be confusing for students and their families, in part because of the lack of transparency in financial aid formulas.
Eligibility for need-based financial aid for the university depends on the student’s Expected Family Contribution (CEF). When CFE increases, financial assistance decreases. There are several reasons why a student’s CFE may increase year over year, resulting in decreased financial aid eligibility based on need.
Common reasons for a change in the CEF include changes in income, assets, number of children in college, and non-financial information. Changes in the financial aid formula may also result in changes in the CEF. Errors on the financial aid application forms can also affect the CEF.
Changes in income can contribute to big changes in the CEF. The CEF will increase up to $ 5,000 for every $ 10,000 increase in student income and approximately $ 3,000 for every $ 10,000 increase in parental income.
Income may increase due to increase, bonus, pension plan distribution, distribution of capital gains or exercise of stock options. The Free Federal Student Aid Application (FAFSA) is based on federal tax returns from the previous year, so the change in income would have happened two years ago. If income has declined significantly since then, contact the college financial aid office to request a Professional Judgment Review, also known as appeal for financial aid.
Income may also increase due to student donations and distributions from 529 plans owned by grandparents, which are currently reported to the FAFSA as non-taxed student income. (The question about “money received or paid on your behalf” will be dropped on the FAFSA 2023-24.)
There are threshold effects in the federal financial assistance formula that can cause a significant change in the EFC if income rises above certain thresholds. Auto Zero EFC automatically sets the student’s EFC to zero if the parents’ income is $ 27,000 or less. The simplified needs test results in assets being ignored when parents’ income is less than $ 50,000. (The threshold of $ 50,000 will be raised to $ 60,000 as of FAFSA 2023-24.)
Some colleges have income thresholds that affect the generosity of their own financial aid policies. For example, some colleges have “no-loan” financial aid policies or limits on parental contribution for families with incomes below a specific threshold. If the parents’ income increases beyond this threshold, it can lead to a sharp decrease in subsidies and other financial aids.
Transfers from pension plans can sometimes be incorrectly reported as income on the FAFSA. The IRS data recovery tool can sometimes treat a rollover from one pension plan to another as a distribution. A distribution is counted as income on the FAFSA, but rollovers are deemed to be excluded from income. If you suspect this has happened, contact the college financial aid office. (A Roth IRA conversion, on the other hand, is properly reported as income, but the family can appeal to the college to have it excluded.)
If the student’s or parents’ assets increase, this can lead to an increase in the CEF. Changes in student assets generally have a greater impact than changes in parental assets.
Common reasons for a change in assets include stock market appreciation, donations, and inheritances. Also, if the student is saving income from a summer job, it can increase their assets.
Changes in the number of children in college
The parent contribution part of the CEF is divided by the number of children enrolled in college at the same time.
So when the number of kids in college increases, it can lead to a decrease in CEF. When the number of children in college decreases, it can lead to an increase in CFE.
So when a child graduates from college or drops out of school, it can lead to a sharp decrease in financial assistance for the remaining children.
This will change on FAFSA 2023-24, when parental contribution will no longer be divided by the number of children in college.
Changes to the financial assistance formula
Changes in the financial aid formula may result in changes in the CEF.
There are several tables in the financial assistance formula that are adjusted annually. Sometimes these adjustments can lead to an increase in CFE. For example, the Asset Protection Allocation (APA), which houses a portion of the parent company’s assets, has been phased out since its peak in 2009-10.
Congress periodically changes the federal financial aid formula. For example, the Consolidated Appropriations Act, 2021 simplified the FAFSA, starting with the FAFSA 2023-24. These changes can result in increases in the CEF for middle- and high-income families, especially families who have two or more children in college at the same time, or who own a small family business or family farm.
Some colleges have less generous financial aid policies after the first year. For example, about half of colleges practice grant early loading, where the combination of grants and loans is more favorable for freshmen than for students in the upper class. Also, college costs tend to increase every year, but the grant amount might not increase.
Modification of non-financial information
Sometimes, a change in non-financial information can lead to a change in the CEF.
- If the student transfers to another college, this may affect the amount of financial aid received by the student. Typically, a less expensive college will provide less financial aid because the student’s financial needs will be less.
- If the student’s dependency status changes, it may affect the CFE. Parental information is not required on an independent student’s FAFSA. However, if the student is married, their spouse’s financial information must be reported. The most common reasons for a change in a student’s dependency status are when the student turns 24, the student gets married or divorced (or is widowed), the student enrolls in graduate or vocational school, the student has a child, the student’s parents die, and the student is eligible for dependency replacement.
- The student’s parents divorce or separate. Since the FAFSA requires financial information from only one parent, called a custodial parent, this can lead to a decrease in the CFE. However, if the custodial parent remarries, the step-parent’s financial information must be reported to the FAFSA, regardless of any prenuptial agreement. This may cause the CFE to increase due to the additional income and assets. It can also lead to a decrease in the CFE if the step-parent provides more than half of the support to children from a previous marriage and those children are enrolled in university.
- Switching to another state may result in a slight increase in the CFE if the other state is a low tax state. (This will no longer be an issue from FAFSA 2023-24 as the state and other tax breaks will no longer be part of the financial aid formula.)
- If the student is enrolled in a college that uses the CSS Profile Form and the parents move to a new home, a change in home equity may affect the student’s CEF depending on the institutional methodology.
Changes due to errors on the financial aid application forms
Sometimes a change in the CFE can be caused by errors on the FAFSA or other financial aid application forms. Most of these errors relate to income and asset information.
Errors that can have a big impact on CFE include:
- Typos involving financial numbers are surprisingly common. This may include the accidental inclusion of one or two additional digits, or a transposition of digits into the most significant digits. Applicants should only report whole dollar amounts to the FAFSA. If they try to enter a decimal point, the cents can be treated as dollars, resulting in a figure about 100 times higher than expected.
- Declaration of certain assets as investments on the FAFSA. Equity in the family home, family farm, and qualifying retirement plans are not reported as assets in the FAFSA. Incorrectly reporting these assets to the FAFSA can result in a large increase in the CFE.
- Report businesses to the FAFSA when the business qualifies for the small business exclusion. Small family businesses with 100 full-time employees or less are not reported as assets in the FAFSA.
- Report a parent asset as a student asset.
- Report assets as income or vice versa.
- Report 529 plans as student assets rather than parent assets. 529 plans that are owned by the student or parent must be reported as a parent asset on the FAFSA. Student assets are valued more severely than parental assets on the FAFSA.
- Double-count a trump. The CSS profile form is subject to this type of error.
- Underreporting of earned income. Some allowances, such as FICA and state tax allowances, are based on earned income. A lower earned income figure gives a lower allowance, which in turn gives a higher figure for disposable income, which leads to a higher CFE.
- Do not report certain income exclusions on the FAFSA. The FAFSA has questions about work-study income and taxable scholarships that were included in Adjusted Gross Income (AGI), education tax benefits such as the U.S. Opportunity Tax Credit and child support. for paid children. Reporting these numbers allows them to be subtracted from total income, thereby reducing the CEF.
- Provide a non-zero answer to the CSS profile form question about how much parents expect to contribute towards the child’s education costs. Some colleges will add this figure to the SCF.