Wealthy Behaviors

The FAFSA Fiasco

Posted on April 29, 2024

In December 2020, the FAFSA Simplification Act was enacted by congress. The form was overdue for an update, and the goal was to create a more streamlined process. The application was supposed to be easier to complete and was expected to qualify more students for financial aid.

However, this FAFSA application season has been nothing short of a catastrophe for some families with college-bound students. We’ve condensed the latest developments to provide guidance and help protect your students’ educational aspirations.

What is the FAFSA?

The Free Application for Federal Student Aid (FAFSA) is the form students and their families complete to determine how much financial aid the student qualifies for. It’s used to apply for financial assistance for college from the federal government. States, individual colleges and universities, and private scholarship programs also rely on the information provided in the application.[i]

What’s the issue with it this year?

Normally, the FAFSA is released annually on Oct. 1, but the updates weren’t finished. The Department of Education was required to release the new version by the end of 2023, and while it met that deadline (on December 30), students could only access the form sporadically. It wasn’t until January 8 that the form was available 24/7.[ii] The Department of Education acknowledged there were over 30 issues with the new FAFSA rollout, and currently about a dozen problem areas remain unresolved.[iii]

And for families who were able to successfully complete the FAFSA, colleges did not begin receiving FAFSA information until mid-March. Normally, schools receive FAFSA info within days of a student submitting the form, and typically colleges would’ve started receiving that information last fall.

However, continued software glitches with the new form means continued delays. The Department of Education estimates up to 400,000 of the applications already processed will need to be reprocessed because student assets were ignored. In addition, issues with tax data means around 1.2 million FAFSAs will also need to be reprocessed. Altogether, a quarter of processed FAFSA have been affected by IRS and Department of Education errors.

What can you do?

If your soon-to-be college freshman is concerned about missing out on a spot at their preferred school, consider putting deposits down at different colleges until all their offers come in. While many institutions have deadlines for deposits (usually May 1, May 15, and June 1), it’s highly unlikely schools will impose those deadlines due to the ongoing turmoil. Make sure your college-bound student checks with their preferred school since deadlines may fluctuate as FAFSA errors are resolved. Losing a deposit or two is a small price to pay as families wait to receive all the need-based or merit awards from colleges on their list.

Additionally, families should carefully check their student’s FAFSA Submission Summary (FSS). This used to be called the Student Aid Report (SAR), but the Department of Education reintroduced it this year as the FSS. The FSS contains all the answers a household shared on the FAFSA. It’s always good to check the FSS for mistakes, but considering what has been going on with the FAFSA, it’s even more important this year.

Students can view or print their FAFSA Submission Summary by:

  1. Logging in to StudentAid.gov using their FSA ID (account username and password).
  2. Navigating to the account Dashboard.
  3. Selecting their processed FAFSA submission from the “My Activity” page, which will bring them to the Status Center “Details” page.
  4. Selecting “View FAFSA Submission Summary.”

Parents will also want to check the FSS to see what their Student Aid Index (SAI) is. The FSS should always contain this critical figure. The SAI (another new term introduced this year) replaces the Expected Family Contribution (EFC).

What about student loans?

Student loans have long been an integral part of higher education, and over half of independent undergraduate students accept federal student loans.[iv] And while the Department of Education owns the loan, they will assign it to a loan servicer to handle the billing and repayment options like Income-Driven Repayment (IDR) plans, Public Service Loan Forgiveness (PSLF), or consolidation. Some of these companies include MOHELA, EdFinancial, Nelnet, among others.

However, the Department of Education recently took away MOHELA’s servicing responsibilities for PSLF programs. This is partly due to servicing errors on their part, but effective May 1st, Mohela will no longer process PSLF forms or provide PSLF-related service. Instead, the Department of Education will take on those responsibilities directly.

Our partners at Student Loan Professor are watching these developments very closely. They have a great write-up on what’s been happening, and if you have college-aged students, we encourage you to follow their blog.

Think ahead for education expenses…and future investment opportunities.

529 plans are tax-advantaged savings plans designed to help individuals and families save for higher education, and their use has expanded in recent years. 529s originally only covered tuition, but now they can be used for a wide range of education-related expenses, including tuition, fees, books, supplies, and even certain room and board costs.

Additionally, as we highlighted last year, the SECURE Act 2.0 now allows funds from 529 plans to be invested into a ROTH IRA. This makes 529 plans more appealing than ever, as unused 529 funds can be used for retirement planning – not just higher education.

Anyone can open and fund a 529 savings plan, even if they’re not related to the beneficiary. Contributions to 529 plans are made with after-tax dollars, and the earnings on those contributions grow tax-free. Withdrawals for qualified education expenses are also tax-free, which can provide significant tax savings over time. As with any investment, 529s are subject to specific rules and regulations, which can vary between states. We’re here to help you explore your options and evaluate how implementing a 529 plan can align with your overall financial goals.

We’re here to help.

In the ever-evolving landscape of financial planning—including student loans—staying informed is key. As we navigate through the complexities of initiatives like the streamlined FAFSA process and the shifting terrain of educational expenses, it’s essential to have a trusted partner by your side.

At Larson, we’re committed to being your steadfast ally, guiding you through every stage of life with tailored strategies and unwavering support. Whether you’re planning for college tuition, retirement, or any other financial milestone, we’re here to provide the expertise and resources you need to thrive. Let us help you turn your aspirations into achievable goals for you and your loved ones.

[i] https://www.investopedia.com/articles/personal-finance/090815/quick-guide-how-fafsa-loans-work.asp

[ii] https://www.cnn.com/2024/04/01/politics/fafsa-problem-financial-aid-award/index.html

[iii] https://fsapartners.ed.gov/knowledge-center/topics/fafsa-simplification-information/2024-25-fafsa-issue-alerts

[iv] https://educationdata.org/student-loan-debt-statistics

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