Unpacking the FAFSA Simplification Act’s Impact on Federal and State Aid Eligibility

Title: FAFSA Simplification Guidebook

Authors: Mark Wiederspan and Rachel Burns

Source: State Higher Education Executive Officers Association

The last two decades in higher education policy have seen a push for a more streamlined and less time-consuming version of the Free Application for Federal Student Aid (FAFSA), which culminated in the FAFSA Simplification Act of 2020. The State Higher Education Executive Officers Association (SHEEO) has published a report unpacking many of the changes to FAFSA and how they will impact students pursuing postsecondary education.

While the FAFSA itself was shortened and simplified, changes were also made to the calculation of student aid programs. The Expected Family Contribution (EFC) will be replaced with the Student Aid Index (SAI) beginning in the 2024-2025 school year. While the minimum amount for the EFC could be $0, the minimum amount under SAI is -$1,500. The SAI also eliminates the simplified needs test, consideration of the number of family members in college, and auto-zero EFC calculations..

Key findings from the report include:

How the new formula impacts students: Overall, many students will benefit from the new FAFSA and its migration away from EFC to the SAI. According to SHEEO’s analysis, approximately 76 percent of FAFSA filers had an SAI calculation lower than their EFC, compared to the approximately 11 percent that has an increase in their expected contribution to college. The SAI formula is expected to produce large increases in federal and state aid eligibility, as exemplified by 22 percent of Pell-ineligible students now becoming eligible to receive a Pell Grant. However, some students, mostly from families with multiple members in college, will lose aid eligibility.

How the new formula impacts the administration of state aid programs: The changes to the FAFSA allow for states to better target their own aid programs to those with the most financial need by identifying students with negative SAI values. In previous years, students in some states had the ability to transfer FAFSA information automatically into state aid applications. However, this will not be available for the 2024-2025 school year, so states should reach out to students to prevent significant losses of eligibility for state aid programs.

How state aid programs will be impacted: Changes to state aid programs will vary based on the type of aid program, if aid is designated for certain expenses, and the number of students that qualify. For example, according to SHEEO’s simulations, last dollar scholarships that are designated toward tuition will see reduced expenditures due to more students qualifying for Pell Grants. State aid programs that base eligibility on EFC/SAI calculations or Pell Grant eligibility will likely see increases in the number of eligible students.

While the ongoing delays with this year’s FAFSA have created many challenges at both the state and institutional levels, the FAFSA Simplification Act will benefit thousands of students in the long term through the expansion of aid eligibility and a simpler form to access federal financial aid. The new SAI calculation offers states an opportunity to reexamine their aid programs and prioritize subsidies for students with the highest financial need.

To read the full report, click here.

—Austin Freeman