It will be FAFSA season soon.
And it’s widely hoped that the 2025-2026 Free Application for Federal Student Aid doesn’t become a nightmarish experience for the millions of Americans who must complete it.
The FAFSA during the last admission season was indeed a disaster for parents. They first had to wait for a delay of more than three months after the traditional Oct. 1 start date before they could tackle the application and then they faced a variety of software glitches.
The reason for the troubles was the U.S. Department of Education’s roll-out of a significantly overhauled FAFSA that wasn’t ready for prime time. The Department of Education, by the way, announced in August that the FAFSA roll-out will again be delayed. The 2025-2026 form is now expected to be available on Dec. 1.
While there was lots of publicity about the inept FAFSA roll-out, what was largely overlooked were some of the changes that families could end up either celebrating or cursing. With the FAFSA getting ready for its latest debut, it’s worth revisiting some of the critical changes that your clients should know about and, in some cases, take advantage of.
The Multi-Child Discount Is Gone
Families used to receive a significant financial break if they had more than one child attending college simultaneously. Previously, a household’s expected family contribution would drop by 50% when two children were in college simultaneously and the discount increased even more with additional siblings in school.
This FAFSA feature dramatically increased the number of students eligible for need-based aid. Here’s an example of how that happened:
Let’s say a child’s EFC was $50,000 when she/he was the only child attending college. The next year, a sibling started college, too, which would have dropped the EFC for each child to $25,000. This EFC drop is no longer possible thanks to the revised federal formula, which now designates the EFC for each child at $50,000 each.
I should note that another change that seemed unnecessary was the government’s decision to ditch the term EFC and substitute it with Student Aid Index. What will make the name switch more confusing is that the CSS Profile, an aid application that 187 colleges, nearly all private, use, has stuck with the term EFC.
It's important to know that the sibling-discount elimination only impacts the FAFSA and not CSS Profile schools. Profile schools have traditionally given a 40% discount for two siblings in college and more for additional students.
The College Board, which operates the CSS Profile, has refused to discuss what changes, if any, were instituted in reaction to the FAFSA overhaul. I’m assuming this discount remains, but it makes sense to ask a Profile school about its policy.
Workplace Retirement Account Contributions Won’t Hurt a Household’s SAI
Here’s some good news for your clients who have previously been discouraged that stuffing more money into their 401(k) or 403(b) would not lower their EFC (now SAI). Historically, boosting workplace contributions didn’t reduce the SAI because the FAFSA formula automatically added all those contributions back into parental taxable income.
With the new FAFSA formula, however, parents who save more in their workplace plan will no longer have that sheltered income added back into the FAFSA formula’s calculation. This will have the effect of lowering the household’s SAI.
This strategy though will not work for contributions to tax-deferred individual retirement accounts. Any of those contributions will be treated as taxable income.
Increasing aid eligibility by stuffing more money into a workplace plan, however, won’t help with CSS Profile schools. These schools use the FAFSA to determine if a student is eligible for federal or state aid, but they use the Profile to determine eligibility for their own in-house institutional aid.
You can find out what colleges and universities use the CSS Profile by clicking the participating school link on the CSS Profile home page. Most, if not all, of the most elite and popular private colleges and universities in the country use the Profile.
Sibling 529 Assets No Longer Count
It always struck some parents as unfair that they were required to include 529 and Coverdell assets on the FAFSA that they were holding for a sibling’s college education. These accounts have always been treated as parental assets.
It was assumed that all 529 assets for a household’s children had to be declared on the FAFSA because otherwise, parents would be tempted to shift the college-bound student’s 529 assets to a sibling’s account to avoid them being counted in the FAFSA formula.
The new FAFSA formula, however, allows this shuffling. Parents no longer share these sibling assets on the aid application. This is a great development for parents who decide to park more assets with a brother or sister to avoid detection.
Here’s an example of how this change could benefit households. Let’s say parents have saved $60,000 in a sibling’s 529 account. Previously, this balance would have been assessed as a parent asset at up to 5.64%. This money would have boosted the student’s SAI by $3,384.
Once again, however, the CSS Profile schools will continue to require parents to share sibling 529 and Coverdell assets.
Lynn O’Shaughnessy, a nationally recognized college expert, offers an online course – Savvy College Planning - exclusively for financial advisors. Click here to get Lynn’s guide, Finding the Most Generous Colleges.
