Why has my student financial assistance declined?

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 price 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 college depends on the Student’s Expected Family Contribution (EFC). When CFE increases, financial assistance decreases. There are several reasons why a student’s CFE may increase from year to year, resulting in decreased eligibility for need-based financial aid.

Common reasons for a change in SCF 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.

Income changes

Changes in income can contribute to big changes in the CFE. 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 parent income.

Income may increase due to an increase, bonus, pension plan distribution, capital gains distribution or exercise of stock options. The Free Federal Student Aid Application (FAFSA) is based on federal income tax returns from the previous year, so the change in income would have occurred two years ago. If income has since declined significantly, contact the college’s financial aid office to request a professional judgment exam, also known as financial aid appeal.

Income may also increase due to student gifts and 529 plan distributions 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 removed from 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 exceeds certain thresholds. Auto Zero SCS automatically sets the student’s SCS to zero if the parent’s income is $ 27,000 or less. The simplified needs test ensures that assets are ignored when parents’ income is less than $ 50,000. (The $ 50,000 threshold will be increased to $ 60,000 from 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 contributions for families with incomes below a certain threshold. If the parents’ income increases beyond this threshold, it can lead to a sharp decrease in scholarships and other financial aid.

Pension plan rollovers can sometimes be incorrectly reported as income on the FAFSA. The IRS data recovery tool may occasionally process a transfer from one pension plan to another because it is a distribution. A distribution is counted as income on the FAFSA, but rollovers are deemed to be excluded from income. If you think this may have 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 exclude it.)

Changes in assets

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 parent assets.

Common reasons for a change in assets include stock market appreciation, gifts, and inheritances. Also, if the student saves the income from a summer job, it can increase their assets.

Changes in the number of children in college

The parent contribution portion of the CFE 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 CFE. 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, it can lead to a sharp decrease in financial aid 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 Allowance (APA), which houses a portion of the parent company’s assets, has been phasing out since its peak in 2009-10.

Congress periodically changes the formula for federal financial assistance. For example, the Consolidated Appropriations Act, 2021 simplified the FAFSA, starting with the FAFSA 2023-24. These changes may result in an increase in the CFE for middle and upper 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 scholarship frontloading, where the scholarship / loan mix is ​​more favorable for freshmen than for students in upper grades. In addition, college costs tend to increase each year, but the amount of grants may 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. Generally, a lower cost 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 CEF. Parental information is not required on the FAFSA of an independent student. 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 dependent status are: the student turns 24, the student is getting married or divorced (or widowed), the student is ‘enrolled in a higher or vocational school, the student has a child, the student’s parents die and the student is eligible for an exemption for dependency.
  • 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 for children from a previous marriage and those children are enrolled in university.
  • Moving 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 onwards as the state and other tax abatement 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 new accommodation, a change in the home equity may affect the student’s CEF depending on the institutional methodology.

Changes due to errors on 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.
  • Report certain assets as investments on the FAFSA. Equity in the family home, family farm, and qualified pension plans are not reported as assets on the FAFSA. Incorrectly reporting these assets to the FAFSA can result in a large increase in the CFE.
  • Businesses reporting on 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 on the FAFSA.
  • Report a parent asset as a student asset.
  • Report assets as income or vice versa.
  • Report 529 plans as student assets instead of parent assets. 529 plans owned by the student or parent must be reported as parent assets on the FAFSA. Student assets are valued more severely than parental assets on the FAFSA.
  • Double counting of an asset. The CSS profile form is prone to this kind of error.
  • Under-reporting of earned income. Some allowances, such as the 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 student 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. paid for children. Reporting these numbers allows them to be subtracted from total income, thereby reducing the CFS.
  • Provide a non-zero answer to the question on the CSS profile form about how much parents expect to contribute towards the child’s education costs. Some colleges will add this figure to the CEF.