The asset safety allowance shelters a portion of dad or mum property on the Free Application For Federal Student Aid (FAFSA). This helps extra college students qualify for needs-based monetary support.
Sadly, the FAFSA asset safety allowance has been steadily lowering for over a decade. And on the 2023-2024 FAFSA (which households will begin submitting on October 1, 2022) it should drop to zero for all dad and mom.
Why are these adjustments occurring and the way will college students be impacted financially? We’ll reply each of these questions beneath. We’ll additionally make a number of suggestions for the way Congress can tackle the asset safety allowance drawback.
What Is The FAFSA Asset Safety Allowance?
The FAFSA collects details about the earnings and property of scholar and oldsters, family dimension, and variety of youngsters in faculty, amongst different components. This info is used to calculate the Expected Family Contribution (EFC), a measure of a household’s monetary energy.
The FAFSA subtracts the asset safety allowance, which relies on the age of the older dad or mum, from dad or mum property earlier than assessing a portion of what’s left. The aim of the asset safety allowance is to shelter sufficient financial savings to cowl the distinction between common Social Safety retirement advantages and a reasonable household earnings stage.
The asset safety allowance was additionally supposed to shelter a portion of school financial savings. However this was by no means carried out by Congress, regardless that the Higher Education Act of 1965 refers to an “Schooling Financial savings and Asset Safety Allowance.”
How Is The Asset Safety Allowance Altering?
For greater than a decade, the common Social Safety retirement profit has elevated whereas the reasonable household earnings stage has remained roughly the identical. This has precipitated the asset safety allowance to lower considerably after reaching a peak in 2009-2010.
This Federal Register notice exhibits that the asset safety allowance will drop to zero for single dad and mom of all ages for the 2022-23 FAFSA. That is down from $3,900 for age 65 and older final yr and $32,800 in 2009-2010. For single dad and mom age 48, the median age of oldsters of college-age youngsters, the asset safety allowance is down from $2,500 final yr and $21,400 in 2009-2010.
The asset safety allowance for married dad and mom will drop to $5,900 for folks age 65 and older. That is down from $10,500 final yr (a 44% drop) and $84,000 in 2009-2010 (a 93% drop). For married dad and mom age 48, the asset safety allowance will drop to $3,700. It was $6,000 final yr and $52,400 in 2009-2010.
For the 2023-2024 FAFSA (which college students will start submitting in October 2022), the asset safety allowance for folks can be $0.
Which means the property of oldsters won’t be sheltered when calculating the anticipated household contribution (EFC). And that reduces eligibility for need-based financial aid.
What Will Be The Monetary Influence Of The Adjustments?
The lower within the asset safety allowance from $84,000 to $5,900 is the equal of a $4,400 change within the EFC. Which means households are getting as a lot as $4,400 much less in need-based monetary support than they in any other case would have acquired.
Many households usually are not conscious that the asset safety allowance is inflicting a giant drop in eligibility for grants, scholarships, and subsidized student loans. The monetary support formulation operate like a black field. And the influence of the adjustments can be partially masked by inflationary changes to different elements of the monetary support system.
The online result’s that the EFC has remained flat or elevated at the same time as skill to pay for school has decreased. This very true amongst middle-income households who aren’t eligible for the simplified needs test. The simplified wants take a look at causes property to be ignored for households that earn lower than $50,000 per yr or who’re eligible for sure means-tested federal advantages.
How To Repair The Asset Safety Allowance Drawback
Solely Congress can repair the asset safety allowance drawback. Sadly, this drawback was not tackle by the FAFSA simplification legislation that was included within the Consolidated Appropriations Act of 2021.
One attainable answer is to exclude faculty financial savings plans (equivalent to 529 plans, prepaid tuition plans and Coverdell Education Savings Accounts) from reportable property and certified distributions from earnings on the FAFSA. Non-qualified distributions ought to proceed to be included in adjusted gross earnings on the FAFSA.
This answer wouldn’t solely tackle the issue but additionally eradicate any precise or perceived penalty for saving for school. Alternately, one may exclude all property from the FAFSA (not simply faculty financial savings plans). This is able to additional simplify the FAFSA.
A 3rd answer could be to shelter a set greenback quantity (equivalent to $50,000 per little one) and modify the quantity yearly for inflation. That may be sufficient to shelter faculty financial savings for nearly two years of school prices at an in-state 4-year public faculty and one yr of school prices at a 4-year non-public faculty.