New Fafsa Application Changes Could Boost Your Financial Aid
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What is the main topic discussed in this episode?
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Hey, your money briefing listeners, this is J.R.
What FAFSA changes are being announced and why does this matter?
Whelan. Here at YMB, we're all about bringing you important personal finance and career news to help you make better decisions about your money. But we want to learn more about you. Aside from listening, what other ways would you like to interact with the show? If you're listening on Spotify, look for our poll under the episode description, or you can send us an email to ymb at wsj.com. That's ymb at wsj.com. Now onto the show. Here's your Money Briefing for Tuesday, November 7th.
How do retirement contributions currently affect FAFSA eligibility?
I'm J.R. Whelan for The Wall Street Journal. Every year, families filling out the FAFSA face limits on financial aid they receive because their retirement account contributions count toward total household income that's worked into the formula. Well, that's about to change.
Families can get more money for college and therefore keep more money in their wallets. Some families could save anywhere between $5,000 and more than $10,000 on the cost of college each year, depending on how much they make.
We'll talk with Wall Street Journal personal finance reporter Oyin Adedoyin after the break.
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Changes to the way families apply for college financial aid will allow them to save for retirement without jeopardizing their eligibility for higher education assistance. Wall Street Journal personal finance reporter Oyen Adedoyen joins me. So, Oyen, under the current plan, how do retirement savings figure into the application for financial aid?
Currently, the Free Application for Federal Student Aid, also known as the FAFSA, asks families how much they contribute to their work-sponsored retirement accounts. Now, families are already expected to contribute anywhere from 22 percent to 47 percent of their discretionary income towards paying for college.
What trade-offs did families face between retirement and college savings?
And so those retirement contributions would then be factored back into the total income that families were expected to contribute.
Oh, and that could count against eligibility.
Yep, that could make them less eligible for financial aid.
So what kind of position did that put families and students in?
That put families and students in a tough position. Parents had to decide between contributing to their own financial aid accounts and contributing to their kids' college funds. Among qualified retirement plans managed by Vanguard, nearly 60% of participants with income of more than $150,000 contributed the maximum amount allowed last year. When you compare that to people making about $75,000 and upwards of $99,000, only 4% of those participants contributed the maximum amount to their retirement accounts.
Wow. Having to decide between saving for retirement and funding a college education, that could be a tough decision for a family.
It can. And for many years, families placed retirement over saving for a college fund. But for the first time last year in a survey by Fidelity, college savings ranked higher than retirement. And this is largely because of inflation and how much pressure that's put on families, as well as just the rising cost of college in general.
So how will this change under the new plan and when does it take effect?
The new plan takes effect in December, but the interesting thing about FAFSA is that it collects tax information from two years before the application.
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Chapters
7 chapters
1
What is the main topic discussed in this episode?
0:00–0:33
2
What FAFSA changes are being announced and why does this matter?
0:33–1:07
3
How do retirement contributions currently affect FAFSA eligibility?
1:07–2:58
4
What trade-offs did families face between retirement and college savings?
2:58–5:00
5
When will the new FAFSA rules take effect and how will timing impact aid?
5:00–6:18
6
Who stands to benefit most financially from the FAFSA retirement change?
6:18–7:23
7
Will private colleges using the CSS Profile follow the FAFSA change?
7:23–7:58
Speakers
3 identifiedMore from WSJ Your Money Briefing
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