It will soon be FAFSA season.
And it is widely hoped that the 2025-2026 Free Application for Federal Student Aid will not become a nightmare experience for the millions of Americans who must complete it.
The FAFSA during the last admissions season was truly a disaster for parents. They first had to wait for a delay of more than three months after the traditional start date of October 1 before they could process the application, and then faced a series of software errors.
The reason for the trouble was the creation of a significantly overhauled FAFSA by the US Department of Education, which was not ready for prime time. The Department of Education, by the way, announced in August that the FAFSA opening will be delayed again. The 2025-2026 form is now expected to be available on December 1.
While there was a lot of publicity about failing to file the FAFSA, what was largely overlooked were some of the changes that families could end up either celebrating or reviling. As the FAFSA prepares for its final debut, it's worth reviewing some of the critical changes your clients should know about and, in some cases, take advantage of.
The multi-child discount is gone
Families received a significant financial break if they had more than one child attending college at the same time. Previously, a family's expected family contribution would drop by 50% when two children were in college at the same time, and the discount increased even more with additional siblings in school.
This feature of the FAFSA dramatically increased the number of students eligible for need-based aid. Here's an example of how this happened:
Let's say a child's EFC was $50,000 when she/he was an only child attending college. The next year, a sibling also started college, which would have lowered the EFC for each child to $25,000. This EFC drop is no longer possible thanks to the revised federal formula, which now sets the EFC for each child at $50,000 each.
I should point out that another change that seemed unnecessary was the government's decision to drop the term EFC and replace it with the Student Aid Index. What will make the name change more confusing is that CSS Profile, an aid application used by 187 colleges, almost all of them private, has stuck with the term EFC.
It is important to know that the elimination of the sibling discount only affects 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 declined to discuss what, if any, changes were made in response to the FAFSA revision. I assume this discount remains, but it makes sense to ask a Profile school about its policy.
Workplace retirement account contributions will not hurt a household's SAI
Here's some good news for your clients who were previously discouraged that stuffing more money into their 401(k) or 403(b) wouldn't lower their EFC (now SAI). Historically, increased workplace contributions did not reduce the SAI because the FAFSA formula automatically added all those contributions back to the parent's taxable income.
However, with the new FAFSA formula, parents who save more in their workplace plan will no longer have that protected income added to the FAFSA formula calculation. This will affect the reduction of the HLSH of the family.
However, this strategy will not work for contributions to tax-deferred individual retirement accounts. Each of these contributions will be treated as taxable income.
However, increasing aid eligibility by putting more money into a workplace plan will not help with CSS profile schools. These schools use the FAFSA to determine whether a student is eligible for federal or state aid, but they use the profile to determine eligibility for their own internal institutional aid.
You can find out which colleges and universities use the CSS profile by clicking the connection of the participating school on the main CSS Profile page. Most, if not all, of the nation's most elite and popular private colleges and universities use the profile.
Sibling 529 Assets are no longer counted
It always seemed unfair to some parents 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 used to be that all 529 assets for a family's children had to be declared on the FAFSA because otherwise, parents would be tempted to transfer the college-bound student's 529 assets to a sibling's account to avoid counting them on the FAFSA formula .
The new FAFSA formula, however, allows for this mix. Parents no longer share these sibling assets in the help application. This is a great development for parents who decide to park more assets with a sibling to avoid detection.
Here's an example of how this change can benefit families. Let's say the parents saved $60,000 in a sibling's 529 account. Previously, this balance would be rated as a parent asset up to 5.64%. This money would have increased the student's SAI by $3,384.
However, once again, CSS Profile schools will continue to require parents to share 529 and Coverdell sibling assets.
Lynn O'Shaughnessy, a nationally recognized expert, offers an online course – Savvy College Planning – exclusively for financial advisors. Click here to get Lynn's guide, Finding the Most Generous Colleges.