By Jill Desjean, Senior Policy Analyst

On Friday, the Department of Education (ED) released implementation guidance and an updated FAQ document for the FAFSA simplification provisions that become effective in the 2024-25 award year.

While the guidance largely repeats provisions of the law itself, it offers some operational details and clarifies some areas. It also details several new areas where financial aid administrators will be required to manually enter or review information.

New Manual Review of Entry by Financial Aid Administrators

With respect to income questions on the FAFSA, the guidance reiterates that income items will flow to the FAFSA from the Internal Revenue Service (IRS) using the new secure FUTURE Act Direct Data Exchange (FA-DDX). The guidance also restates which income items have changed as a result of the FAFSA Simplification Act, including the elimination of several untaxed income items that are not delineated on federal tax forms.

Notably, the guidance shares that the foreign earned income exclusion amount will not be transferred to ED via the FADDX and will, rather, require manual entry by the applicant or contributor (contributors are parents, stepparents, and students’ spouses). While the foreign income exclusion amount will be included in the SAI calculation (meaning the amount of the foreign income exclusion will be added to Adjusted Gross Income (AGI) along with other untaxed income items, such as tax exempt interest income, to arrive at the Total Income figure used in the SAI calculation), it will not be considered in the automatic maximum Pell Grant eligibility determination, which relies on AGI, not Total Income. Instead, a new C flag comment code will appear on the Institutional Student Information Record (ISIR) when an ISIR contains both a Maximum Pell indicator flag (meaning the student is eligible for the maximum Pell Grant) and a valid value in the “Foreign Earned Income Exclusion” data field.

Because the foreign income exclusion amount is not included in the automatic maximum Pell Grant eligibility determination, some students could receive an automatic maximum Pell Grant award despite having significant amounts of untaxed income. Because of this, ED is establishing a process by which FAAs would have to determine for students with this C flag if adding the exempted foreign income to the adjusted gross income (AGI) would make the student ineligible to receive the automatic maximum Pell Grant award. If that would occur, the FAA must then determine whether it is appropriate to use professional judgment (PJ) to increase the AGI by the amount of the exempted foreign income to determine the student’s eligibility for the automatic maximum Pell Grant (in which case the student would now be ineligible for the automatic maximum Pell Grant). If the FAA decides that it is appropriate, the FAA may move the foreign earned income amount from untaxed income to AGI. ED also offers that FAAs may request additional documentation of the foreign income prior to performing an adjustment to AGI and automatic maximum Pell Grant eligibility.

As an example, the married parents of a dependent student living in Maryland with a family size of three have an AGI of $10,000 and a foreign income exclusion of $70,000. The student qualifies for an automatic maximum Pell Grant because their parents’ AGI of $10,000 falls below 175% of the federal poverty guidelines (2022 FPG for a family of three = $23,030; 175% = $40,303). If the foreign income exclusion were removed from untaxed income and added to AGI, however, the AGI would be $80,000, which exceeds 175% of the federal poverty guideline, and the student would no longer qualify for the automatic maximum Pell Grant award. Note the student’s SAI would also likely change even though their total income does not change, because they would be assigned an automatic SAI of 0 if they received the automatic maximum Pell Grant, whereas if their AGI were increased by the amount of the foreign income exclusion and they no longer qualified for the automatic maximum Pell Grant and associated automatic 0 SAI, they would instead have an SAI calculated based on an AGI of $80,000.

Another new manual process for financial aid administrators relates to eligibility for automatic maximum Pell Grant awards for applicants whose parent(s) were a service member killed in the line of duty. While there is an existing data match with the Department of Defense (DoD) to confirm whether a servicemember who died in the line of duty met the eligibility requirement for the Iraq and Afghanistan Service Grant (IASG), that data match is ending with the 2023-24 award year. ED explains in the letter that the DoD match is no longer able to confirm that a service member killed in the line of duty meets the new criteria from the FAFSA Simplification Act (which also redesignates the IASG and Children of Fallen Heroes, or CFH awards as Pell Grants under a Special Rule). In place of the DoD match, institutions will be required to verify student Pell Grant eligibility for children of deceased service members by collecting supporting documentation from the student and will then report eligibility to EDusing the new FAFSA Partner Portal (formerly FAA Access to CPS Online). There are no changes for Pell Grant eligibility for children of deceased public safety officers since there was never a database match to confirm their eligibility.

Additional Clarity

The guidance reminds institutions that small businesses and family farms must now be reported on the FAFSA for treatment as assets in determining the Student Aid Index (SAI). This has raised questions about how families should report farm assets. ED states in the guidance that a farm’s net worth may include the fair market value of land, buildings, livestock, unharvested crops, and machinery actively used in farms or agricultural or commercial activities, minus any debts held against those assets, and reminds institutions that the value of a family’s primary residence should not be included in the value of a farm. They elaborate in the Q&A document that the principal residence may include the family’s home, as well as structures and land adjacent to the home that are not being used, stored, or sold for farming or other commercial activities and note families might use property tax assessments to help determine the value of their principal residence.

Pell Grant eligibility determinations change significantly under the FAFSA Simplification Act, with new pathways to automatic maximum and automatic minimum Pell Grant awards based on how family income matches up to federal poverty guidelines. It also changes how the Pell Grant annual award is determined for students enrolled less than full time.

ED reiterates how Pell Grant eligibility will be determined starting in 2024-25 using the new formula detailed in the 2024-25 Draft Student Aid Index (SAI) and Pell Grant Eligibility Guide. ED confirms it will no longer publish the Pell Grant Payment and Disbursement Schedule. They note that, with respect to the change in proration of Pell Grants based on enrollment intensity, enrollment intensity can never be more than 100% if students are enrolled in more credits than the 12-credit minimum that is considered full-time. They also add that if institutions award credits in decimals they must incorporate those into the enrollment intensity formula.

Teacher Education Assistance for College and Higher Education (TEACH) grants, according to the Q&A document, will not use the same enrollment intensity rules as Pell Grants use, and will continue to be calculated using enrollment status.

Institutions have been interested in more information related to the new provisions of the FAFSA Simplification Act that exempt certain types of emergency financial assistance from treatment as Other Financial Assistance (OFA). ED clarifies in the Q&A document that emergency financial assistance includes any payment of grant or loan aid to a student for unexpected expenses that are included in one of the components of COA. They provide as an example payments that support any unexpected expense for food; housing; course materials or equipment; or transportation (e.g., between campus and home for a death or family emergency). ED states that institutions, not the department, determine whether an unexpected expense is associated with a COA component.

A new provision in the law that states that Pell Grants shall not exceed the cost of attendance has left some financial aid administrators confused, especially with respect to when the combination of a Pell Grant and other aid would exceed the COA, such as is the case with the National Collegiate Athletic Association’s (NCAA's) rules for athletic aid, which sometimes permit a school to award athletic aid that covers a student’s full COA. ED states in the Q&A document that institutions are still permitted to award students in these cases their full Pell Grant awards, but cannot award other Title IV aid.

With respect to the elimination of IASG and CFH and changes to Pell Grants under a Special Rule that permit students of certain deceased service members or public safety officers to receive Pell Grants, ED confirms in the Q&A document that if students were eligible for and received IASG funds or received Pell Grant funds based on IASG or CFH eligibility criteria for the 2023-24 award year, but are not eligible for Pell Grant funds under the Special Rule beginning with the 2024-25 award year, they will still be eligible to receive Pell Grant funds based on prior IASG or CFH eligibility criteria. Further, students will remain eligible if they receive at least one disbursement of funds from the IASG or CFH programs during the award year.

Operational Guidance

ED provides some new guidance on negative SAIs and packaging student aid. They instruct institutions when packaging students for need-based federal student aid to convert negative SAIs to zero for awarding purposes so as not to allow a student to receive aid in excess of the cost of attendance (COA). They clarify, however, in the Q&A document that the negative SAI can be used as a determining factor when selecting students for institutional or state aid, or for consideration when awarding campus-based funding.

A popular question from NASFAA’s annual conference earlier this summer was how schools should treat families with more than one family member enrolled in college given that there is no more favorable treatment in the SAI calculation for these families. The guidance largely reiterates what ED officials stated, which is that schools may use professional judgment (PJ) to make adjustments to data items related to COA or SAI to reflect costs associated with multiple family members in college. As with other PJ decisions, they should be made on a case-by-case basis, taking into account the student's/parent's special or unusual circumstances and using adequate documentation.

ED officials also shared at NASFAA’s annual conference that the FAFSA Simplification Act eliminated the alternate SAI for enrollment periods of other than nine months. ED reiterates in the guidance that COAs still must be adjusted for enrollment in other than nine months, meaning that a student enrolled in, for instance, only three months would have a COA reflecting just those three months, but a nine-month SAI, meaning their need would be lower than it would have been if the alternate SAI could be used.

With respect to provisional independent student status, which became effective in the 2023-24 award year, ED notes students who indicate provisional independent student status on the FAFSA will no longer have rejected ISIRs for the 2024-25 award year. Their ISIRs will instead be processed with a provisional independent student status. Institutions will still need to approve a dependency override under their PJ authority to allow the student to receive aid as an independent student. ED instructs institutions to continue in 2024-25 to follow the guidance from DCL GEN-22-15 as relates to the communication timeline and procedure for processing dependency overrides.

ED acknowledges in the guidance that the elimination of the FAFSA questions about student housing plans, interest in Federal Work-Study, and the option for independent students to provide parental information may impact institutions’ ability to package students. ED reminds institutions that they are permitted to ask these questions separately from the FAFSA, but that they cannot require the information as a condition of awarding or disbursing Title IV aid.

NASFAA is aware of several outstanding questions the guidance does not address, including who is considered the parent who provided the most support when parents of dependent students are divorced or separated and one parent pays child support to the other. We will continue to follow up on outstanding questions. 

Stay tuned to Today’s News for the latest updates.

Publication Date: 8/9/2023

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