The landscape of college financial aid in the United States is set for a dramatic change. The U.S. Department of Education is implementing new rules that could impact parents funding the education of two or more children in college. In essence, the sibling discount – a crucial financial aid strategy many families have relied upon – is coming to an end.
For decades, the Federal financial aid calculation has been a composite of a family’s income, assets, and the number of children attending school. Parents plugged these details into the Free Application for Federal Student Aid form (FAFSA) to derive the Expected Family Contribution (EFC), the annual sum a family could afford to pay towards their child’s education. The EFC was then divided by the number of college students in the family, providing a per-child estimate for parental contribution. This division is what made the ‘sibling discount’ possible, as the more children a family had in college, the lower the estimated contribution per child, thereby increasing each child’s eligibility for need-based federal financial aid.
But the 2024-25 academic year ushers in a new formula, one that aims to make more students eligible for federal aid, particularly for benefits like the Pell grants. However, this also means the end of the sibling discount. The new formula, as explained by Dana Kelly, Vice President of Professional Development and Institutional Compliance at the National Association of Student Financial Aid Administrators, shifts focus from the family unit to individual family members.
Approximately a third of dependent college students have a sibling in college, according to data from Phillip Levine of the Brookings Institution. The imminent shift in the financial aid structure could significantly affect these families. In many cases, families might have to opt for loans or accept less government aid. Levine articulates that this change means “the majority of students are going to be eligible for a different amount of financial aid next year than they were last year.”
The crux of the shift lies in the replacement of the Expected Family Contribution with a new calculation known as the “Student Aid Index” (SAI). The new formula no longer factors in the number of siblings attending college when determining a family’s capacity to pay for education. For instance, under the previous system, a family with an EFC of $10,000 per year would see this sum halved to $5,000 per child if two children were in college. But with the new FAFSA system, the family’s ability to pay isn’t divided per child, potentially placing a heavier financial burden on each student, particularly in families with above-average income.
This dramatic policy shift is of significant concern for families like Indie Pereira’s. Pereira’s eldest child, Madeira Davis, does not qualify for federal aid due to the family’s annual income being above $100,000. The anticipated ‘sibling discount’ for Pereira’s younger children, who also plan to attend college, is now off the table. Pereira shares her apprehension, stating, “If the expected family contribution is doubling, I’m not sure how we could afford to pay that without loans.”
Despite these changes, there is some good news. The revamped FAFSA system intends to increase access to federal financial aid grants. The overhauled FAFSA will raise the family income threshold to qualify for the maximum Pell grant, making more students eligible, per a report from the Brookings Institution. A family earning $70,000 a year with one child in college, for example, could now access Pell money and potentially qualify for additional college-specific aid under the new rules.
Financial aid officers are preparing for a wave of questions as the new FAFSA rolls out in December. They are already running numbers to understand how financial-aid eligibility might change for current students. According to Brad Barnett, Associate Vice President for Access and Enrollment Management and Financial Aid Director at James Madison University, the new FAFSA will make college aid more predictable in the long run. He adds, “As long as a family’s income stays relatively the same, then any need-based financial aid that a student is offered in the new world will likely remain pretty stable during the student’s school career.”
While some families stand to benefit from these changes, others could face increased financial challenges. The end of the sibling discount signifies a fundamental shift in the financial aid landscape, compelling families to rethink their college financing strategies and potentially placing a greater financial burden on students. Therefore, it’s essential for parents and students to familiarize themselves with these changes, plan ahead, and consider other avenues for financial support, such as scholarships, work-study programs, and alternative loan options.
Conclusion:
The overhaul of the college financial aid system, culminating in the discontinuation of the sibling discount, signifies a significant recalibration of the education financing landscape. While it opens up avenues for increased federal aid for some, it also presents a considerable challenge for others. The ramifications of this policy change necessitate a re-evaluation of financial strategies for families with multiple children planning for higher education.
Despite the potential drawbacks, it’s essential to remember that this new approach seeks to simplify and increase the predictability of the financial aid process. However, it does demand a proactive stance from students and parents to understand and navigate this new terrain. As we venture into this new phase of college financing, it becomes increasingly crucial for families to explore all available opportunities for financial support, be they scholarships, work-study programs, or alternative loan options.
As we say goodbye to the sibling discount, the overarching goal remains the same – to provide an avenue for as many students as possible to pursue their dreams of higher education. The road might be changing, but with informed planning and strategy, the journey to a brighter future through education remains achievable for all.
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