Upcoming changes to the Free Application for Federal Student Aid (FAFSA) will make it easier for grandparents, aunts and uncles, godparents and anyone else outside the nuclear family to help with college costs without hurting eligibility for financial aid.
Before explaining the change, it’s important to understand what the situation is right now.
Currently, parents are supposed to share on the FAFSA if grandparents, aunts and uncles, godparents, friends or others outside the immediate family have kicked in money to pay for college costs. This financial assistance is considered the child’s untaxed income.
The FAFSA assesses a child’s untaxed income at up to 50%, which is a steep price.
The FAFSA has never penalized a student if grandparents or others have simply saved for a child’s future college years. Instead it has only been an issue when outsiders pulled money out and paid for college expenses.
New way the FAFSA will treat grandparent help
The new FAFSA overhaul will not consider whether grandparents or other well-wishers have helped defray college costs. The FAFSA will stop asking this question starting with the application for the 2023-2024 school year.
This change might seem like a long way off, but it’s impact will actually be felt this year.
That’s because the FAFSA depends on two-year (prior-prior) tax information. The 2023-2024 FAFSA can be filled out as early as Oct. 1, 2022 and will depend largely on information from 2021. And the 2023-2024 FAFSA, which normally would want to know about college payments from grandparents will no longer ask the question.
What this means is that grandparents and other outsiders who help out with college costs in 2021 will not hurt aid chances via the FAFSA. In reality, grandparent help in 2020 was the last year that this assistance would need to be reported. Grandparent help in 2020 will need to be reported on the 2022-2023 FAFSA, which was available beginning Oct. 1, 2021.
The federal government is removing the question about outside help with college costs as part of its move to simplify the federal financial aid application. As part of the makeover, the government got rid of some questions that few people answered including this one.
Grandparent and the CSS Profile
While the FAFSA eliminated the question about outside financial help, the CSS Profile, at least at this point, is not changing its policy. It will continue to ask about outside assistance.
Roughly 200 colleges and universities, nearly all private, use the CSS Profile to determine how much institutional aid a student should get. These schools only use the FAFSA to determine state and federal aid.
While relatively few institutions use the CSS Profile, these schools include the most desirable private colleges and universities. Within the ranks of these schools are those that dispense the best need-based financial aid.
Unfortunately, the welcome FAFSA change will not be a consolation to families interested in Profile institutions.
Avoiding the CSS Profile grandparent penalty
Parents, whose children will be applying to Profile schools, will have to continue to take steps necessary to avoid outside help jeopardizing need-based aid chances.
Here is a sure-fire strategy to do just that:
Because parents are using two-year-old tax information, grandparents can safely start helping with college costs at Profile schools in the second semester of the child’s sophomore year after the family has filed for financial aid for the upcoming junior year.
What about the case where two kids in different years are in different CSS Profile colleges at the same time… would grandparent contributions to the oldest kid after their fall junior year affect the aid available to the youngest kid in subsequent years?
Author
No it would not. And with prior-prior taxes, the grandparents could safely help with college costs for the oldest after the parents filed the aid application for junior year in the second semester of the sophomore year.
Lynn O’Shaughnessy
Hi Lynn,
My daughter will be graduating HS in 2023, therefore filling out the FAFSA October 2022. She has 2 grandparent owned 529 plans. I understand these plans will be considered untaxed student income & will significantly reduce financial aid eligibility by as much as 50%. So glad to hear of the upcoming FAFSA change to eliminate this penalty. Will the change occur in time for my daughter or should we change the name on the plans so they aren’t grandparent owned?
Dear Lynn
Thank you for this welcome update and for the clarity of your writing, I have been a fan for decades and recommend “The College Solution” regularly. I am a long time college and career counselor at both the non-profit and private consultant levels and am an active Mentor with the Oregon ASPIRE program at Ashland HS in southern Oregon. I am working on an selective guide to the colleges and universities of the Pacific Northwest which will not be based on rankings. I believe we share similar perspectives on college admissions issues.
Author
Thanks so much for your kind words, Sarah! I wish the best of luck with the guide you are writing for the Pacific Northwest. I glad you won’t be relying on the rankings! Lynn O’Shaughnessy
How would Profile colleges know if grandparents are helping with college costs in the first place? Couldn’t they just give the money to the student or parent as a giift?
I have the same question.
Author
This approach won’t work with the Profile because the application asks if outsiders have given cash to the parents or if outsiders spent any money on the parents’ behalf. Parents are on the honor system to respond truthfully, but I assume some people do not. The way to avoid this reporting problem is for grandparents to wait until the parents have filed the CSS Profile for the child’s junior year no earlier than the second semester of the child’s sophomore year in college. Since two-year-old information is used for this question, the money would not be relevant any longer on the CSS Profile.
Author
This approach won’t work with the Profile because the application asks if outsiders have given cash to the parents or if outsiders spent any money on the parents’ behalf. Parents are on the honor system to respond truthfully, but I assume some people do not. The way to avoid this reporting problem is for grandparents to wait until the parents have filed the CSS Profile for the child’s junior year no earlier than the second semester of the child’s sophomore year in college. Since two-year-old information is used for this question, the money would not be relevant any longer on the CSS Profile.