This blog post complements the Feb. 11 NCAN webinar, "How FAFSA
Simplification will Change Financial Aid." NCAN members can view the
webinar recording and slides via the webinar archives.
Please note that Congress has passed these changes into law, but that
they will not appear before the FAFSA for the 2023-24 academic year.
Filers looking for guidance on FAFSA for any early academic years should
visit NCAN resources on the Form Your Future webpage.
The Consolidated Appropriations Act, 2021, will change several aspects of the 2023-24 Free Application for Federal Student Aid (FAFSA) to simplify the form and better align it with federal income tax returns. In particular, the treatment of dependency
status, family size, and divorced or separated parents on the FAFSA will change.
Changes in Age Thresholds
The difference between the age criteria for family size and independent student status on the simplified FAFSA are different and may be confusing for some families.
The age threshold for independent student status on the FAFSA has not changed. Parent information will not be required for students who are age 24 and older as of Dec. 31 of the award year.
However, the age threshold for whether a child can be counted in family size will change. To be counted in family size, a child must be a dependent as defined by the IRS instead of the definition previously used on the FAFSA.
To be considered a dependent as defined by the IRS [26 USC 152], an individual must be a qualifying child or qualifying relative. To be considered a qualifying child, the child must not only live with the taxpayer for more than one-half of the tax year
and not provide more than half of their own financial support during the calendar year in which the tax year begins, but also satisfy certain age requirements. A qualifying child either is under age 19 as of Dec. 31 of the calendar year in which the
tax year begins, or is a student who is under age 24.
So, it would seem that both criteria use the same age threshold, age 24. But, there is a subtle and important difference. One criterion measures age against Dec. 31 of the award year and the other criterion measures age against Dec. 31 of the calendar
year in which the tax year begins. The tax year in question is the one used for filing the FAFSA, known as the prior-prior year or the second preceding tax year.
Consider a student applying for financial aid using the 2023-24 FAFSA. The prior-prior year is 2021. A child who is under age 24 as of Dec. 31, 2021, will be under age 26 as of Dec. 31, 2023.
With this change in the age thresholds, the student can be an independent student on their own FAFSA (i.e., age 24 or older as of Dec. 31 of the award year), yet still be counted as a dependent of the parents on a sibling’s FAFSA if they are age 24 or
25 (i.e., under age 24 as of Dec. 31 of the calendar year in which the prior-prior tax year begins). The student must still satisfy the other criteria to be a tax dependent as well.
Other situations of which to take note are students who do not provide more than half of their own support, but neither do their parents because the student is receiving financial support from sources other than the parents. Likewise, the child might
have lived with their parents for more than half of the prior-prior year, but not be living with the parents during the award year.
Other Changes in Dependency Status
Dependency status for determining whether parent information is required on the FAFSA did not otherwise change by much.
These criteria for independent student status will also change when the new FAFSA is implemented during the 2023-24 academic year.
A married student is considered an independent student only if they are not separated.
A student who is an unaccompanied homeless youth or who is unaccompanied, at risk of homelessness, and self-supporting are considered to be an independent student, without regard to the student’s age.
For the purpose of a dependency override, unusual circumstances are specified as circumstances in which the student is unable to contact a parent or where contact with the parents poses a risk to the student. Examples include circumstances involving
human trafficking, legally granted refuge or asylum status, parental abandonment or estrangement, and student or parent incarceration.
These criteria have not changed:
The student is age 24 or older as of Dec. 31 of the award year.
The student is, or was at any time after reaching 13 years of age or older, an orphan, in foster care, or a ward of the court.
The student is, or was immediately prior to reaching the age of majority, an emancipated minor or in a legal guardianship as determined by a court of competent jurisdiction in the student’s state of legal residence.
The student is a veteran of the U.S. Armed Forces or is serving on active duty in the U.S. Armed Forces for other than training purposes.
The student is a graduate or professional student.
The student has legal dependents other than a spouse.
If a student does not satisfy any of these criteria for independent student status, they are considered to be a dependent student, even if they file their own federal income tax return and are not claimed as a dependent on their parents’ federal income
tax return.
If a student lives with their grandparents and the grandparents have not adopted the student and the student is not in a court-ordered legal guardianship to the grandparents, the student is a dependent student and the student’s parents must complete the
FAFSA.
A student who lives with their grandparents might be doing so because of unusual circumstances that might qualify for a dependency override. Previously, the support the student receives from the grandparents would be reported as untaxed income to the
student on the student’s FAFSA, regardless of whether the college financial aid administrator performed a dependency override. However, cash support has been dropped as a question starting with the 2023-24 FAFSA, so the support the student receives
from their grandparents will not be reported on the FAFSA.
Divorced or Separated Parents
If the student’s parents are divorced, separated, or never married, but live together, the income and assets of both parents must be reported on the FAFSA, the same as though they are married.
If the student’s parents are divorced, separated, or never married, and do not live together, only one parent’s information is reported on the FAFSA. This parent is known as the custodial parent, which is not necessarily the parent who has legal custody.
This is defined as the parent who provides the greater portion of the student’s financial support.
This change for the 2023-24 award year will mean the financial support measure will be used instead of the current practice that considers the parent with whom the student lived the most during the 12 months ending on the date the FAFSA is filed.
If the custodial parent has remarried as of the date the FAFSA is filed, the income and assets of the stepparent must be reported, regardless of any prenuptial agreements, even if they were not married during the prior-prior year.
The Consolidated Appropriations Act, 2021, does not specify how the marital status of the student’s parents will be specified.
Either Congress or the U.S. Department of Education will need to clarify whether the parent(s) responsible for completing the FAFSA are based on the prior-prior tax year or the 12-month period ending on the date the FAFSA is filed.
Note that the IRS recognizes only divorce and legal separation. It does not recognize an informal separation.
Note also that the statutory language “the parent who provides the greater portion of the student’s financial support” is not necessarily the same as the parent who claimed the child as a dependent on their federal income tax return.
When the parents are divorced or separated, the parent who claims the child as a dependent on their federal income tax return is the parent with whom the child lived for more than half the year.
If the child did not live with either parent for more than half the year, then the parent with whom the child resided for the longest period of time during the tax year is the one who can claim the child as a dependent on their federal income tax
return, or, if the child lives equally with both parents, it is the parent with the higher adjusted gross income.
However, the parents can decide which parent can claim the child as a dependent using a multiple support agreement.
It is also possible that neither parent claims the child as a dependent on their federal income tax return.
Thus, the parent claiming the child as a dependent on their federal income tax return is not necessarily the parent who provided greater support to the child.
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