FAFSA’s New ‘Grandparent Loophole’

FAFSA stands for “Free Application for Federal Student Aid.” It’s the form that students fill out to apply for federal grants, work-study, and loans to assist in funding their college or career school education.

Ultimately, FAFSA is used by students, families, and universities to determine student eligibility for financial aid and loans.

The FAFSA application for the 2023-2024 academic year is due by June 30, 2024.

Significant changes have been made to simplify the application process this year, including reducing the number of questions from 108 to less than 50.

A key change is the introduction of the ‘Grandparent Loophole’, which exempts college payments made by grandparents from being reported as student income under a 529 plan.

Contributions to a 529 plan no longer count as student income, as past rules negatively impacted financial aid eligibility.

The application now uses the IRS Data Retrieval Tool (DRT) to pull information directly from tax returns, making grandparent contributions non-impacting.

A new feature on the FAFSA website is the “Student Aid Index” calculator, which estimates a student’s aid eligibility.

By assessing a student’s financial need based on their family’s financial standing, FAFSA aims to make college more affordable and accessible to students from various economic backgrounds.