There are two main aspects of FAFSA and 529 College Savings Plans that are impacted by the FAFSA changes. The first deals with the Expected Family Contribution (EFC) amount derived from FAFSA information. The EFC’s calculations gives much more weight to student assets (20%) than parental assets (5.64%). The lower the EFC, the higher potential aid package can be.
The second aspect where FAFSA changes might alter how a 529 plan is utilized comes from distributions. Distributions from 529s owned by either parents or students are considered parental assets, but distributions from 529 plans owned by a grandparent are considered a student asset. Distributions from parent or student owned 529 plans during the first two years of college and distributions from grandparent owned 529s during the final two years would maximize potential aid packages for students because of the way EFC is calculated.
For more on the FAFSA process changes and its impact on student financial aid, check out our article tomorrow.