Applying for financial aid through the Free Application for Federal Student Aid (FAFSA) has become more challenging for divorced parents due to new rule changes taking effect by December 31, 2023. These changes will affect the FAFSA application process and also have potential tax implications. Let’s explore the upcoming changes and their impact on divorced parents.

One important thing to note is that, just like the current FAFSA rules, the new FAFSA will still use information from the “prior, prior” year. This means if you are divorced or separated, you need to start planning two years prior, rather than one year prior to the FAFSA award year. For the 2024-25 FAFSA, parents and students will need to use 2022 tax return information.

Upcoming FAFSA Changes for Divorced Parents

The FAFSA Simplification Act has brought about significant changes for the next application cycle, which opens by Dec. 31, 2023, and runs through June 2024.

The good news is that there will be fewer questions to answer for all parents, making the form more straightforward. However, some aspects are now murkier, such as which parent should complete the form.

Starting in December, the parent responsible for filing the FAFSA will be determined based on whichever parent provides more financial support to the student, rather than the parent with whom the student resides. As a result, this may lead to a higher Expected Family Contribution (now called Student Aid Index) than in previous scenarios.

Previously, the custodial parent, usually the one who earned significantly less, would file and report their income and assets on the FAFSA. But now, if the parent who contributes the most financial support has remarried, the income and assets of the step-parent will also be included in the FAFSA.

These changes might cause confusion when the FAFSA application period opens, so it’s essential to be prepared.

Here’s a quick summary of the upcoming FAFSA changes for divorced parents in 2023:

• The FAFSA form will be streamlined, reducing the number of questions from 108 to under 40.
• The Expected Family Contribution (EFC) will be replaced with the Student Aid Index (SAI) for need-based program calculations.
• Income information will be directly transferred from the IRS to align the FAFSA with tax return data, making it an automatic process.
• The definition of the custodial parent will change based on the parent who provided the most financial support to the student.
• Family size will be calculated based on the number of dependents listed on the parent’s tax return.
• Child support will be reported as an asset not income.

These changes have the potential to decrease the amount of financial aid available to children of divorced or separated parents. Families may need to reassess custody, support, and tax-dependent arrangements to ensure accurate reporting on the FAFSA.

>>RELATED:

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• Understanding the Student Aid Index: How FAFSA Will Now Use SAI
• Why You Should Fill Out FAFSA Even if You Don’t Qualify for Financial Aid

Determining Your Custodial Parent

The definition of “custodial parent” will change to the one who provides the most financial support, regardless of with whom the child lives.

According to the new FAFSA rules, the parent who provided the most financial support in the “prior-prior” tax year should complete the FAFSA application instead of the custodial parent. In case of a “tie” in financial support, the ties are broken based on whichever parent has the higher adjusted gross income.

Impact of a Stepparent’s Income and Assets on FAFSA

Many divorced parents wait to remarry until after their student graduates from college. This is because if the custodial parent remarries, the assets, income, and dependents from a stepparent will also need to be reported on the FAFSA.

Potential Tax Implications for Divorced Parents

As the upcoming changes are still being implemented, the tax implications aren’t entirely clear yet. However, divorced parents may face the following:

• The definition of the custodial parent for FAFSA purposes may differ from the tax definition of the custodial parent.
• Divorced parents negotiating the tax deduction for children may encounter discrepancies in family size calculations on the FAFSA form.
• In some cases, the FAFSA may not accurately reflect the true family or household size due to tax-dependent arrangements.

It is crucial for divorced or separated parents to understand the potential tax implications of the FAFSA changes and how they may impact their financial situation and ability to receive financial aid. Consulting with a tax professional can provide guidance on navigating these changes effectively.

Federal Student Aid, an Office of the U.S. Department of Education, gives specific instructions for providing information about divorced parents on the FAFSA.

The website also says what to do if someone is unable to provide information about both parents due to extenuating circumstances including refusal to participate, incarceration, abusive home environment, or parents who are non-citizens.

FAQs:

Does FAFSA require both parents’ income if divorced?

If parents are divorced or legally separated, FAFSA requires the parent who provides the most financial support to be the parent filling out FAFSA.

FAFSA parent died, do I report my stepparent’s information?
Students with deceased parents may need to submit death certificates or other proof to their college, and the financial aid application process may be emotionally difficult for grieving students.

For the FAFSA, a student should not report their deceased parent’s income.

If the deceased parent was a student’s custodial parent and the student is not financially dependent on the non-custodial parent, the student may be eligible for a dependency override.

What happens if you lie about the custodial parent on FAFSA?

Some schools audit financial aid applications, especially if they have numerous incoming students in need of money to attend college. This increases your risk of getting caught for putting wrong information on your FAFSA.

Lying on a federal document like the FAFSA is a felony and you and your student may be charged with a felony. You, or your student face up to five years in prison and/or a $20,000 fine. This felony charge will follow you or your student for the rest of your lives, hurting your future chances of an education and a job.

Your student will most likely lose any aid money they were offered. If your student received financial aid because of lying on the FAFSA, you must return it. 

How to Use College Insights to Find Financial Aid

Road2College offers a college search and comparison tool called College Insights. Try it for free to see which colleges provide the most financial aid for your situation. We offer a free version to get started and a premium version to go deeper.

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