#085 Upcoming Changes to Federal Financial Aid with Beth Walker Transcript


Lisa Marker Robbins  01:04

Big changes coming to financial aid for college the formula that calculates what your college will pay is being drastically overhauled this year and will affect the 2024 2025 school year. If you have a student who will be in college in the fall of 2024 or later, you’re in the right place for Beth Walker to update you on what to expect and how to navigate financial aid. Beth is a mom and a wealth advisor on a mission to protect parents during their most emotionally and financially vulnerable phase of life. I’m Lisa Mark Robbins, and I want to welcome you to College and Career Clarity, a flourish coaching production. Let’s dive right in to a great conversation. Bath Welcome back to the podcast.


Beth Walker  01:58

Oh, so happy to be back. Thank you very much.


Lisa Marker Robbins  02:01

Actually, you hold a record now. You are the most appearing guest on the podcast. This is your third episode with us. It’s well deserved. But I didn’t even think about that ahead of time. I just you’re kind of my go to on financial pieces of this puzzle. And I as I was introducing you I’m like, oh yeah, this is her third time together. So welcome back friend.


Beth Walker  02:26

Wow. Well, I feel very special. That’s a sacred trust. And I really appreciate that.


Lisa Marker Robbins  02:33

Well, it’s well earned. So you are a wealth advisor and a mom, let’s talk about your your mom hat first. I mean, it’s your mom hat that brought you into helping families navigate money, I’m gonna make it that simple. So talk a little bit about that journey.


Beth Walker  02:52

It is that simple. Literally, when I was home recovering from a cesarean section with my son, Mac, I did my first calculation on what it might cost to put him through college and I was just astounded. And back then we didn’t even have the level of tools that we do now. He is going to be 21 here in August. So he’s finishing his junior year in college and what a journey it’s been it really prompted me to do a deep dive on how do you solve this conundrum called College because you have to find the schools where they’re going to thrive, but then you have to fund it. And I quickly realized just how complex that challenge is. And so I’ve been a little obsessed, frankly, with figuring out how to help families navigate that. It’s complicated. It’s confusing. But we have figured out collectively how to add some clarity to all of that. And, you know, here we go. Again, they’re going to change the rules in terms of the financial aid formula and the process and good intentions, not necessarily great execution, and that that’s what we’ll talk about today. It’s just, it’s tricky. And we have to be good consumers.


Lisa Marker Robbins  04:16

Yeah, well for many families, and I have to say every time a new wave of change comes or like when the wave of COVID came and one of our previous episodes that you were on with a good friend of ours, Beatrice Schultz, the three of us talked about how to recession proof your college bound journey and paying for college which will link to that episode and your previous episode in the show notes. But every time these waves come I’m like, Oh my God, you know, my youngest is going to going into her senior year she’s max age. So at least on a personal note, I don’t have to worry about that piece anymore. And I get to sit over here and keep helping people navigate college major and career selection which is Part of what what you include. But for many families, financial aid, applying for financial aid is part of the formula of paying for college. And I know you You’re really great with you’ve got like this college FICO score that you’re doing and helping families figure out, you know, cash and loans and financial aid and all that. So let’s, let’s do a deeper dive, though, on this financial aid piece first. So I know one change and I don’t know all I don’t know all of this. Well, this is why we have u one changes historically, we’ve been applying for financial aid, the FAFSA, and October of the fall of the senior year, and every year that your students in college, and even the application date this year changes, is that right?


Beth Walker  05:50

Yes, as part of the overhaul of the financial aid formula, the FAFSA, they have encountered delays, its government and so they work at their own pace. And really what they’ve said is we’re not going to be ready. By the traditional october first release. Typically what happens is every year they released the new FAFSA formula on the first of October. And pretty much people are filling out the financial aid forms from October through November, for the seniors that are applying, and then the returning students, if you’re already in college, you tend to do it in December, January, as part of the financial aid process. Well, the government isn’t going to be ready. What they’re telling us right now is, we’re going to do this in December,


Lisa Marker Robbins  06:44

is it for this year, only do you think and then it’ll go back to October I do


Beth Walker  06:49

that that’s what they’re signaling will be. The approach is that for the 2024 2025 school year, you’ll apply in December. That’s their goal right now who’s to say that they make their goal, it could move to January. But the intention is after that they would go back to the October timeframe for the releasing the new FAFSA every year. And you know, the changes are good. But for for some families, and they’re going to be very challenging for others. And so happy to unpack that. I think there’s I think there’s six or seven meaningful changes that parents need to be aware of. And I’m, I would love to talk about that.


Lisa Marker Robbins  07:38

Okay, let’s hit that. Because, you know, before we jumped on you and I were talking and I’m like, I know, I’m a weirdo over here, you know, and we talked about some of the things that I have done, but it’s because I work in this landscape. Right. And it’s because of particular attitudes I have towards money, and how our family spends our money. And you have made the point me and Lisa, every family’s unique. Yeah, every family’s different. And so let’s hit these big six. Yeah. And and while we do I know, you said like, some of it’s good, but it’s not good for everybody. So you know, either along the way, or after we go through the six changes and what to expect, identifying who it’s good for and who it could hurt.


Beth Walker  08:30

Absolutely. Well, let’s start with why did they change it? They’re having a smaller percentage of people actually complete the FAFSA every year. And so they really want to help families, they really do. But the complexity and the amount of data that they were asking families to put into the FAFSA filing process was a detriment. And so they said, Alright, first of all, we’re going to make it shorter. So it used to be over 100 questions that needed to be completed, and now it’s going to be closer to 36. So no order. And that’s in and of itself a good thing. Okay. So simpler, shorter. Second big thing is terminology. There was a lot of confusion about what the FAFSA actually communicated to the family. And after you got done as a student and parent entering data into the formula, it would create what was called an E f c and expected family contribution. And it really confused people. Unfortunately, a lot of families were misled and confused because they thought that was the amount they would have to pay. Or they thought that was the amount of aid they would receive. They didn’t understand what that number really was. And at the end of the day It was the way the colleges determined the family’s relative financial position. So it was more meaningful for the college than it was for the consumer. Okay, they are shifting from an expected family contribution to what a new acronym, S A I stands for student student aid index. And it’s really designed to give you that relative score. All right. And this is where I think so many families are, are confused, because in our consumer culture, we’re used to getting pre qualified for a mortgage or a FICO score. So we’ve got this way that we can think about our finances based on the calculation done by the gatekeeper. But the Department of Education is not serving as a gatekeeper here, the number is really more beneficial for the colleges than it is for the consumer. But it plays a role. So we need to understand that. So okay, less questions, shorter form, different acronym for the calculation, it’s a student aid index, and hopefully more clarity about, oh, this is how the colleges are going to look at my household. It doesn’t mean anything necessarily, to me, in terms of what we can afford. And it it really speaks to aid eligibility. Yeah, it


Lisa Marker Robbins  11:29

makes me think of, I always say when it relates to admissions in the Getting MPs, right, we’re talking about getting money on this hand, but on the getting MPs, I will say to students all the time, like these admissions officers, they like kids, they like teenagers and young adults, and yet it can feel like they don’t, because they’re the gatekeeper of whether you’re getting in. And they do tend to give students the benefit of the doubt. But that’s a hard sell sometimes, to students, because there’s so many feelings that go with this. So it is really a psychological shift. And remember, we’re both like, people are for kids going to college. And this all is meant to support teenagers and parents in their pursuit of higher ed. So easier. Sounds better. Let’s start with that. So what else is coming? Well,


Beth Walker  12:27

as part of simplifying the data intake, they’re increasing what we call Pell Grant eligibility. So if you are on the lower end of income and assets, there’s more opportunity for more financial aid. And so in a lot of ways by asking for less information, and increasing the amount that you’re going to get on the lower income side of things, it does help those with exceptional need. Okay. So I think in many ways, this initiative delivers on the promise of trying to make higher education more accessible for those that really need the help, okay. But when I think about the people that might be listening to this podcast, and the people that tend to knock on my door, I’ll call us the devil stuff in the Oreo cookie, the people in the middle, are getting hammered with these changes, because the next thing that comes is the fact that there are no more discounts. When you have multiple kids in college, I think this is the most devastating change to the formula. It used to be that if you had two kids overlapping, overlapping in college, so I have a freshman and a junior, that student aid index that what is currently called an EFC was now split between them. And so the students were eligible for more assistance. That’s no longer going to be the case. So for families that have two and three kids in college at the same time, their costs are going to double and triple. That’s a


Lisa Marker Robbins  14:12

that’s a that’s huge, because there was such a benefit. I remember one time here in the Greater Cincinnati area, there was this family. The mom was an education. I forget what the dad did. Mom was a school elementary school principal, I think. And they had quadruplets. Oh, oh, God got into an Ivy League. I think it was Princeton, but don’t quote me on that. But they all went to an Ivy together. And people would say to me, How in the world could they afford that? And I said, Oh, well, because of how financial aid works. Now, a family like that is the short end of the stick.


Beth Walker  14:52

Well, not necessarily. So this is a really important planning nuance. Okay. There are two formulas there is the The federal formula which is dictated by completing the FAFSA, but then there’s the institutional formula, which is a different algebraic equation used by the schools that use the CSS Profile, which is just a different set of financial aid forms. And so one of the things that we’re likely to see is more schools may end up using the CSS Profile, which has its own drawbacks, because in the federal formula, you don’t include things like home equity, but in the institutional formula you do. But there’s a strong belief that more schools are going to use the CSS Profile this year, because that does offer the discount for the kids. So it is going to be increasingly important for the families to understand which financial aid forms their schools are going to use this year. And the following year, as this kind of settles into the new normal,


Lisa Marker Robbins  16:00

that question on that CSS real quick. So the CSS Profile, will it still go within October 1, the the the application for the CSS Profile schools, which will link in the show notes to where you can go to find the most current list of the schools that are using the CSS Profile you you have to complete this but that will be available October 1, where that FASFA. Okay, so And to your point, Princeton’s a school that does the institutional methodology, the CSS, so that family would have been treated differently. But this goes back to something you and I always talk about, at the center, all of all of this is smart college choice, having a college list that makes sense for on my side, I’m always concerned about the right college major to get the student to the best fit career, which is the work that we do inside our launch Career Clarity course, on your side of the coin, is the funding piece. But it all comes back to you’ve got to have a very unique strategic college list for your team.


Beth Walker  17:10

Absolutely. I mean, we’re going to talk about It’s the intersection of money, academics and guidance, you’ve got to, you’ve got to know what you can afford before you even start down. And the premise I say is you need to buy College, like you buy a house, what’s your what’s your success criteria, I’m going to major in this or this, I have this type of school that I want to attend. I mean, if I go to buy a house, I’m pretty clear on the number of bedrooms, number of bathrooms, garages, and my must have criteria. Once I’ve got that, then I need to go get pre qualified for the mortgage. So I know how much we can spend. And it’s then and only then, that I know which zip codes I can shop in. And we have to approach college like we buy a house. And I don’t believe that most families understand how to shop in the right zip code. It is a student centered process. So it all has to revolve around the education of the student and the career path and major that they’re pursuing. But we can do that in the context of affordability. And I think it’s the what’s missing today for a lot of families is that integration and the financial aid forms play a role. One of the other changes that’s coming and this, again, is painful for a lot of the families we serve is in the event of divorce or separation. In the past, you could default to the custodial parent, that’s the that was the default position of the financial aid formula. And oftentimes, the custodial parent was not necessarily the one with the highest adjusted gross income. And so there might have been an advantage for the custodial parent to take the lead on the FAFSA because they would be eligible for more aid. Well, that is going away. Now the default in the formula will be with the parent with the highest adjusted gross income. So that planning opportunity has evaporated.


Lisa Marker Robbins  19:14

And I had no idea. Yeah, and that’s painful. You know, at the time, if you are a family that has multiple kids in college at once and you are divorced or separated or legally separated, then Okay, so those are two groups that are not benefiting from correct.


Beth Walker  19:33

Now let’s talk about a benefit that is happening for everyone that I’m actually really happy about and that is there are no financial consequences for contributions made toward a student’s education by what we call others. So somebody other than the parents, right now, if a grandparent owns a 529 plan in and they distribute that 529 In money to pay for the student school that is assessed as untaxed income for the student at a rate of 50%, it’s very harmful in the whole formula and aid eligibility that’s going to go away. So effectively any 529 plan not owned by a parent. So a grandparent, a friend and aunt or uncle is essentially financial aid invisible. And I find that to be a great planning opportunity for almost every family that we’re ever going to work with.


Lisa Marker Robbins  20:32

Absolutely. So when finally, finally a win,


Beth Walker  20:37

right, I mean, the last little benefit, and it’s tiny. You know, most of us who have kids in college, have suffered from what I call a hidden tax increase, because the income protection allowance, the amount of money that you could have set aside in a bank account for things like emergencies, has slowly over the last several years just been whittled down to virtually nothing. So our aid eligibility was hurt. If we had an emergency fund, well, they are going to increase the income allowance slightly up by about 22%. giving families a little bit more relief, if they’ve got money set aside for emergencies, which we all should. So that’s a nice little thing that they did. It’s not huge, but it is a benefit. So let me just summarize the benefits are a reduced number of questions, increased protection allowance, and literally eliminating the impact of money contributed by others. Those are good things. Okay. The drawbacks are no discount for multiple kids are in college. And of course, if you’re divorced or separated, you’re not going to be able to use the custodial parent or the parent with the least amount of income and assets as the lead parent. So you’ll lose eight eligibility


Lisa Marker Robbins  22:02

and question on that one. So like in our family’s case, which none of this matters for my family. But let’s pretend like my daughter was going into her senior year of high school. Right? So I’m divorced from her father. I am remarried. Right? Her father is not if I were the the parent with the higher income, does that mean just my income? Or would it be my income and Rob’s my husband’s when you remarry household income,


Beth Walker  22:36

its household. If you were divorced with single parents or separated parents, then it would just be the single or separated parent, but when you remarry, it would be the house. So


Lisa Marker Robbins  22:49

I mean, in that case, as I think about it, because this is where these just goes to like how individual This is. Yeah, if you have the two parents, let’s say the parent who’s remarried actually makes less than the parent who’s not. But that parent that remarried parents spouse makes the most money, then it’s the actually the parent who makes the least amount because they household income is the highest,


Beth Walker  23:16

correct? Wow. It’s so yeah, it there’s a lot of move. It’s an individual Rubik’s cube, and you’ve got to play out a lot of it. But you know, you make an excellent point, just by bringing that up. This is why it has frustrated me as a financial professional for so long, that we’ve allowed the government formula to drive our planning. It’s, it’s ridiculous. They don’t ask a single question about debt or liabilities. And so we need to reverse engineer this from what could we pre qualify you for college? What should you be spending? And now let’s go look for schools that are a fantastic fit for that kiddo. It’s that simple. Let’s take back control as consumers and not let a government formula dictate where we’re going to look.


Lisa Marker Robbins  24:10

It’s, I’ve often said to people, you know, you bring up buying a home, and you prequalify for whatever your mortgage is going to be. Most people do not purchase a home with the total amount that they’re pre qualified for most people under, they take a mortgage for less than they’re approved for because people don’t want to, quote, be house poor. They want to have money to travel and pay for their kids education and all the other things. And I don’t see that same mentality with families. A lot of not everybody, but a lot of families do not have that same mentality when it comes to paying for college. They’ll say well, we’ll figure it out. And I don’t think They’ve put thought into what figuring it out means? Well, I


Beth Walker  25:03

think fundamentally, we don’t view it as a purchase. This is such an emotional decision for every parent. And there’s an implied contract that, you know, if they get in, we’ll figure out how to make it work. And because of that emotional context, oftentimes, we’re really hurting ourselves from an economic perspective. So if we could just, you know, as parents put our consumer hat on, and really look at this as the big purchase that it is, it’s a six figure purchase decision. Yeah, it’s an opportunity, frankly, for us to teach our kids how to be better consumers. And we just have to change the context. And that’s sort of the mission that I’m on.


Lisa Marker Robbins  25:47

Now, I love that, you know, it also makes me think of another previous episode with Dr. Abby Sussman, I think is her last name. She was on in August of 2022, I think about a year ago. She is a professor at University of Chicago, She studies the intersection of economy, Economics, Psychology, and I forget the third, finance really, I think, but she talks about making emotional decisions and a hot state or a cold state. And the hotter hot in this case, being making making that decision on budget when it’s time to enroll. A cold state is before we start college planning, making that budget decision on that side instead, the warmer state is like okay, well, we’ve started doing some college visits, you know, I have a sophomore or a junior, you’re already in a warm state. And we make better decisions when we make that budgetary decision and a cold say, if it’s a fantastic episode that I’m gonna


Beth Walker  26:56

listen to. It is a great episode. I mean, he’s really good. Just ask yourself as a parent, did you drop your son or daughter off at a Mercedes Benz dealership at 16? And say, Hey, let them pick out whatever they want? No, we wouldn’t do that. Okay, but we are doing that with college. And we just need to stop it.


Lisa Marker Robbins  27:17

Well, that you help families solve that Rubik’s Cube and know what zip code they should be shopping and for college. If somebody wants your insights, what’s the best way for them to reach you and we’ll put it in the show notes as well. So my


Beth Walker  27:33

email address is Beth at Center for college. solutions.com Sorry, it’s so long. Or you can also go to my website, Center for and that’s fo r college solutions. plural.com. That’s the easiest way to get a hold of me.


Lisa Marker Robbins  27:50

Fantastic. Thank you for being our guest who’s been here three times. We appreciate you and the time that you carve out for our listeners, you’re the best.


Beth Walker  28:02

Love it Thank you.


Lisa Marker Robbins  28:08

With change can come opportunity, but you need to educate yourself first, best advice to be a wise consumer is spot on. I’m going to post the link to the list of CSS Profile schools in the show notes. The schools on this list do evaluate your family for financial aid very differently than the schools that are not on the list who use the federal methodology. This is one piece of the college funding and list building puzzle to tap into. For your college bound challenge this week. Pull up the list of CSS schools and identify which of the schools that your student is considering or definitely applying to are on this list. Then, mark on your calendar October 1 If your student will be applying to any of these schools for you as a parent to complete the CSS Profile application. Finally, Mark December 1 on your calendar for completing the FAFSA for all other schools. As the changes further develop and become finalized around financial aid. We’ll be sure to keep you posted on upcoming episodes on College and Career Clarity. Because everyone needs to have a college funding plan. Your friends need this information to please do them a favor and forward this episode so we can help resource more families to launch their team into a successful future.