NerdWallet's Smart Money Podcast - Money News: How to Navigate New FAFSA for Federal Student Loan Aid

Episode Date: January 10, 2024

Explore FAFSA’s impact on college finances, including changes to the application process and shifts in aid eligibility. How do changes to FAFSA affect your eligibility for federal student loans and need-based grants? What’s the best way to navigate the recent rollout amid technical issues with the website when it launched last month? What information do you need in order to complete your FAFSA application, and what happens after you submit it? Hosts Sean Pyles and Anna Helhoski delve into the chaos surrounding the release of the revamped FAFSA (Free Application for Federal Student Aid) with special guest Eliza Haverstock, NerdWallet’s expert on student loans.  You’ll walk away with essential advice on completing FAFSA paperwork, timeline expectations for applicants, and avenues for seeking assistance. Plus: hear the latest financial headlines around surprising job market figures, fluctuating gas prices, the FDA's approval for Florida to import drugs from Canada, and the Education Department's actions on student loan servicers.  In their conversation, the Nerds discuss: financial aid, college expenses, new FAFSA changes, student loans, tuition, education costs, scholarships, grants, application process, college affordability, federal aid, student financial aid packages, college funding, tuition fees, aid eligibility, student aid index, college financials, education expenses, FAFSA glitches, aid impact, financial aid awards, aid alterations, student aid formulas, college financing, December jobs report, Labor Department, hiring binge, gas prices, drug imports from Canada, Florida law, MOHELA, Aidvantage, EdFinancial, Nelnet, Department of Education, and FSA ID. To send the Nerds your money questions, call or text the Nerd hotline at 901-730-6373 or email [e-mail]. Like what you hear? Please leave us a review and tell a friend.

Welcome to NerdWallet's Smart Money Podcast. I'm Sean Piles. And I'm Anna Helhosky. And this is our weekly personal finance news roundup, where we take a look at recent development in the world of money and then go in-depth on an issue that's important to your life and your bottom line. I know we're 10 days into it already, but happy new year, Sean. And same to you, Anna. And hopefully a happier year to come for anyone dealing with the free application for federal student aid, the FAFSA, because up to this point, ooh, it has not been pretty. Yeah, I think you could fairly call it a FAFSA snafu. Folks who tried to access the system when it launched about a week and a half ago were stymied by technology. We're going to take a look at what happened and how it's being fixed.

First, a few money headlines from the last few days. The latest figures are out from the labor department and the country's hiring binge still isn't over. Employers added 216,000 jobs in December, way more than economists were expecting. The unemployment rate held steady at 3.7%. Yeah, that capped off a year of good news on the jobs front. Payroll employment rose by 2.7 million last year. That said, it doesn't even come close to the 4.8 million jobs created in 2022. Average hourly earnings in December rose 0.4% from November and were up 4.1% from December 2022. Most of the gains were in government,

healthcare, social assistance, and construction, but transportation and warehousing saw job losses. If it feels like you're no longer dreading going to the gas station, here's why. The average price nationwide for a gallon of gas is down to $3.08 as of this past Monday. AAA says that's down about 15 cents from a month ago. Yeah, there's a great headline on their website. Like holiday decorations, gas prices are coming down. That's mostly true. I will say I still have my holiday lights up. I like to leave them up through MLK Day

because it is dark up here this time of year. But I will note that in Washington, we're still not seeing quite that dip in gas prices. The average price in my state is $4.08 a gallon. Over the border in Oregon, it's $3.74. How about here in New York? $3.32. So not too much above the national average.

Well, I pretty much walk everywhere anyway, or I go get my gas in Jersey, where it's always a little cheaper. For anyone with prescription medications who pays an arm and a leg for them, some interesting news out of Florida. The state proposed allowing Floridians to buy drugs the state imports from Canada. And last week, the Federal Food and Drug Administration approved the plan. Presumably, this paves the way for other states to follow suit. And presumably the drug companies are, shall we say, none too pleased. Correct on both accounts.

And native tribes are also included here. The FDA authorization lasts just two years. And during that time, Florida will have to get FDA approval for each and every drug it wants to import. It's also the state's responsibility to make sure that what they're bringing in is authentic and safe. It will also have to relabel the drugs to meet FDA standards. But don't expect Canadian drug supplies to start flooding the market. Canada is worried about shortages for its citizens if the U.S. starts doing all this importing, so it's starting to place restrictions on exports. We're going to talk in a moment about the screw-ups with the FAFSA process over the holiday break, but here's a follow-up on another student loan-related screw-up. Folks may remember that when student loan repayments started back up after the pandemic and after last year's Supreme Court

ruling, things did not go smoothly. Yeah, in fact, one of the biggest student loan servicers, Mojila, had $7.2 million withheld by the Department of Education because it didn't send out statements on time. Well, Mojila now has company. Last week, the Ed Department announced it's withholding a total of $2 million from three more servicers, AidVantage, Ed Financial, and Nelnet, for not doing their jobs well either. That's what we saw and heard over the past week in Money News. Let us know what we missed and send us the headlines you've seen and want to hear more about. And now onto our in-depth look at the kink-filled soft launch of the new free application for federal student aid, or FAFSA application. In a moment, we'll be joined by Eliza Haverstock, our nerd who covers student loans. Eliza Haverstock, welcome back to Smart

Money. Thanks for having me on. Before we get into what happened with the initial rollout of the new FAFSA, here are some basics for listeners. The FAFSA is the application for federal student aid that students and their families submit each year they attend college. The info on the application is used to determine federal student aid, including federal student loans, work-study, certain scholarships, and need-based Pell Grants. You apply a year in advance of when you plan to attend, and some of the aid is first-come, first-served, so it's important to get the application in early. Now, usually the application is ready to go on October 1st, but this year, the release of the 2024-25 application didn't happen until December 30th. And let's just say things didn't quite go as planned. Eliza, can you tell us what happened during the rollout? So this year, the FAFSA was soft launched just before New Year's

Eve after that big delay. The first two days the form was open, people could only access it during a 30-minute window and was available for limited hours in the days afterwards. As of Monday, January 8th, the form is now fully accessible 24-7, although that doesn't mean the form is free from glitches yet. So far, about 1 million students have submitted the form of the 17 million who typically do so each year. And just to zoom out a bit, this delay happened because the education department is doing the biggest overhaul of the FAFSA since the 1980s. But unfortunately, that resulted in a delay and ultimately this confusing rollout. Here's what White House Press Secretary Karine

Jean-Pierre said about the situation. We're trying to do our best to make this process easier for families and students. And so, look, it's going to take a little bit of time, right? It is, but they've been working through it. The Department of Education has been working through this through the weekend. And so we're seeing some better improvements here, and I think that's important. The Education Department says they're going to monitor performance of the site and functionality of the form so you can expect pauses for technical updates. But a bunch of people are reporting glitches. Definitely. People who've been able to access the FAFSA have reported error messages that prompt them to close all internet windows and try filling out the form again later. This can be really frustrating, but the Department of Education

is actively working on fixing these glitches. Yeah, it seemed like periodic access was frustrating for some borrowers. I got an email last week from a reader who has twins who are both about to attend college next year, and he seemed pretty peeved that the new FAFSA wasn't quite ready. So, Eliza, since this is the new FAFSA, what's actually new about it? Once you access the form, it should be really quick to complete. Contributors to the FAFSA might only have to answer SVU's 18 questions, down from more than 100 in previous years. So you may be able to finish your portion in just under 10 minutes instead of an hour or longer. So that's great news for students and families.

The new form also imports relevant financial information directly from the IRS, so you won't have to dig up tax returns and other financial documents and input those numbers manually this year. It's a streamlined process, but how could it impact students' financial aid packages? Will more aid be available? It really depends on your situation. Some students will get more financial aid, others will get the same amount or less. For example, more than 600,000 additional students from low-income backgrounds should qualify for the Pell Grant starting next year, which gives them more than $7,000 per year that they don't have to pay back, so it's not a loan. However, the new FAFSA also eliminates the sibling discount for families with multiple kids in college at the same time, so that could reduce some people's

financial aid awards. And for kids of divorced parents, the FAFSA will now base financial aid on the income of the parent who provides the most financial support instead of the parent the student lives with most of the time as in previous years. So that can mean more or less aid depending on the family situation.

And there's another issue with the new FAFSA that's been making headlines. The Ed Department is supposed to use a new formula to protect more of families' incomes when determining financial aid eligibility. And this formula is supposed to be adjusted for inflation, but that inflation adjustment didn't make it into the math, which could be problematic for families. Eliza, can you explain what this might mean for folks hoping to get student aid? Without accounting for inflation, it might appear that families have more money to put towards education expenses than they really do, which could result in them getting less aid from the government. So that's troubling, but reports indicate that the education department is working to fix the issue.

We don't know what the outcome will be at this point, though. Okay, so Eliza, if you get through to the form, what do you need to have on hand in order to complete it? Before you can submit the form, every contributor will need a unique federal student aid ID or FSA ID, and that's just the username and password combo that you'll use to sign into the form. Students are always considered contributors, but depending on their situation, contributors could also include parents, step-parents, or spouses. So you can request an FSA ID on FAFSA.gov, and the turnaround time to receive it is about one to three business days. Since the soft launch period ended on Monday and the form is now available 24-7, when can applicants expect schools to receive their information?

The Education Department is saying that it will begin processing completed forms and sending them to colleges sometime in late January at the earliest. At that point, schools will start getting to work on building financial aid packages and sending them out to students and families. As of now, the college decision day is still May 1st, but there's some talk in the financial aid community of schools actually moving this deadline back if they can't get financial aid offers out in time. But without a concrete timeline yet from the Department of Education or announcements from any colleges, we don't yet know what will happen with that May 1st day. Once the FAFSA is submitted, what happens next? Once you submit the form, you'll get an email confirmation, which includes your estimated Pell Grant eligibility and student

aid index, which is the number that colleges will use to calculate your financial aid award. Then starting in late January, the Department of Education will process your FAFSA, and you can expect to receive your official FAFSA submission summary, which includes your finalized Pell Grant Eligibility and Student Aid Index. Late January is also the earliest that students will be able to edit their submitted FAFSA if they made any mistakes filling it out. So that's just something to keep in mind. You can't go in and fix it immediately if you make an error. And finally, Eliza, where can people get help if they need it? Of course, there's more information always available on nerdball.com. But where should people go for direct communications or if they

have questions from customer support? If you'll be a returning student next year, reach out to the financial aid office at your college. But if you're a prospective student, you can ask your high school college counselor or the financial aid offices at the colleges you're applying to. Some communities also have college access organizations that can help you out for free. Just keep in mind that this is also uncharted territory for financial aid administrators. This is the first time they're dealing with a revamped FAFSA just like you, so you might have to wait a bit for an answer. So just be patient there. There are also a ton of great resources and FAQs on studentaid.gov, and you can call the Federal Student Aid Office's Customer Service Department at 1-800-433-3243. And lastly, I just wanted to emphasize that even

though the FAFSA rollout has been really confusing this year, it's still essential that students and families submit the form as soon as they can. It's free and quick to complete. There's no income limit to qualify for financial aid, and students might get more money than they expect for school. Without the FAFSA, you won't be able to qualify for federal student loans, grants, work-study, or even some scholarships. So you have nothing to lose.

Well, Eliza, thank you for walking us through all that. Of course. Thanks for having me on. And that's it for this week's Money News. We always welcome your money questions and comments. Turn to the nerds and call or text us your questions at 901-730-6373. That's 901-730-NERD. Or send us a voice memo at podcast at nerdwallet.com. And remember to follow, rate, and review us wherever you're getting this podcast. Today's episode was produced by Tess Vigeland and edited by Rick Vanderkneife. Sarah Brink, Mixer Audio.

And here's our brief disclaimer. We are not financial or investment advisors. This nerdy info is provided for general educational and entertainment purposes and may not apply to your specific circumstances. And with that said, until next time not apply to your specific circumstances. And with that said, until next time, turn to the nerds.