FAFSA Simplification Act + OBBBA Updates
- Student Aid Index (SAI): Replaces Expected Family Contribution (EFC), changing need analysis by:
- Eliminating the “sibling discount” under the FAFSA (though still used by the CSS Profile).
- Excluding small business assets and family farms from calculations in more cases.
- No longer penalizing cash support from grandparents, including 529 distributions from non-parent owners (e.g., grandparent 529s no longer reduce aid eligibility).
- Streamlining application with data direct import from IRS (replacing manual tax entry).
- New Household Dynamics: FAFSA now defines the "parent of record" strictly as the parent providing the most financial support, not necessarily the custodial parent—reshaping planning strategies for divorced/separated families.
- Number in College: FAFSA no longer reduces the SAI when more than one child is in college at the same time—impacting multi-student families who previously relied on the discount to unlock aid.
Federal Student Loan Reforms (2025–26 Academic Year)
Significant updates to Direct Loan policies create both opportunities and challenges for families:
- Increased Undergraduate Loan Limits:
- Dependent undergraduates can now borrow up to $8,000/year for upperclassmen, up from $7,500.
- Lifetime limit increased to $33,000 (previously $31,000), providing greater access to low-interest federal debt.
- Graduate & Parent PLUS Loan Changes:
- PLUS loans now include improved upfront disclosures, but still carry higher interest rates and no cap on borrowing—advisors should help clients model long-term cost implications.
- Income-driven repayment (IDR) options remain, but eligibility rules have shifted for certain professional degrees.
- Interest Subsidy Adjustments:
- Subsidized interest no longer accrues during authorized deferments (e.g., while in school) for certain income tiers—helping reduce long-term debt accumulation for lower and middle-income borrowers.
- Loan Origination Fee Transparency:
- New disclosures aim to clarify hidden origination fees and help families better compare federal vs. private loan offers.
Key Topics Covered:
- Tax-free growth and qualified distribution rules
- State tax deductions and in-state vs. out-of-state plan comparisons
- Ownership considerations: parent, grandparent, trust, or entity-owned accounts
- Investment strategies: age-based vs. static portfolios
- Coordination with education tax credits (AOTC, LLC)
- Planning for unused 529 funds: rollover options and beneficiary changes
Dynasty 529 Planning: How to structure 529 plans to support multigenerational education goals while preserving family wealth across decades.
Tax-Free Growth & Strategic Gifting: Leveraging the tax advantages of 529 plans and "superfunding" techniques to efficiently reduce the taxable estate.
SECURE Act 2.0 Enhancements
Understanding the new Roth IRA rollover rules for unused 529 funds and how they add long-term flexibility.Multi-Beneficiary Planning & Trust Integration
Coordinating 529 plans with educational trusts and other estate planning vehicles to serve multiple generations.Compliance & Documentation Best Practices
Tips on tracking beneficiary changes, managing contributions, and avoiding audit risks while maximizing client outcomes.