Denis Doulgeropoulos
Your Financial Professional & Insurance Agent
New Changes to College Financial Aid and Education Tax Benefits
In late December 2020, Congress passed the Consolidated Appropriations Act, 2021, another relief package in response to the pandemic. The bill included several provisions related to education, including $22.7 billion for colleges and universities. Here are some key highlights.
Simplified FAFSA
The legislation achieves a long-standing bipartisan goal by simplifying the Free Application for Federal Student Aid (FAFSA) beginning with the 2023–2024 school year. Furthermore, it significantly reduces the total number of questions by removing items related to drug convictions and Selective Service status.
Additionally, the bill improves the income protection allowance for both parents and students. Consequently, more income remains protected within the aid formula. It also raises the income threshold for the simplified needs test from $50,000 to $60,000, which excludes family assets from consideration. As a result, more students now qualify for Pell Grants.
However, the FAFSA will no longer divide a parent’s assessment by the number of children attending college simultaneously. Therefore, middle- and high-income families with multiple college students may receive less financial aid.
Student Aid Index Replaces EFC
The expected family contribution (EFC) will now be known as the Student Aid Index (SAI). Moreover, this change clarifies the purpose of the figure as a measure of aid eligibility rather than a promise of actual costs.
Consequently, families can better understand that colleges often require payments exceeding the calculated index.
Expanded Lifetime Learning Credit
The bill expands eligibility for the Lifetime Learning Credit, which provides up to $2,000 per year for education that improves job skills. Furthermore, starting in 2021, single filers with a modified adjusted gross income below $80,000 and joint filers below $160,000 qualify for the full credit.
The credit gradually phases out for single filers earning between $80,000 and $90,000 and for joint filers earning between $160,000 and $180,000. Consequently, these limits now match those of the American Opportunity Credit.
To support this expansion, Congress repealed the deduction for qualified tuition and fees beginning in 2021.
Employer Assistance With Student Loan Repayment
The legislation extends the provision that allows employers to contribute up to $5,250 toward employees’ student loan repayments on a tax-free basis. Moreover, this extension lasts for an additional five years.
This benefit, originally introduced under the CARES Act, would have expired at the end of 2020. Therefore, the extension provides continued financial relief for employees managing student loan debt.
This information is not intended as tax, legal, investment, or retirement advice or recommendations, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek guidance from an independent tax or legal professional. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Broadridge Advisor Solutions. © 2021 Broadridge Financial Solutions, Inc.