Some Good FAFSA News: There’s a Loophole for Grandparents

It is a miserable year to be applying for financial aid.

Millions of families probably won’t get a final price tag for college until at least April, because of a series of Education Department delays in rolling out the new FAFSA financial aid form. Students with parents who do not have a Social Security number still can’t complete the online form.

But if you’re applying for aid and have grandparents who want to help, you may be in luck.

Under the old rules, the FAFSA, or Free Application for Federal Student Aid, asked about “untaxed income” and “money received, or paid on your behalf.” That was your cue to disclose assistance from a grandparent.

That help was a kind of benefit, and the aid formula included it when figuring out what you could afford to pay. Once most schools get the FAFSA data from the federal government, they determine how much of their own aid to give you, if any, on top of any Pell Grant or subsidized loans from the federal government.

But now, thanks to a 2020 law that went into effect this year, those questions about money and income are gone. That means that at most schools, help from a grandparent will no longer count against you.

In other words, what experts once referred to as the grandparent “trap” has now become the “grandparent loophole.” It’s not clear how many families will benefit from the change, though a gain of several thousands of dollars per year is possible.

At first glance, the change seems radically unfair. If you’ve got family money, somebody ought to know about it so you don’t get grants or scholarships that you don’t need, right?