College applications are going out and tuition checks are being written.

FAFSA (or Free Application for Federal Student Aid) is something many college grads are familiar with and something that prospective college students are getting to know really well. Fun times.

As NBC Chicago reports, the new FAFSA form for 2024-2025 has had a ton of messes involved with it. It had a soft launch and because of the way things happened, it could result in delayed financial aid for a lot of students.

University of Iowa
University of Iowa
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Saving for college for your kiddos is a hard, years-long process. But under the new FAFSA, there might be some good news.

FAFSA's Grandparents Loophole

With the new form, students no longer have to answer questions about contributions from grandparents. This is the loophole. It pretty much allows grandparents to contribute to their grandkid's college fund without impacting their federal financial aid.

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Canva
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Now for the complicated explanation of how it works: the FAFSA has used a thing called the "Student Aid Index", which basically estimates how much money a family can afford to pay for college. In the old FAFSA set up, assets in grandparent-owned 529 college savings plans were not reported on the form. But: money from those accounts did count as untaxed student income. That could reduce student aid by up to half.

Another thing to consider is that the account that the grandparents have could be an asset for Medicaid eligibility purposes.

Obviously, financial experts are telling families to sit down and have a chat together about the technicalities before you sign anything or send in forms.

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