What You Need to Know About FAFSA 2026‑2027

The Free Application for Federal Student Aid (FAFSA) may seem like a bureaucratic checkpoint, but it’s also a window into how schools views family finances. For the 2026‑2027 aid year, there are meaningful changes that affect what data FAFSA collects, how eligibility is computed, and what counts or doesn’t count in the formula.

What’s Different in FAFSA 2026‑2027 (Big Picture)

Here are a few headline shifts for 2026‑2027:

1. Launch & Timing
   The FAFSA for 2026‑2027 was scheduled open on October 1, 2025, however we received news that it already opened a few days ago.

2. Asset exclusion changes
   Several changes for 2026–2027 are required by the OBBBA (Public Law 119‑21), which reshapes how certain assets and income features are handled.

   • The net worth of a family‑owned business with 100 or fewer full-time equivalent employees is excluded from the asset portion of the Student Aid Index (SAI).

   • The net worth of a farm on which the family resides is excluded.

   • The net worth of a family‑owned commercial fishing business (and related expenses) is also excluded.

3. Pell Grant eligibility changes & income recalibrations

   • The foreign earned income exclusion (an item used for tax filings) will now be added back into the Adjusted Gross Income (AGI) when determining Pell Grant eligibility.

   • If a student’s SAI is equal to or greater than twice the maximum Pell Grant, the student becomes ineligible for the Pell Grant, under standard rules (though certain special rules carve out exceptions). For 2026–2027, that threshold is $14,790.

   • Also, students who receive non‑federal scholarships or grants that fully cover the cost of attendance may lose eligibility for Pell (because the total awards exceed the cost) under the new rules.

4. Faster identity verification & simplified contributor invites
   One friction point in prior FAFSA cycles was identity verification delays. For 2026‑2027, the system is expected to validate accounts faster (for people with valid Social Security numbers). Additionally, students won’t need detailed parental identifiers (like SSNs) to invite parents, they can send an invite by email and the parent can respond with a one-time code.

5. IRS Authorization

   The form is now requiring you to provide authorization for them to collect your tax information directly from the IRS. This is not optional, however, if your situation has substantially changed since the latest tax filing, you will have an opportunity to share that in the form or directly with schools, later in the process.

What Counts on the FAFSA

When families complete the FAFSA, they’re reporting financial information that’s used to calculate the Student Aid Index (SAI), the number that helps determine eligibility for federal need-based aid. What actually goes into that number, though, can be less obvious. Below is a breakdown of what types of income and assets are reported, whose information is used, and how it’s treated in the calculation.

All information here is based on currently available federal guidance for the 2026–2027 aid year.

Income

• Parent income is based on 2024 tax returns and includes adjusted gross income (AGI), untaxed income, and other income (rental, business, etc.).

• FAFSA applies an income protection allowance (IPA) based on household size, plus deductions for taxes and employment expenses.

• After allowances, a portion of remaining income is counted — typically between 22% and 47%, depending on income level.

• Student income also comes from 2024 tax returns.

Assets

Assets are reported as of the day the FAFSA is filed.

Parent assets:

• Cash, checking, and savings balances

• Non-retirement investments (stocks, mutual funds, etc.)

• 529 plans owned by the parent

• Real estate other than the primary home

Excluded:

• Primary residence

• Retirement accounts (401(k), IRA, etc.)

• Life insurance and annuities

• Family-owned small businesses (if under 100 full-time employees and 100% owned by family)

• Farms the family lives on

• Family-owned commercial fishing operations

After a protection allowance, remaining assets are counted at up to 5.64%.

Student assets:

• Cash and savings

• Investment and custodial accounts

• Trust funds

No asset protection allowance applies. All student assets are counted at 20%.

529 Plans

• Parent-owned 529s are parent assets (counted at up to 5.64%).

• Student-owned 529s (this is rare) are student assets (counted at 20%).

• Grandparent-owned 529s are not reported as assets, but distributions may be treated as income in future FAFSA cycles (pending rule changes).

Wrapping It Up

The form itself is much simpler this year and it doesn't hurt that the application is open ahead of schedule.

Understanding what counts, how it’s weighted, and what’s excluded helps families avoid surprises. And while the FAFSA itself doesn’t care about your broader financial goals, you might, especially when it comes to how the colleges use this information for institutional aid decisions.

If you are left thinking, “Okay, I get the mechanics, but how does this fit into everything else we’re trying to do financially?”, that’s where a financial planner can help. Not with filling out forms, but with understanding how this one piece fits into the bigger picture: cash flow, taxes, retirement, and everything else competing for your dollars. Working one-on-one with a financial planner can help put everything into perspective and plan not only for the upcoming academic year, but for many years ahead.

If you're looking for additional information on planning for college costs, I’m hosting a free webinar on the topic. Inside the webinnar, you will learn more about:

• How assets count and benefits and downsides of each

• The difference between FAFSA and CSS Profile

• How to think about financial and merit aid

• When and how to start preparing for college cost

If you’d like to join, click here to register.

FAFSA isn’t just a form. It’s a financial snapshot that can influence real decisions for your family. Knowing what it sees, what it skips, and how it’s changing year to year gives you more control and fewer surprises down the line. So, collect all your financial documents, take a deep breath and carefully read through what it's asking you.