Effective during the 2024-25 award year, the FAFSA Simplification Act introduced significant updates to the terminology and definitions around what constitutes as financial aid. One of the notable changes is the renaming of “Estimated Financial Assistance” (EFA) to “Other Financial Assistance” (OFA). While this change aims to streamline our understanding of this type of aid, the core definitions and regulations surrounding OFA largely remain the same, with a few important exclusions and clarifications.
What Is Considered OFA?
According to Section 480(i) of the Higher Education Act (HEA), Other Financial Assistance includes:
- All scholarships, grants, loans, and other financial assistance known to the institution when determining the student’s need, including need-based employment earnings.
- National service educational awards (e.g., AmeriCorps) and post-service benefits.
- Any educational benefit paid because of enrollment in a postsecondary education institution, or to cover postsecondary education expenses.
- However, veterans’ education benefits are excluded from OFA calculations.
Importantly, tax credits taken under Section 25A of the tax code, or distributions from 529 plans and Coverdell accounts, are excluded from OFA. Additionally, financial aid administrators should note that:
- State-provided assistance designed to offset a specific cost component can be excluded from both OFA and the student’s cost of attendance (COA), but it must be excluded from both if excluded from one.
- Emergency financial assistance for unexpected expenses, as well as certain Social Security Act payments for youth under state care, are also excluded from OFA.
This last point represents one of the most important changes in the determination of what to include as a part of OFA or not. With this transition, emergency aid programs have been streamlined to better help and assist students, while minimizing previous concerns regarding the interactions between this type of aid and other forms of aid students received. Critically, though, the regulations clearly state that financial aid administrators cannot simply denote additional aid as emergency aid for the mere sake of bypassing the inclusion of that aid as a part of the student’s OFA calculations.
Changes to the Direct Loan and Campus-Based Program Regulations
The regulatory framework for Direct Loan and campus-based aid programs has yet to reflect the renaming from EFA to OFA. However, administrators should interpret any references to EFA as OFA when making need determinations. In the context of Direct Loan regulations (34 CFR 685.102(b)) and campus-based programs (34 CFR 673.5(c)), the types of assistance that are considered OFA remain consistent with prior guidelines, including Pell Grants, federal loans, scholarships, and net earnings from need-based employment.
Moreover, aid administrators must take care to identify sources of income or assistance that do not count as OFA, such as:
- Veterans’ education benefits under specific chapters of the U.S. Code
- Non-need-based employment earnings
- Federal Work-Study funds that a student declines
- Assistance designated to offset a specific portion of the COA
Special Considerations for Financial Aid Administrators
Given the complexity of financial aid packaging, financial aid officers must evaluate the nature of each type of assistance beyond its name. The treatment of income, wages, and compensation, especially in relation to need-based aid, hinges on precise definitions, which are critical for accurate need analysis.
For example:
- Income can include taxed or untaxed sources like welfare benefits.
- Compensation can be cash-based or in-kind, such as free housing or non-cash contributions to Federal Work-Study.
- Work does not necessarily equate to employment, as seen in volunteer internship roles or scholarships with service components.
As seen here in this brief introduction, the 2024-25 changes in terminology from EFA to OFA, as outlined by the FAFSA Simplification Act, are designed to clarify the financial aid determination process. However, financial aid administrators should remain vigilant in applying these updates correctly, particularly with the updated exclusions for certain types of benefits, such as those for veterans, tax credits, and emergency aid. Ensuring compliance with the correct definitions remains a priority in financial aid packaging and student need analysis. If you need help navigating these regulations, contact our team of expert advisors at info@heag.us for further support.