What Are the PJ Implications Related To the Inclusion Of Small Businesses and Family Farms In the Student Aid Index Calculation?

Scenario: The 2024-25 FAFSA Simplification changes will reinstate the requirement to report as assets the net worth of family-owned and controlled small businesses and family farms that are the principal places of residence. This could affect the Student Aid Index (SAI) in comparison to how the expected family contribution (EFC) is calculated. The school enrolls a lot of students who will be affected by parents needing to list their farm value (land, equipment, livestock) on the FAFSA when this is arguably not something they can liquidate.

Answer: NASFAA has no new information related to the application of professional judgment (PJ) authority once the provisions of the FAFSA Simplification Act of 2021 are implemented. The U.S. Department of Education (ED) has not published any guidelines related to the use of PJ once the Federal Methodology (FM) formula changes are effective beginning with the 2024-25 award year. The FM formula will see several significant changes, including the addition of small businesses and family farms as assets, which will be treated no differently than any other business or rental/real estate property that also arguably cannot be liquidated (under current law).

The effect of these changes on individual students will vary according to each student’s circumstances. The business/farm assessment tables are part of the new FM formula, so the values of small businesses and family farms will be assessed at a graduated rate. Some students with these types of assets will see their eligibility decrease, while others may find their eligibility increases. Note that when a family's income is below the threshold, the student could still qualify for an automatic minimum Federal Pell Grant regardless of the net worth of the business or farm because the automatic minimum Pell Grant is based on income and household size.

As always, the use of PJ must be based on special circumstances, well documented, and applied on a case-by-case basis. It is not appropriate to apply PJ authority across the board to a category of students--for example, to all students who report small business and family farms as assets beginning in 2024-25--or to circumvent the law, as written, even when the law changes key definitions that applied previously. Since PJ authority is specifically delegated to the financial aid administrator under Section 479A of the Higher Education Act of 1965 (HEA), as amended [1087tt/TT], the aid administrator will have to evaluate each student’s/parent’s situation on a case-by-case basis and determine whether the family demonstrates special circumstances beyond just having a small business or family farm, and whether the totality of circumstances warrant a PJ adjustment.

NASFAA will continue to keep the financial aid community informed. Watch NASFAA’s Today’s News for updates and further information as it becomes available.