Any parent raising children wants only the best for their future. There comes a day when the age-old question “what do you want to be when you grow up?” becomes reality and your child begins to pursue the next step in their young adult life: college. The decision involves not only selecting the right colleges but understanding how much financial aid you are eligible to receive.
As some of you may know, the process can be overwhelming! These new rules will help your family determine financial aid eligibility and amount earlier in the process.
- Switch to tax returns from two years prior. Starting with the September 2017 school year, you will be using tax returns from 2 years prior when completing your student’s Free Application for Federal Student Aid (FAFSA) application for 2017/2018 (e.g. 2015 tax return). This means the rush to get taxes completed quickly to include with your FAFSA application will no longer be an issue. It is also essential to note that as the system transitions, many parents will be using their 2015 tax return twice (see illustration below). If your financial situation changes (e.g. income is lower in 2016) CCMI can provide guidance on next steps.
When a Student is Attending College (Academic Year) When a Student Can Submit a FAFSA Which Year’s Income Information is Required July 1, 2016 – June 30, 2017 January 1, 2016 – June 30, 2017 2015 July 1, 2017 – June 30, 2018 October 1, 2016 – June 30, 2018 2015 July 1, 2018 – June 30, 2019 October 1, 2017 – June 30, 2019 2016
- You will still rely on current asset figures. Although the FAFSA relies heavily on your income tax return, and using a tax return from 2 years prior is ok, they will continue to ask for the most recent value of your assets. Assets should be valued based on the day you file the FAFSA.
- FAFSA is available earlier. As seen in the table above, the government will make FAFSA available on October 1 instead of January 1. This will enable you to understand how much financial aid you will receive much earlier in the process.
- Late-stage college planning will begin earlier. With this change, the relevant tax years for financial aid purposes are the years beginning with second semester of sophomore year in high school through the first semester of sophomore year in college. Prior to this change, the time period used was from junior year in high school to junior year in college.
- The IRS will help you complete the FAFSA. The FAFSA filing process becomes easier by making it possible to use the IRS Data Retrieval Tool. This tool pulls your income tax data directly from the IRS into the FAFSA and reduces the risk of error. Although this tool has been available since 2009, there have been lags between the time of filing the return and the time the data was available within the tool. Using prior year tax returns should resolve this issue.
The transition of your child going off to college is an important one and can be emotional for families in and of itself. By taking some time to understand the FAFSA changes, it will simplify the process and allow you to stay ahead of it.
Many data points of this article came from Lynn O’Shaughnessy’s blog “The College Solution.” Lynn is a nationally recognized college expert who helps families with teenagers become smart college shoppers as they search for schools (www.thecollegesolution.com). She is also the author of “The College Solution: A Guide to Everyone Looking for the Right School at the Right Price.”
CCMI provides personalized fee-only financial planning and investment management services to business owners, professionals, individuals and families in San Diego and throughout the country. CCMI has a team of CERTIFIED FINANCIAL PLANNERTM professionals who act as fiduciaries, which means our clients’ interests always come first.
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