By: Michael Howell
Yesterday, the Obama Administration announced a significant change to the Free Application for Federal Student Aid (FAFSA). Specifically, parents with college-bound high school juniors and parents with younger children will be impacted.
WHY IS THIS SIGNIFICANT?
By allowing earlier submission in October, it does provide families the opportunity to understand their financial aid eligibility in the Fall of the student's senior year of high school when high school students are searching for, applying to, and selecting colleges.
Further, in prior years, parents and students would be able to complete the FAFSA beginning January 1st of each year. The FAFSA specifically required prior year financial information of the parent and student to complete, which resulted in problems. With an April 15th tax deadline and taxes often not being completed for the prior year, families would either delay completing the FAFSA or use estimated figures which would need to be updated later. This created a complicated financial aid system across the board for parents, students, and financial aid offices.
With the new system, almost every FAFSA will be able to be completed using a tax retriever tool that pulls family tax information directly from the IRS.
WHAT IMPACT DOES THIS HAVE ON ME AND ANYONE I KNOW WHO MIGHT BE IMPACTED?
It means planning for financial aid needs to occur even earlier in the process for parents with college bound students.
Previously, the “base year” upon which financial aid officer’s would build a financial aid package for a student was the tax year between January 1st of a high school student’s junior year leading into their senior year ending December 31st. With these changes, the new base year begins January 1st of the high school student’s sophomore year leading into their junior year ending December 31st.
Any significant financial moves in the base year can impact financial aid eligibility (e.g. an asset sale that generates capital gains, a significant one-time bonus from employment, a Roth IRA conversion, etc.).
Any lack of knowledge or mistakes in these years can needlessly increase financial aid eligibility, which is why we advocate planning for college funding and for financial aid, no matter whether you believe your family will qualify for aid or not.
If you would like to learn more about how you can apply a structured approach to organizing your finances to be more efficient with the dollars you spend toward college and minimize out-of-pocket costs, give us a call at (209) 857-5207.
Read the full announcement from the U.S. Department of Education