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FAFSA Changes that Impact Future Students

Warning! Watch Out How You Use a 529 Plan

Warning! Watch Out How You Use a 529 Plan

On September 14, 2015, the Department of Education announced major FAFSA changes that impact future students.  These FAFSA changes will take effect for the 2017-2108 school year. They may very well impact financial aid prospects of future college students.  These FAFSA changes make it all the more important for families to consult with a qualified college financial planner to help mitigate the impact on future students.

The FAFSA is the Free Application for Federal Student Aid process.   Prospective college students and current college students are required to submit the FAFSA in order to qualify for federal financial aid.  And the form is used by colleges to consider their own aid and award letters to students.  The FAFSA process is only for federal and state money.  Some colleges also use the CSS/Profile application and formula, a secondary process where additional financial information will be required.

The FAFSA process requires the prospective student and their family to submit financial information on income and some assets. The FAFSA information generates a number called your Expected Family Contribution (EFC).  This is used to calculate how much a family is expected to pay towards a student’s education expenses.  Because even some school-based aid is determined using these forms, it is recommended that every college bound student complete the FAFSA form each year even if a student is likely not to be a candidate for needs-based financial aid or loans.

The FAFSA change involves the date of the FAFSA submission and the tax year information associated with the FAFSA submission.  The process today makes the FAFSA  available on January 1 of each year.  The current system uses the most recent tax year and often an estimate is required to submit a family’s income information. This is a significant change.

Families will have access and be able to submit the 2017-18 FAFSA anytime from October 1, 2016 through June 30, 2018.  This basically means that if a student applies to a school in October the family can then also submit the FAFSA at that time instead of the old January 1st deadline.

More Tax Data Will Be Needed

A bigger change within this 2017-2018 FAFSA submission is how parents will report their tax income information.  For the current FAFSA submission parents are required to provide information from the prior year.  For example, 2016-2017 students would report the family’s 2015 income information.  Starting in 2017-2018 families will be submitting “prior-prior” year income information.  This means for the 2017-2018 year the income will be from 2015 instead of 2016.

Practically speaking, this means that families will need to coordinate their investment, tax and asset strategies up to three years before a student files the first FAFSA application in order to optimize the benefits of tax and financial planning.

It is unclear how the colleges will react to this change.  In a time when data and information are available almost instantaneously the Department of Education is going the other way.   Based on this change, college award letters will be based on financial information that is almost 2 years old.  This may put additional pressure on the college financial aid offices in the future.  It is possible that more colleges will add a secondary financial process like the CSS Profile or develop something on their own.  This will make it all the more important for families to work with a qualified financial planning professional who can help them navigate these changes.

To make it easier here is a chart for families to view the year of their child and the date the FAFSA should be submitted.

School Age Student Attending College (School Year) FAFSA Submission TAX Year Income Required
Freshmen College 7/1/15-6/30/16 1/1/15-6/30/16 2014
Senior High School 7/1/16-6/30/17 1/1/16-6/30/17 2015
Junior High School 7/1/17-6/30/18 10/1/16-6/30/18 2015
Sophomore High School 7/1/18-6/30/19 10/1/17- 6/30/19 2016
Freshmen High School 7/1/19-6/30/20 10/1/17-6/30/20

2017

 

 

Information and table is provided courtesy of www.EFCPlus.com .