Financial Aid Changes
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As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe NowIf your college student is getting financial aid, you know the importance of completing the FAFSA form. And, it’s hard! Good news! Changes that are effective in 2016 will make it easier.
If you have a student bound for college or in college now, applying for financial aid just got easier. Two recent changes regarding the completion of the Free Application for Federal Student Aid (FAFSA) will give you more time and decrease the potential for mistakes in the financial data that you provide.
Two FAFSA Changes: Simple but Important!
The two changes will take effect on October 1, 2016. For parents/students seeking aid for academic year 2016-17, the current process must be followed.
The first change involves when the financial aid process can begin. Under the new rules, the FAFSA form will be available in October for the following academic year. Currently, it is not available until January. This gives parents an additional three months to submit the forms. The earlier the forms are submitted, the earlier you will know the potential financial aid for which your student will qualify.
The second change will greatly simplify data collection. When completing the FAFSA form, under the new rules, you will use income tax information from the last year for which taxes have been filed. For example, when completing the FAFSA in October 2016 for academic year 2017-18, you will use the information from your 2015 tax return which is generally completed and filed with the IRS in April of 2016. Currently, tax information is required for the most recent tax year, even though the actual tax return for that year may not have been filed with the IRS.
Since these changes are not effective until October 2016, for those seeking financial aid for academic year 2016-17, the FAFSA form will not be available until January 2016 (as in the past). Likewise, you will be required to either file your 2015 tax return in January 2016, which may not be possible, or estimate the 2015 information required on the form. If estimated information is incorrect, the FAFSA form must be changed and refiled, which may delay the approval process.
Benefit of Changes
These simple, but important, changes solve two problems related to timing:
Some prospective students are accepted to college as early as December of their senior year in high school. While this reduces the student’s anxiety, it may mean that the student could be agreeing to attend prior to knowing the amount of federal aid he/she may be granted. With the FAFSA available for completion in October of their senior year, this financial anxiety may be relieved as well.
Because the information used to complete the FAFSA under the new rules is from the last completed IRS tax return, more parents/students will be able to utilize the IRS Data Retrieval Tool that can be found on the FAFSA website. This link will import your completed IRS tax return information directly to your financial aid application, saving you time and removing the potential for errors.
Impact of a Windfall
What happens if your income is unusually high for the tax year used on the FAFSA? Financial aid officers are able to use “professional judgment” to address special circumstances, such as a one-time inheritance or sale of an asset, to avoid artificially inflated income in any year. None the less, it may be important to plan any variable income appropriately, since the higher a family’s income, the lower the student’s potential financial aid.
It is important to realize that for a first-year college student, the income year used for the FAFSA will begin January of his/her sophomore year in high school. Many considered the first financial aid application, or base year, to be the most important. Although you apply for aid separately each year, the awarded amount often does not vary much from the base year.
Summary
With these key changes, prospective college students will be able to apply for aid earlier, use more accurate tax information, and receive a response sooner. All this will allow students and their families to better evaluate college acceptance offers and hopefully relieve some of the financial stress of the college admission process.
Contributions were made to this article by Ryan Jeffries, CFP, Financial Planning Operations Manager, at Bedel Financial Consulting, Inc.
Elaine E. Bedel, CFP is CEO and president of Bedel Financial Consulting, Inc., a wealth management firm located in Indianapolis. She is a featured guest each Wednesday on the WTHR (NBC, Indianapolis) Channel 13 News at Noon, "Your Money" segment. Elaine’s book, "Advice You Never Asked For… But wished you had," is available on Amazon.com. For more information, visit www.BedelFinancial.com or email Elaine at ebedel@bedelfinancial.com.