A recent change to the financial aid process should make things a little easier for parents in the coming years. It may also change how parents manage their finances starting on January 1st, 2016. That’s only two weeks away!
Families of high school seniors often find themselves having to estimate their taxes to meet impossibly early financial aid deadlines. If their estimates are wrong, their aid package can end up being worse than they expected or even disappear.
In a great development for parents, the federal government will soon make the process easier by requiring parents to use two-year-old income tax returns rather than the latest (and often unfinished) returns.
Take a quick look at the change below and consider whether it will impact you and your family.
In February of a student’s senior year, parents were required to enter the prior calendar year’s tax information (Jan 1st of junior year to Dec 31st of senior year) into a FAFSA form in order to gauge how much financial aid (if any) they were eligible for.
This was a nightmare. By February, most families didn’t have the tax information they needed to fill out the FAFSA form accurately (after all, the federal tax deadline is in mid-April). Some parents were forced to submit paperwork with estimates of their final tax numbers.
Not only did this timing cause a lot of angst and running around, but it left families with an incomplete picture of how much aid (if any) they would receive to pay for college.
Now, parents can use what’s called their “prior-prior year tax return” to fill out the FAFSA forms. That is, they can use the calendar year that straddled their child’s sophomore/junior year versus the junior/senior year.
Here’s an article that takes a deeper dive into the new rule and its implications: https://www.insidehighered.com/views/2015/09/17/essay-prior-prior-ppy-year-data-free-application-federal-student-aid-fafsa
What does this mean for parents with freshman and sophomores in high school?
When this year’s sophomores (Class of 2018) apply to college in their senior year, parents will submit information from the calendar year 2016 tax return.
When this year’s freshmen (Class of 2019) apply to college in their senior year, parents will submit information from the calendar year 2017 tax return.
Why might you care?
It used to be that January of the child’s junior year would be the earliest time that colleges could “look back” at your financial situation to assess financial aid eligibility. In other words, if a family planned to “manage their income” in order to present a more “needy” profile, they started in the middle of their child’s junior year. Now, they must do so in the middle of their child’s sophomore year.
For instance, if you decided that it wasn’t worth it for both parents to continue working because it generated too much AGI (adjusted gross income) that effectively went directly into the college coffers, then one parent should stop working in the middle of their child’s sophomore year (not junior year), because that is the year that will be evaluated on the FAFSA form.
If you think this development might impact your financial planning, please seek expert advice from a college financial aid counselor. The rules can be complicated and every family’s case is unique.
Never stop preparing,