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By Brett Tushingham
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Families trying to get financial aid for college must complete the disposable Application for Federal Student Aid (FAFSA).?This application, which helps determine a student’s eligibility for aid, requests info on the wages and assets of the student and the or her parents for the previous year.
Because the FAFSA can be completed as soon as?January 1, and since many schools want the form filed in the year,?families commonly fill out the form with estimates of their previous year’s income and then adjust the figures later after completing their tax returns. This has sometimes created problems that affected students’ financial aid packages.?To simplify and streamline the process, the Obama administration recently changed the?application guidelines in a way that will affect college planning for most families.
Let’s check out the alterations and find out what opportunities they’ve created from a college planning perspective.
Beginning using the FAFSA for the 2017-18 school year, families will complete the form using their income from the “prior, prior” year, rather than the prior year, as is currently required. Quite simply, the form for 2017 asks for that family’s income from 2015, not 2016.
Further, the FAFSA for 2017 will end up obtainable in October 2016. So most families may have already filed their tax returns by the time they need the data for that FAFSA – eliminating the need to provide estimates and revise them later. The changes also make it more plausible to make use of the?IRS Data Retrieval Tool?to automate the reporting of income on the FAFSA.?Overall, the alterations should streamline the application process and encourage more families to apply for and receive the aid they’re eligible for.
The major takeaway from all of this is to have an increased awareness of what years is going to be accustomed to calculate your eligibility for financial aid. For starters, 2015 will now become the base income year for both the 2016-17 and 2017-18 school years.?Families who expect to have students in college in 2017-18 must be aware that any changes to their income for the remainder of this season may affect financial aid eligibility for 2 academic a considerably long time.
Going forward, educational funding eligibility for a student’s freshman year attending college depends on income for that year in which the student began his or her junior year in senior high school. And let’s assume that a student finishes college in 4 years, aid eligibility for senior year will be based around the year where the student would be a rising sophomore.
One potential technique for capitalizing on the change is always to refrain from taking distributions from grandparent-owned 529 accounts until the student’s junior or senior year. At that time, those distributions won’t affect future educational funding eligibility.
Keep in your mind that the FAFSA changes don’t currently affect private schools that use the?CSS Profile?to find out aid eligibility.?However, these schools and many private scholarships are expected to align with FAFSA and employ the “prior, prior” income rules, so stay tuned in for changes there.
For now, you need to be incorporating these changes to your college planning strategy and become seeking additional guidance if required. Using a financial advisor who specializes in college planning should prove valuable.
Image via iStock. ? ? ? ??
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