Our federal government continues to make strides towards a simplified process to apply for financial aid. Beginning late next year, students will be permitted to submit for federal student aid based upon their family’s financial details from two years earlier, instead of the year immediately prior to attending college.
Under the current rules for aid qualification, students planning to attend college must wait to file the Free Application for Federal Student Aid (FAFSA) until January of the year they plan to attend college. As the FAFSA requires information from their family’s tax return (generally filed in April), students generally wait several months after the January beginning date to submit their aid application.
Under the new policy, students who plan to apply for federal financial aid will be permitted to file up to 3 months earlier. Beginning with the 2017-2018 school year, students may submit their FAFSA in October 2016 using income data from 2015. This offers students and families the opportunity to submit the FAFSA using information gleaned from their 2015 income tax returns.
The benefits of such a policy change are numerous. First, students will have information in their hands about their aid eligibility prior to submitting college applications. They can now make informed decisions where to apply based upon their financial aid eligibility. Students also increase their chances of receiving state financial aid as it typically is offered on a first-come, first-served basis.
Next, more families will now be able to take advantage of the IRS Data Retrieval Tool (presently only about 20% of applicants benefit from this feature). This Tool pre-populates data in the FAFSA with information derived from a family’s federal tax return. Using this Tool will save families a great deal of time completing the FAFSA and reduce the number of errors from the former method of manual data entry. A FAFSA submission completed using the IRS Data Retrieval Tool generally won’t be audited, further speeding up the processing time and offering parents results on their aid eligibility more quickly.
While most families will applaud the recent changes, a few people might not. Parents who have a high school junior planning to attend college upon graduation in 2017 will submit their FAFSA based upon income earned this year. If 2015 earnings were much higher than normal due to extenuating circumstances, this might negatively impact a student’s ability to receive financial aid.
So who might this affect? A business owner who had an uncharacteristically profitable year or sold his/her business; an individual who exercised stock options or sold stocks with a large short-term gain; a salesperson who made greater commissionable sales than normal, or a professional who received a large bonus. If any of these scenarios are similar to yours, you might be able to improve your situation by the end of 2015 if you take strategic action.
Overall, the changes to the financial aid application process have taken a giant step in the right direction. As our legislators continue to seek ways to help families navigate and pay for college, it’s hard not to wonder about what might come next? Stay tuned…