FAFSA Fast Forward: Planning Around the New Financial Aid Process
The Free Application for Federal Student Aid (FAFSA) is the annual form that determines a family's eligibility for need-based grants, loans, and work-study funds. Starting with the current application for the 2017-18 college school year, the process for filing this form has changed.
First, students are now able to submit a FAFSA three months earlier than in prior years, as early as October 1 rather than on New Year's Day. Second, the income information requested on the application is that from the family's prior-prior tax year rather than from the prior year. That is, the current 2017-18 FAFSA uses inputs from 2015 tax returns instead of those from 2016.
The latter change to the FAFSA process makes completing the application somewhat easier, since most taxpayers have finished their tax returns by October 1. On the other hand, financial planning to maximize student aid must now take place even sooner than before. For example, with barely a month left to manage it, income reported on 2016 tax returns will be relevant for students applying for aid for the 2018-19 college year.
Once you understand how "Financial Need" is calculated using the FAFSA formula, strategies to maximize awards can take many forms. In general, though, the idea is to:
- minimize or defer income,
- reduce reportable assets, especially those of the student, and
- save in the parents' names rather than in the student's.
However, the most effective financial aid planning techniques accomplish other worthy financial objectives (e.g. debt management, tax minimization, or saving for retirement) simultaneously.
Why Every Family Should Apply for Financial Aid
About the Author
Paul Winter, MBA, CFA, CFP® is a Fee-Only financial advisor and fiduciary in Salt Lake City, UT. His independent wealth management firm, Five Seasons Financial Planning, provides professional portfolio management and objective financial planning services to individuals and families, and to their related entities including trusts, estates, charitable organizations, and small businesses.