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3 Reasons to File Your FAFSA Right Now

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

It’s October, and that means college-bound families can start applying for financial aid for the 2018-19 school year. the Free Application for Federal Student Aid, or FAFSA, opened Oct. 1.

Technically, families have until next summer — June 30, 2018 — to submit their FAFSA for 2018-19. But experts recommend filing as soon as possible in order to maximize the amount of aid students can receive. That’s because state, federal and school funding for various types of financial aid is often limited, and can run out.

Don’t leave money on the table. A recent study by social sciences researcher, Michael S. Kofoed at the United States West Point Military Academy found that each year, students who do not file miss out on as much as $9,741.05 in federal grant and student loan money, aggregating to some $24 billion annually.

“To get the most aid, you're going to want to make sure you are doing it early,” says Jasmine Hicks, national field director with Young Invincibles, a nonprofit advocacy group for young adults.  Hicks has trained college-bound families on what they need to successfully fill out and submit the FAFSA.

Here are a few tips to help you file your FAFSA for the maximum amount of aid available to you.

1) Your state and college FAFSA deadlines might be even earlier than the federal cutoff.

Adding to your list of dates to remember, states and schools have their own FAFSA filing deadlines for grants and scholarships.

For example, for Delaware students to be eligible for state scholarships and grants for  2018-19, they must file their FAFSA by April 15, 2018. But the submission deadline for students who wish to be considered for Delaware State University scholarships and grants is even earlier, on March 15, 2018.

You can check here to see your state’s filing deadline. Be sure to enter your state of legal residence and the school year for which you’re applying for aid to view the cutoff date for your state. Be sure to double-check the deadline, as it could be earlier than the federal filing deadline and some states have different deadlines for different programs.

For example, Alaska’s Education Grant asks applicants to file the financial aid application as early as possible after the Oct 1 open date, since awards are made until the fund is depleted.

But the “official” FAFSA submission deadline for the scholarship is the same as the federal one.

Hicks says families should check a school's website to check and see if there is a different filing deadline date than June 30, 2018. Some schools may require students to file earlier than June 30 to be considered for institutional scholarships and grants.

2)  The FAFSA is the key to unlocking more than just need-based aid.

If you don’t file the FAFSA, you might also remove yourself from the pool of eligible recipients for state and institutional aid, as well — even if they aren’t income-based. Many aid offerings require a FAFSA.

Here’s a list of all the federal aid for which you need to complete a FAFSA to be eligible:

  • Federal direct student loan
  • Federal work-study program
  • Federal PLUS loan (for parents)
  • Federal PELL grant
  • Federal Supplemental Educational Opportunity Grant (FSEOG)
  • Teacher Education Assistance for College and Higher Education (TEACH) Grant
  • Iraq and Afghanistan Service Grant

And that's just federal aid. As we mentioned before, states and schools may use information from your FAFSA to determine if they will award you merit-based grants and scholarships. And they may have their own submission deadlines.

3) Financial aid money may run out.

Students may think they have tons of time to submit their application, but, if you wait to file, you may miss out on “free money” due to limited resources. Let’s put it another way: If the funds run out before you submit your FAFSA form, you could receive less money compared with what you would have gotten had you filed earlier — or you might get nothing at all.

If you know you will need scholarship or grant money to fund your education, you should make filing the FAFSA early your first priority. “There's really no reason to wait,” says Hicks.

Fortunately, it’s become easier for families to tackle the FAFSA.  The Department of Education moved the application’s from January to October, beginning with the 2017 graduating high school class. Prior to the rule change, families could not submit their FAFSA until January for students attending college in the fall. The rule change allows families to submit the FAFSA form earlier, and use older tax information to fill out the form so they are able to meet early deadlines for financial aid.

Students can now use family tax information dating back as far as two years, so applicants no longer have to wait to file until their parents or guardians file their taxes for the current tax year.

On top of that, FAFSA forms now include a new  IRS data retrieval tool, which will automatically pull in your parent’s tax information from two years ago, so you don’t have to shuffle through a stack of papers looking for letters and numbers corresponding to the information you need to input.

Where to get help to finish up your FAFSA

The tax information may be easy to pull in electronically, but the FAFSA has more than 100 questions and isn’t the easiest form to decipher overall.

“Students often think of the FAFSA as a huge and daunting task,” says Hicks. “They don't feel like they are able to do it or equipped to do it.”

Get help if you aren’t confident in filling out all the information on your own, so you don’t put off filing the FAFSA any longer. There may also be follow-up requests, like income verification, that, if overlooked or left incomplete, could delay your receiving all or part of your financial aid award.

Up to  40 percent of college-bound students who apply and are accepted to college fall prey to a phenomenon called ‘summer melt.’ They never make to campus their freshman year because of mistakes that trip them up in the process. Many of the mistakes have to do with the financial aid process and can be avoided if you get help early on.

Your high school guidance or college counselor may be able to assist you with your application.

If you feel you need more assistance than your counselor can provide, look to organizations or access programs that focus on helping students complete the forms required to give financial aid, like the College Goal Sunday Program hosted by the National College Action Network, or Reach4Success.

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Featured, News

4 New Federal Regulations That Could Impact Your Finances in 2017

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

By Katie Tiller for MagnifyMoney

The new year rings in a few federal regulations that could impact your wallet and savings accounts.

With no major tax legislation taking effect in 2017, the changes are not as drastic as in past years. For example, Roth and Traditional IRA contribution limits will stay the same, capped at $5,500 for individuals under 50 years old and an additional $1,000 contribution for individuals 50 and over.

“This is a pretty quiet year,” says Eddie Patat, a CPA and owner of Turner and Patat, an accounting firm in Athens, Ga.

However, low-wage employees, individuals who work with financial advisers, college students, and Hurricane Matthew victims could earn and save a bit more, with these four rules and tax benefits in 2017.

Higher minimum wage

Millions of workers will pocket more each week due to minimum wage increases in 21 states.

The first state to do so will be New York, raising its minimum wage from $9 hourly to up to anywhere between $9.70 and $11 per hour on Dec. 31, 2016.

Eighteen states will raise their minimum wage beginning Jan. 1, 2017: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Hawaii, Maine, Massachusetts, Michigan, Missouri, Montana, New Jersey, Ohio, South Dakota, Vermont, and Washington.

Some of these states — Alaska, Florida, Missouri, and Ohio — will see wage increases of only 5 cents per hour. However, Washington and Massachusetts will see increases of a dollar, while workers in Arizona will have an extra $1.95 added to their wages each hour.

Workers in Maryland, Oregon, and Washington, D.C., won’t see their wages rise until July 1.

Some states, such as Arizona, California, and New York, are raising wages with an endgame in mind. Arizona’s goal is to eventually raise wages to $12 hourly, while California has plans to raise the wage a dollar each year until 2022, when it will hit the $15-per-hour mark. New York state’s newest wage increase is reportedly the first of five moves with the goal of increasing wages to $12.50 an hour.

However, many experts argue that increasing wages may not assist those the increase is meant to help. As the cost of labor grows increasingly more expensive, businesses will likely have to take steps to preserve their bottom line. As minimum wages increase, Patat says it is likely that businesses will raise prices on consumer goods to cope, decreasing workers’ spending power.

“So the people who are trying to be benefited by a minimum wage increase would simply see prices for things they use every day go up,” he says.

Or, if the prices of goods can’t be raised, employers could find other ways to save money, adds Michael Chadwick, a certified financial planner and owner of Chadwick Financial Advisors in Unionville, Conn.

“It seems like a great thing on the surface,” says Chadwick. “But it’ll hurt the minimum wage worker by cutting their hours and outsourcing their jobs to computers or some other form of automation.”

Chadwick points to the expansion of self-checkouts, automated restaurants, and stores like the new Amazon Go in Seattle, and the takeover of the movie rental industry by Netflix and Redbox as proof that human employees can easily be replaced when the cost of employment is too high.

The new “fiduciary” rule

On April 10, 2017, the Department of Labor will enact its new “fiduciary” regulation. This rule will ensure that every financial adviser is acting in the best interest of the client rather than himself or herself.

According to the White House Council of Advisors, about $17 billion in income is lost to investors due to conflicts of interest by financiers each year. The new rule will apply to retirement accounts, IRA accounts, and regular brokerage accounts, which are at risk for being misadvised. Financial advisers are often commission-based and receive their fees according to the transactions that they make.

Patat says the new “fiduciary” rule offers added protection for investors. Financial advisers will be required to provide details about services and fees, and their clients will receive a best-interest contract that will explain the relationship and disclose any conflicts of interest on the adviser’s behalf.   

“It’s going to provide a little more transparency, especially with respect to the fees the client is charged,” Patat says. “There has always been probably a degree of people who didn’t know how the broker was making money. I think this kind of disclosure is probably going to help open up people’s eyes as to what this product might mean as far as commissions to a broker. With all these disclosure rules on how much they’re making, I think you’ll see only good things happen for investors.”

Many firms, such as Merrill Lynch, will begin offering fee-based advising services, self-directed accounts, and an automated, fee-based adviser alongside commission-based advising.

Chadwick, however, says while most clients should make more in the long run, this new rule may not help out smaller investors who are not contributing to their retirement accounts or saving enough to make it worthwhile for the financial advisers.

“It’ll be hard for small clients to get good advice moving forward,” he says.

Hurricane Matthew relief

Victims of Hurricane Matthew in the Southeast will be able to access their retirement account without the typical restrictions in order to help recover from the 2016 storm.

Those who have been affected by the hurricane will be able to withdraw money from retirement accounts without incurring the 10% early withdrawal fee. Those who do will be able to spend the money on food and shelter, which do not typically qualify for IRA hardship withdrawal.

However, Patat says, this won’t apply just to those within the hurricane’s path. Volunteers with government or religious organizations who helped with cleanup and assisted victims are also entitled to relief.

“It does apply to people who live outside the area,” Patat says.

Those who have incurred a loss can file it on the previous year’s tax return. In the case of Hurricane Matthew, he says, the 2015 tax return can be amended to receive an immediate refund.

The relaxed IRA rules will continue until March 17, 2017.

Federal student financial aid changes

In 2017, students and parents filling out the Free Application for Federal Student Aid (FAFSA) form will be required to provide household income information from two previous years. This stems from a decision to begin sourcing earlier income information from those who apply for federal financial aid, rather than requesting the previous year’s income information. This means that students applying for financial aid for 2017 will need to submit income information from 2015.

While at first glance it seems as if students will simply receive the same benefits they did for the 2016 school year, Patat says this move will benefit students in the long run.

“There was always a rush to get information in for financial aid that required you to get your tax return done quicker than almost humanly possible,” he says, “so the fact that they are going back over a year to get old financial information, that saved a lot of hassle of going back and changing information that may have been estimated at that time.”

Furthermore, in order to make reporting income even easier, Chadwick notes that students can now fill out their FAFSA information for the coming school year in October, instead of January.

In the case of a drastic change in income, Patat says not to worry.

“You can still speak to your financial aid office at the school based on your financial situation,” he says.

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College Students and Recent Grads

Guide to Filing the FAFSA

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

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Over the past decade, college tuition rates rose an average of 5% per year. The average bachelor’s graduate in 2015 had over $35,000 in student loan debt. To graduate without burdensome debts, students must maximize their aid options. This means understanding the Free Application for Federal Student Aid (FAFSA), and using their knowledge to maximize student aid.

Starting with the 2017-2018 FAFSA, maximizing federal aid is easier than ever. The U.S. Department of Education now allows access to the FAFSA three months earlier (October rather than January). Applicants will also use an earlier year for income and tax information. This means it’s easy to incorporate FAFSA into the college application timeline.

What is the FAFSA?

The FAFSA is the Free Application for Federal Student Aid. It’s a dense form that students must complete to receive federal student aid.

The form ensures that federal student aid goes to students with the greatest need. However, this does not mean that only low-income families should fill out the form. Filling out the FAFSA is the only way to receive access to low-cost federal student loans. The FAFSA also gives families access to some scholarships, grants, and work-study programs. Some schools require a completed FAFSA for a student to apply for merit-based aid.

What do I need to fill out the FAFSA?

Filling out the FAFSA may seem daunting, but proper preparation will help families complete the application with minimal stress.

Here’s a checklist of items you’ll need before filling out the FAFSA.

All Students

  • Social Security number
  • Alien registration number (if you are not a U.S. citizen)
  • Student's federal income tax returns from the appropriate year
  • Student's prior year W-2 or other earning statements from the appropriate year
  • Student's records of untaxed income from the appropriate year
  • Student's bank statements (checking, savings)
  • Student's non-retirement investment account statements (after tax brokerage, 529 accounts, Coverdell ESA accounts, CDs, money market accounts)
  • Student's record of non-taxed income (including income gifts that come from 529 plans owned by grandparents, income gifts to pay tuition, etc.)
  • Student's records for investment real estate
  • An FSA ID to sign electronically

Dependent Students Only

  • Parent's federal income tax returns from the appropriate year
  • Parent's W-2 or other earning statements from the appropriate year
  • Parent's records of untaxed income from the appropriate year
  • Parent's banking and checking account statements
  • Parent's non-retirement investment account statements (after tax brokerage, 529 accounts, Coverdell ESA accounts, CDs, money market accounts)
  • Parent's records for investment real estate (not personal home)

Most students will be considered dependents. This is true even if a student is self-supporting for a period of time prior to starting college.

To be classified as independent, a student must meet one of these qualifications:

  • Student turns 24 prior to January 1 of FAFSA start year (see chart above)
  • Student is starting postgraduate studies
  • Student is on active military duty (not for training purposes or for state service only)
  • Student is a military veteran
  • Student supports dependent children
  • Student is a legally emancipated minor
  • Parents died after age 13, foster child after age 13, or dependent or ward of the state after age 13
  • Student is homeless or self-supporting and at risk of homelessness after July 1 in the year prior to start year (see chart above)

One of the most important ways to ease the stress is to gather documents from the appropriate time. Use the chart below as a reference guide to understand the appropriate documents.

School attendance window FAFSA form FAFSA availability Income and tax year Assets and liabilities Born before this date for independent student status Homeless or self-supporting and at risk of homelessness after this date for independent status
July 1, 2016-June 30, 2017 2016-2017 January 1, 2016-June 30, 2017 2015 As of filing FAFSA January 1, 1993 July 1, 2015
July 1, 2017-June 30, 2018 2017-2018 October 1, 2016-June 30, 2018 2015 As of filing FAFSA January 1, 1994 July 1, 2016
July 1, 2018-June 30, 2019 2018-2019 October 1, 2017-June 30, 2019 2016 As of filing FAFSA January 1, 1995 July 1, 2017
July 1, 2019-June 30, 2020 2019-2020 October 1, 2018-June 30, 2020 2017 As of filing FAFSA January 1, 1996 July 1, 2018


When are the FAFSA deadlines?

College students need to fill out the FAFSA every year that they want to receive federal financial aid. A traditional student who spends four years in school can expect to fill out the FAFSA four times through their college career.

Starting with the 2017-2018 FAFSA, the U.S. Department of Education extended the FAFSA deadlines. Previously, the U.S. Department of Education released the FAFSA on the January 1 prior to the attendance window. Applicants could complete the form from January 1 through the end of the attendance window.


Now, the U.S. Department of Education releases the FAFSA on October 1 prior to the attendance window. You may complete the FAFSA from the date it is released until the end of the attendance window. You can retroactively receive grants and loans for the school year provided that you complete the FAFSA by the end of the attendance window.

Deadlines for state and institutional aid

State and institutional aid organizations are not as lenient as the U.S. Department of Education. Most states require aid applicants to complete their FAFSA as soon after October 1 as possible. You can check your state-specific deadline on the FAFSA website.

Most states have just one FAFSA deadline, even if you plan to attend school on a delayed schedule. Often states give out aid on a first come, first served basis. Do not delay completing the FAFSA. You can work out changes based on your attendance after you’ve completed the FAFSA.

In general, you want to file the FAFSA as soon as you can to maximize institutional aid. Many universities grant institution-specific aid shortly after accepting students. Submit your FAFSA to all potential schools soon after you apply. Even if a school hasn’t accepted you yet, you should allow them to see your FAFSA responses.

Filling out the FAFSA alone may not be enough to get aid from your state or school. Many states require that you fill out additional forms to receive state-based aid. The most common form is the College Scholarship Service (CSS) profile. The CSS profile considers more data, and it offers students and their families the opportunity to flesh out their financial situation.

The CSS profile and other financial aid applications DO NOT replace the FAFSA. To get any federal student aid, you must fill out the FAFSA. You may also need to fill out additional forms. The Edvisors Network maintains a comprehensive list of state-based scholarships and grants. Students can research the forms that their state requires.

Students who are seeking college-based aid may have to complete institutional applications. These applications may be in addition to the FAFSA or in lieu of it. If aid details aren’t clear from the school’s website, contact the financial aid department to learn more. Many students find that their best chance at institutional aid comes right after applying to the school.

What happens after I fill out the FAFSA?

1. You'll receive your Student Aid Report via e-mail

Three to five days after you complete the FAFSA, you will receive a Student Aid Report via email. This report is what schools will use to determine your eligibility for federal (and sometimes other) student aid.

 Understanding your Expected Family Contribution' (EFC)

The most important number on the FAFSA is your Expected Family Contribution (EFC). Your family's EFC is the amount parents and students are expected to allocate toward educational expenses. This amount can vary from zero dollars to more than the expected cost of college. This number is in the upper right-hand corner of the Student Aid Report.

In general, the lower your EFC, the more federal aid you will receive. Your specific eligibility for federal aid depends on your school's cost of attendance.

The Student Aid Report also includes a Data Release Number (DRN). You will need this four-digit code to allow your school to change certain information on your FAFSA.

In addition to these two numbers, you will see your responses to questions on the FAFSA. If you find a mistake, you will need to correct it on FAFSA.gov. You can use your FSA ID to log in and submit changes. If your situation changes (such as the number of people in your parents' household or your dependency status), you will need to update your FAFSA because it will change your EFC.

2. Schools will submit awards packages to you

The U.S. Department of Education will send your Student Aid Report to any schools you have listed on your FAFSA. If you apply for another school after completing the FAFSA, you should log in to FAFSA.gov to submit your Student Aid Report to that school.

Once you've been accepted to the school, the school will use the EFC and their cost of attendance to determine your eligibility for federal aid. The school will send you a report that includes your eligibility for federal grants, subsidized and unsubsidized loans, and work-study programs. They may also send you details about other financial awards that you've received from the state or the institution.

You may need to contact the financial aid office at a school to see if you're eligible for any scholarships or grants that they didn't list. Be proactive in meeting other financial aid deadlines defined by your school's financial aid office. Completing the CSS profile or institutional applications may allow you to earn more scholarships or grants or better loan rates. Check with schools where you've been accepted and your state's website to learn more.

You can receive awards packages from multiple schools, even if you haven't enrolled. Compare the awards packages to find the most cost-effective education. The federal aid will remain the same in every package, but the state and institutional aid can have a huge effect on your out-of-pocket costs.

3. You have to accept or decline the financial aid offered to you

Once you choose a school, you will need to decide whether or not to accept the various forms of aid. Most people will accept grants and scholarships since those do not need to be paid off.

You will need to decide if accepting federal work-study or loans is best in your circumstances. You can work closely with a financial aid officer from your school to understand the pros and cons behind these options.

Once you make a decision, you’ll have the option to accept aid (including loans) through an online platform offered by your school.


How is my federal aid package determined?

Federal aid is awarded based on expected family contribution (and to a lesser extent the cost of attendance at your chosen university). A lower expected family contribution means you'll get more aid, including subsidized loans and possibly a Pell Grant for low-income students.

The expected family contribution accounts for four variables:

  • Student's income (and spousal income for independent students)
  • Student's non-retirement assets (and spousal income for independent students)
  • Parent's income (for dependent students)
  • Parent's non-retirement assets (for dependent students)

Parents and students can shelter a limited amount of their income and assets from the EFC. The sheltering limits change each year, and they are published within the FAFSA application.

Students are expected to contribute 50% of their income after sheltering. They are expected to contribute 20% of nonsheltered assets to their educational expenses. Students cannot shelter as much income or net worth as parents.

Parents are expected to contribute 22% to 47% of income after sheltering. They are expected to contribute 12% of nonsheltered assets.

Using the EFC and an expected cost of attendance, the U.S. Department of Education appropriates funds. The FAFSA4caster will help you determine your current EFC and an expected aid package based on current costs of attendance. This is a useful tool for students who are more than one year out from starting college.

Full-time students with an EFC less than $5,200 can expect to receive a Pell Grant worth between $600 and $5,185.

Students who demonstrate financial need (those with a cost of attendance greater than their expected family contribution) will be eligible for either direct subsidized or direct unsubsidized loans. Both loans for undergraduate students have an interest rate of 3.76%. Graduate students will pay 5.31% on their direct unsubsidized loans.
The federal government places limits on direct borrowing. The limits are in the table below. If you need to borrow more money, you will have to look to federal PLUS Loans (higher interest rates), private loans, or covering educational expenses through other means.

Year Dependent Student Limit Independent Student Limit
First Year Undergraduate $5,500 (up to $3,500 subsidized) $9,500 (up to $3,500 subsidized)
Second Year Undergraduate $6,500 (up to $4,500 subsidized) $10,500 (up to $4,500 subsidized)
Third Year + Undergraduate $7,500 (up to $5,500 subsidized) $12,500 (up to $5,500 subsidized)
Undergraduate Student Total Limits $31,000 (up to $23,000 subsidized) $57,500 (up to $23,000 Subsidized)
Graduate Students N/A $20,500 (unsubsidized only)
Graduate Student Total Limits N/A $138,500 (up to $65,500 in subsidized loans). Aggregate amount includes totals from undergraduate studies.

How can I maximize my federal aid?

You must use accurate information when you complete the FAFSA. However, careful planning and understanding the FAFSA can help you maximize your aid. Keep these steps in mind as you apply for aid.

Avoid common FAFSA errors

It's easy to make errors when you're filling out a 100+ question application, and the wording on the FAFSA can be unclear. These are a few mistakes to avoid.

Easy mistakes that can throw off your FAFSA submission

Incomplete e-signature. The FAFSA can also trip you up on seemingly-easy steps, like providing an e-signature. If you don’t provide the e-signature correctly, or think you hit ‘submit’ but didn’t, you may waste valuable time waiting for an email that won’t come until you sign the form properly.

Missing mistakes on your Student Aid Report. About two weeks after you submit the form, you should receive a Student Aid Report which gives you basic information about your eligibility for federal student aid along with your Expected Family Contribution – what your family is expected to pay. The SAR also includes a four-digit Data Release Number (DRN), which you’ll need to allow your school to change certain information on your FAFSA.The SAR also lists your responses to the questions on your FAFSA, so be sure to review it and correct any mistakes.

Income verification notifications. After you receive your SAR, check to see if you’ve been flagged for ‘income verification’ as about 1/3 of students are required to verify their parent's income with additional proof to complete the FAFSA process. The government usually follows up on students who are more likely to qualify for the federal Pell grant or other grant-based aid, Page says. If flagged for income verification, you’ll have to submit verification to each school you apply to, and the schools may have different paperwork and processes.

Missing deadlines in e-mail. When you create and submit the FAFSA, you give the Education Department your email address. The Education Department will email you, so you need to check the inbox of the email address you provided for correspondence. Create your FAFSA account using an email account you check regularly. Turn on your email notifications on your devices so you won’t miss any emails reminding you to submit your FAFSA form or letting you know if something went wrong somewhere in the process.

If you're not sure what a question means, use the guide Completing the FAFSA to understand the definition. The wording of questions leads a lot of people to overestimate their EFC.

How can I use FAFSA to plan for college costs?

The FAFSA is not a college-cost planning tool, but you can use other tools to plan for upcoming college costs. College Navigator offers free information on current college costs. Using it with estimated aid from the FAFSA4caster will give high school students a good idea of their aid options. You could also consider using a paid tool like EFC Plus for an easier college-planning tool.

Parents and students looking to keep student loan debt low will benefit from using the Family Budget Analyzer, which can help you find places to cut expenses. A college cost projector will help you know the costs that your family needs to cover. Sallie Mae also offers a long-range planning calculator that can help you estimate your total indebtedness upon college graduation.

Understanding the FAFSA is one small part of planning for college costs. It will pay for you to understand it, but federal aid is just one component of the college-planning picture. Most students will need to devote time to finding a cost-effective education and applying for grants and scholarships to supplement federal aid.

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Hannah Rounds
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Hannah Rounds is a writer at MagnifyMoney. You can email Hannah at hannah@magnifymoney.com


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College Students and Recent Grads, Life Events

Decoding Proposed Fixes to the FAFSA

The editorial content on this page is not provided by any financial institution and has not been reviewed, approved or otherwise endorsed by any of these entities.

mortar board cash

Before making a major financial decision, you want to have all the facts. You want to know the price tag, and if there are any competitors willing to give you a product of equal quality for less money. At this point in time, that information is not available to would-be college students until late in the decision-making process.

The Problem With the FAFSA: Making a Decision Without All the Information

Some students make a final decision on where they will be going to school in the fall of their senior year of high school or are at least applying to a variety of colleges. At that point in time, they have little to no idea what their financial aid package will look like. All schools require that the Free Application for Federal Student Aid (FAFSA) be returned before a school-sponsored financial aid package offer is cobbled together. These students decide where they will go to school before they know how much the college or university will ultimately be charging them.

Currently, the FAFSA is not available until the January 1st prior to fall semester. That means for the 2016/2017 school year, you cannot apply for federal aid until January 1, 2016. When you apply you must use the prior year’s tax information, which in our example would from the 2015 tax year.

This presents yet another problem: employers are not required to mail or otherwise distribute W2s and 1099s until January 31st. This means many students do not have their parents’ tax information until a month after applications have opened. Some approximate their numbers, going back to file amendments later. Some wait until taxes are filed, which gives them a very short or non-existent time frame between filing for federal aid, and filing for state grants. Some state grants close their application window as early as March.

[Students Remain Confused About the True Cost of College]

The Fixes

These problems have not gone unnoticed. On September 14, President Obama announced some major changes to the FAFSA application process for the 2017/2018 school year and all subsequent years. These changes will help prospective students and their parents makes better financial decisions when it comes to selecting a school for their post-secondary education.

Fix 1: FAFSA Available on October 1, 2016

The first change is that the application window for FAFSA will open on October 1, 2016. This coincides with the timeframe when most students are trying to make decisions about where they will spend the next four years of their lives. It also allows them time to obtain institutional financial aid packages, compare them, and use them to get the schools to bid against each other, which could drive prices even lower.

How it Helps: Knowledge Earlier + Ability to Apply for State Funding

Even if they can’t get the schools to participate in a bidding war, they can make an educated decision once armed with full knowledge about what each school will actually cost them out-of-pocket. The widened application window also means students will have a greater opportunity to apply for state funding.

Fix 2: Tax Information Will be Prior-Prior Year’s Data

You may be wondering about tax information. Since the application process opens sooner, there will be no way to use 2016 tax information for the 2017/2018 school year. Instead, students and parents will use prior-prior year’s tax data. Because of this change, 2015 tax information will be used two years in a row.

How it Helps: The Government Can Use IRS Data Retrieval Tools

By pulling the prior-prior year’s data, the government enables itself to use IRS data retrieval tools for everyone, making the process easier on both sides of the equation. Parents no longer have to scramble to file their taxes early, or amendments later. The government and colleges no longer have to spend valuable time verifying the accuracy of submitted tax information on FAFSA forms, as the information will come directly from the IRS itself.

[Questions You Need to Ask Before Refinancing Your Student Loans]

What Will Not Be Fixed

Pulling IRS data does not mean there is no paperwork involved. Assets will still need to be reported. Retirement accounts are immune, but you will have to report the following:

Other Assets You Have to Report:

  • Contributions to retirement accounts in the prior-prior year
  • Investment real estate
  • Checking account balances
  • Savings account balances
  • CDs
  • Brokerage accounts
  • Stocks
  • Bonds
  • ETFs
  • Commodities
  • Mutual Funds
  • 529 plans
  • Grandparent-owned 529 distributions
  • Present value of trust funds as calculated by your trust officer

How a Student is an Independent for FAFSA

You do, and still will, have to report these assets for both the student and the parents unless the student does not qualify as a dependent student according to FAFSA rules. To become independent for FAFSA, you must meet at least one of the following qualifiers: be 24 years of age, be in the military or a veteran, be in graduate school, be married, have legal dependents of your own, be an orphan or ward of the court yourself, or have your school’s financial aid administrator manually change your status due to extenuating circumstances.

Issues Remain for Military Families and Parents with Student Loans

There are additional FAFSA complaints that the new changes do not address. Military families with a parent stationed at certain bases receive a Cost of Living Allowance (COLA) to offset just that: the cost of living. This income is not taxable as far as the IRS is concerned, but is included as non-taxable income on the FAFSA. The same is true for military members’ Basic Allowance for Subsistence (BAS.)

A common complaint among middle-class Americans is that debt, particularly the student debt of parents, is not taken into consideration when the Estimated Family Contribution (EFC) is calculated. The EFC determines the size of the student’s aid package. This leaves many students with no aid, and parents who are unable to assist their children in paying for college because of their outstanding obligations from their own days in the halls of scholarship.

Not Perfect, But Certainly Better

If these changes are to be made, the legislation to do so needs to be passed by Congress. While still not a perfect system, the deadline and tax data changes made by the president go a long way to help ease the paperwork burden on all those involved, and help students make a more informed financial decision when selecting their school.

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Brynne Conroy
Brynne Conroy |

Brynne Conroy is a writer at MagnifyMoney. You can email Brynne at brynne@magnifymoney.com

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