An Important Change in Financial Aid

The college admission process is undergoing dramatic changes. Recently, President Obama signed an executive order to make two major changes to the Free Application for Federal Student Aid (FAFSA) process that involves a significant shift in the financial aid calendar and the use of older household tax returns. This should make the process easier to plan for.

Why the Changes to Financial Aid?

The major problem has been that the college admission season does not line up with the tax season. Students begin applying to schools in the fall of their senior year. Once they begin receiving their admittance letters, they often have to wait many weeks, or even months, to find out about their financial aid – the main reason is because a majority of the award is based on parent and student income tax returns – which aren’t due to be filed until April 15th.  The Free Application for Federal Student Aid (FAFSA), isn’t even available until January 1 of a student’s senior year in high school.

The calendar mis-alignment means that families often to file the FAFSA using estimated taxes – which means the financial aid awards they receive are contingent on schools receiving the completed tax return. This can obviously result in the uncomfortable position where awards are lowered and these particular colleges are no longer feasible from a financial standpoint. Compounding the problem, by this time (mid- to late-spring), it can be too late to start the application process over to a different set of schools.

What Are the Changes to Financial Aid?

There are a few steps scheduled to get this “fix” implemented.

First, for students applying to school to begin matriculation in the 2017-18 school year, families must use a “prior-prior year” tax return (2015) when completing the FAFSA. Students attending school in the fall of 2018 will need their 2016 tax returns. The idea here is that by relying on older tax returns, the “estimated” FAFSA filing – and the resulting “estimated” financial aid package – will now be actual numbers.

Secondly, families will be able to file the FAFSA as early as October 1. This will result in families potentially receiving their award packages earlier in the admission process and avoid the “decision time crunch.”

What Are the Potential Outcomes?

The transition period will be good for some and not-so-good for others because the 2015 tax return will be used for two years in a row: Parents filing the FAFSA for the 2016 school year will use the 2015 tax return and they’ll use the same tax return for the next school year as the program kicks in. So for the parents who had an unusually good financial year in 2015 (a big bonus, payout, options exercise, etc.), they could potentially ask for a “professional judgement” from the school.

Most schools only use the FAFSA, but there are about 300 schools, mostly private, that also require families to submit a second aid form called the CSS/Financial Aid PROFILE. The College Board, which created the PROFILE, hasn’t said whether it will change its admission cycle to line up with the FAFSA, but signs are that it will do so.

Conclusion

Reach out to the wealth management team at Apex to discuss various education funding strategies.

Source:
WealthManagement.com