1. Know the deadlines - There are 3 of them! Federal - The FAFSA becomes available on…
Under the new FAFSA rules just announced by the Obama administration, students entering or returning to college in 2017 and beyond will be able to submit their FAFSA as early as October 1st of the year before they enter college. What this means is that students will be reporting their family’s salary and tax information for 2015 if they are entering or returning to college in 2017/18. It also means, however, that financial planning to lower college costs must begin even earlier.
Families With Students Entering College in 2016 Will Use 2015 Tax Returns Two Years In A Row
If you think this—the first of many new FAFSA rules—is confusing, you are not alone.
Here’s the bottom line:
Since the new FAFSA rules do not go into effect until the 2017/18 academic year, parents who have a student entering college in 2016 will be able to use the salary and tax information for 2015 two years in a row.
This transition period could be a huge benefit to many families, especially those who own a business. They will be able to accelerate business expenses and/or postpone revenue to reduce income in 2015 and benefit from those moves two years in a row.
It is important to stress, however, that families may not report the same asset values on their FAFSA two years in a row. The total value of the assets you report on any FAFSA must represent their current value at the time you fill out the FAFSA.
Other Advantages to the New FAFSA Rules
There are also other advantages to the new FAFSA rules. Since colleges usually send out acceptance letters in October and November, under the new rules they will also be able to send out their award letters at the same time. In other words, a family will no longer have to wait until March of the following year to know what they will have to pay their top choice school.
Before you get too excited about this benefit, however, we’ll have to see if most of the colleges also change their deadlines for FAFSA submission. My guess is that a lot of colleges will still wait until the spring before they send their award letters.
Another advantage of the new rule is that families will no longer have to estimate the numbers on their FAFSA and update them later using the IRS Retrieval Tool. They will now be able to use actual numbers from the previous year and use the IRS Retrieval Tool which will complete a large portion of the FAFSA for them.
Disadvantages to the New FAFSA Rules
The tendency for families to procrastinate is already a problem when it comes to taking advantage of financial strategies that may be available to them.
Under the new rule, parents—who tend to already wait too long to begin the college planning process—will now have to start the process much earlier or miss out on implementing financial strategies they can use to reduce costs.
The rule change means that families should really begin their college financial planning in their student’s freshman year. That’s because some strategies (such as the acceleration of retirement or charitable contributions), can only be implemented in the year prior to the new base year.
This all means that you should begin your planning as soon as your student enters high school. You should certainly start no later than the beginning of your student’s sophomore year. Good luck!