In late 2015, new rules were established for the college financial aid application process. With these rules becoming effective this month, we should assess the impact they will have, particularly for families seeking to fund their children’s education.
In the past, the Free Application for Federal Student Aid (FAFSA) form was made available in January each year. Due in February, the form was completed with information from the “prior tax year” (PY). Thus, for a student entering college in the fall of 2016, parents had to complete their 2015 tax return as soon as possible after January 1st, and then use the information from that tax year to apply for financial aid. The new FAFSA rule changes have now made the forms available in October, and allow for their completion on the basis of what is referred to as the “prior-prior year” (PPY). In this arrangement, the financial aid application for a student entering in the fall of 2017 can be completed on the basis of the 2015 (rather than 2016) tax return, and can be submitted as early as October 2016. This is good news for families, who benefit in three ways:
- Streamlined Data Retrieval: Because of the allowance of PPY financial information, applicants can take advantage of the IRS Data Retrieval Tool—an instrument through which income tax data can be pulled directly from the IRS into the FAFSA form—making the completion of the form much easier.
- Front End Timing: Under the new rules, completion of tax returns and FAFSA forms are de-coupled. This means parents no longer have to rush to complete their tax returns, or estimate their income in order to submit a timely FAFSA form. They can instead rely on the previously completed PPY return. Further, the financial aid application process can now be completed in conjunction with the college application process itself.
- Back End Timing: Since financial aid applications will now be submitted earlier, award notifications will also be released earlier by the majority of schools. In addition, some schools may also start providing admissions notifications earlier than in the past. Families will have critical information in hand much sooner than was previously the case, giving them more time to assess the financial implications of their choice of school.
With 2016 being the transitional year for movement from the old rules to new, parents should try to apply for financial aid as soon as possible after October 1st, since some schools offer aid on a first come, first served basis, and funds may be depleted by the time later applications are received. Looking ahead for those with younger children, they should also note the need under the new admissions cycle to generate their list of desired colleges sooner (i.e., junior year) rather than later (i.e., fall of senior year).
At Pinnacle, we have the resources to help you benefit from not only this year’s new financial aid landscape, but other relevant strategies through the course of your child’s college career and beyond. Should you have any questions in relation to educational funding, be sure to consult your financial advisor.
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