Can the FAFSA Changes Affect Your 2015 Financial Planning?

Filing Tips for Parents of High School Seniors and Juniors

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Parents with high school students attending college in the next two years need to determine whether financial moves they make in 2015 might affect their child’s financial aid. Next year you will be asked to provide financial information about 2015 when completing the Free Application for Federal Student Aid. Previously the FAFSA was only available January 1; however, recent changes to FAFSA deadlines will now make it available October 1, beginning in 2016.

With this change, there will be two FAFSA periods in 2016. The traditional one starts January 1 for parents of high school students who will attend college in the fall of 2016 (current seniors), and the new date of October 1, 2016 for parents of high school students who will attend college in the fall of 2017 (current juniors). Both applications will utilize financial information from the 2015 tax year.

You may have heard that there are certain financial moves parents should consider to maximize financial aid eligibility. With this change, parents of high school seniors and juniors may have to make financial decisions by the end of 2015. Be aware that moves you make now could have a negative impact down the road, as you will need to complete a FAFSA for every year your child is in college. Making income look smaller this year to increase financial aid might make it larger next year, thereby decreasing the following year’s financial aid package.

Here are some tactics to consider to see if they make sense for your family:

  • Reduce Cash Reserves: The FAFSA gathers information about your financial situation which is then used to calculate an Expected Family Contribution (EFC). The EFC is used by your child’s colleges as the basis for their financial aid award packages. Having large cash reserves can sometimes reduce the amount of financial aid received. You may want to leave this money alone to use it for your child’s education, but you could also pay off any home equity loans or pay down your mortgage because your house is not taken into consideration.
  • Postpone Income: When the new FAFSA schedule is in place, parents will complete FAFSAs based on income earned through December of the year their student is a sophomore in college. Unless you have other children who will be entering college soon, you could try to postpone any income until after January of the year your student is a college sophomore. This would apply to actions like selling stocks or taking a distribution from a retirement account, but keep in mind that there might be financial or tax reasons for making these moves now.
  • Take Income in Other Forms: You might be eligible for some type of cash compensation from an employer or other source. If this amount is large, you can ask if there is another way to receive the income such as vacation time, a retirement contribution, or spreading it out over a longer period of time. If you plan on leaving this employer, of course it makes sense to get as much money as you can as soon as you can.

It may not be necessary to make any moves if this is a one-time event. You might be able to make an appeal to the college’s financial aid office if there will be a significant difference in next year’s income. It is always wise to check with your financial advisor or tax professional before making a move based solely on financial aid criteria.