Financial Aid Planning for High School Sophomores
Early FAFSA affects the entire college timeline.
It’s out there — applying to college. Most high school seniors are well underway in their college and financial aid application process, while high school juniors should be gearing up to be ready to start applying. But what about the high school sophomores? Do the recent changes to the online FAFSA availability date and use of prior-prior year income information have any effects on their college planning schedules?
High school sophomores and their parents must pay careful attention to the timeline changes, so they can determine which steps they need to take in the coming years to increase their likelihood of obtaining maximized financial aid offers. One big change that can affect how parents decide to look at income and expenses is the use of the prior-prior-year, or PPY, concept for gathering income information. When the FAFSA came out in January, it used income information from the immediate prior year’s federal tax return. Now that the FAFSA comes out in October for the following academic year, it still uses income information from the last tax return, but this turns out to be a prior-prior year from the actual academic session. Sound confusing? Let’s take a look at how this works for students who are in high school during the 2016-2017 academic year:
- Current high school seniors who will be attending college in 2017-2018 have been filling out the FAFSA since October 1, 2016 using their 2015 tax information.
- Current high school juniors who will be attending college in 2018-2019 will fill out FAFSA beginning October 1, 2017 with 2016 tax information.
- Current high school sophomores who will be attending college in 2019-2020 will fill out FAFSA beginning October 1, 2018 with 2017 tax information.
- Current high school freshmen who will be attending college in 2020-2021 will fill out FAFSA beginning October 1, 2019 with 2018 tax information.
Did you notice how these changes impact the current sophomores, and even freshmen? This timeframe means that anything which happens to the student or the parents financially in 2017 will be used as the basis for calculating their financial aid eligibility. These families must be very careful when making decisions about taking a raise or a bonus, selling a house or investments, transferring assets, or moving money into the student’s name. Capital gains or extraordinary income items can make it look as though you have a high income level, which would lead to a high Expected Family Contribution, EFC, and lower financial aid eligibility. Money in a student’s name is considered available for college at a much higher rate than that of the parents.
Even though it seems like such a long way off, the wrong choices in 2017 could reduce the amount of financial aid you receive when you complete the FAFSA in 2018. These years can have many conflicting goals — you might be concerned about saving for retirement, lowering taxes, and paying for college, but be aware that a decision that has benefits in one area might have consequences in another. You may need to look out for any deductions or donations that lower the amount of taxes you pay.
If taxes are low, colleges might think you can afford to spend more on tuition and other expenses. It is all quite a balancing act, which often requires the assistance of an investment advisor and a professional college financial aid advisor.
The next few years are really going to show what the impact of the early FAFSA has on family finances and financial aid, but you will also need to pay closer attention to the entire process of applying to college. Schools may move up their application and financial aid schedules based on how everything shakes out in 2016 and 2017. You might want to consider starting a list of potential colleges now, and perhaps making some campus visits over the summer. Learn as much as you can now about financial aid and the FAFSA so you will have a head start when your child becomes a high school junior.