New Changes Coming to Financial Aid
As we ring in each New Year, for those who are enrolled or plan to enroll in college during the upcoming fall term, January 1st also signifies the opening of the FAFSA (Free Application for Federal Student Aid) and the beginning of a new financial aid qualification period. In order to receive any form of federal or state government aid, all students must begin their financial aid quest by filing their FAFSA as early as possible. The FAFSA is the federal government’s calculation of what parents or an independent student is capable of paying for college. Upon completing your FAFSA application, you receive an EFC number (Expected Family Contribution). This number is the determining factor of all financial aid. Schools use your EFC to calculate your financial need. This is calculated with the following formula:
COA – EFC = Need
COA (Cost of attendance) = tuition, fees, room and board, books, transportation (2 trips/yr), and a small amount for personal items such as shampoo, pizza, Starbucks, etc. All items combined determine a schools COA and the amount up to which they can award financial aid. You can find each schools COA on their financial aid webpage or by searching the name of the school followed by cost of attendance. For example: Notre Dame University Cost of Attendance.
Once you have submitted your FAFSA which asks questions based on your income and assets or if you are a dependent student your income and assets as well as your parent’s income and assets reported on your 1040, you will be assigned an EFC. This is the number the federal government calculates as the amount of money you can pay for college. The difference between a school’s cost of attendance and your expected family contribution determines your need for financial aid. The day you filed your FAFSA determines your place in line for financial aid. Currently you can file a FAFSA beginning January 1st up until June 30th of the next year. All financial aid is awarded on a first-come, first-served basis. This means the later you file, the less money which may be available. The current dilemma facing families is meeting the early deadlines of the FAFSA while not having their current 1040’s completed with the most accurate information. With the opening of the FAFSA on January 1st, most people do not begin to file their 1040’s until receiving all 1099 or W-2 information at the end of January. To thwart this problem, many file their FAFSA in January based on the prior year’s income tax filing. This is acceptable, however, it can only provide an estimate of financial aid because the FAFSA is using old information. Once their taxes are filed and the FAFSA is corrected with current information, the financial aid award can be solidified. What has happened in the past is many students will choose their college on May 1st based on the most generous financial aid award or where it is most economical to attend. However, upon completing their income tax return by April 15th and re-filing their FAFSA with corrected figures, they find they may have lost anticipated financial aid dollars at the school they have already committed to and paid their deposit. This has left some families, suddenly, now unable to attend.
Thankfully, the Department of Education has heard the groans of many students as well as financial aid officers who have had these difficult conversations in the past. Beginning with the 2017-2018 school year, the FAFSA will now open on October 1st and instead of asking for the current year tax return numbers, will instead use the prior year tax return to calculate your EFC. This is a big win for many. We no longer will need to file estimated figures and all financial aid can be calculated accurately with the first filing of the FAFSA. So, to be clear:
2017-2018 school year will use 2015 Filed Income Tax Return Figures beginning October 1st, 2016
This new change will allow families to confidently choose a college on May 1st based on accurate financial aid award information. No longer will a student be awarded a work study, which they planned to use for incidentals and books, only to show up the first day of school to find it has been revoked due to corrected FAFSA information. Now, everyone should be able to complete their income tax return, even if they file an extension, and still be able to file their FAFSA at the first opportunity. This will also give financial aid offices additional months to thoroughly calculate financial aid awards and no longer receive heartbreaking phone calls about why a student has lost an award.
This one decision brings financial aid into the 21st century. In addition to having more time, now, parents can take the guess work out of filing their FAFSA by using the IRS Data Retrieval Tool. Currently, an underutilized tool, because taxes must be filed at least three weeks prior to using, this new date change makes completing the FAFSA much easier. With a simple touch of a button, the FAFSA contacts the IRS and automatically populates its form with the numbers from your filed 1040 into the proper boxes. Simple. No guessing what figures are being asked or hoping you filed your form correctly. It is a refreshing change many have been waiting for a long time to see.
Deanna Kubit is the owner of Off 2 College Now, a college consulting firm located in Westlake Village, CA. Deanna works with students of all academic levels as well as families with a variety of financial backgrounds. “There is no greater joy than placing a student in college who never thought he would be accepted.” In addition to working with hundreds of high school and transfer students who attend colleges throughout the United States, she also conducts educational workshops about college planning and affordability. Since teaching and finance are her passions, she continually strives to educate those she comes in contact with about reaching their potential and ways to afford college. In addition, she has volunteered with Junior Achievement at their money workshops for high school students to promote financial literacy. For more information please visit www.off2collegenow.com.
|Tags: EFC, FAFSA, Financial aid, Income Tax Return|