Investor Education | Filling out the FAFSA: not child’s play
To cope with the ever-escalating cost of sending children to college, you may apply for need-based aid from the federal government. However, to see if you qualify, you must have your child file the FAFSA, or Free Application for Federal Student Aid.
Despite the grim prognosis for many families, especially those where the parents have high incomes or other significant revenue streams, you may be pleasantly surprised by the results. But don’t delay. Under a recent change, the FAFSA may be filed as soon as October 1, 2016, for the 2017—2018 year. (Previously, it was three months later, on January 1.) And, because awards are often made on a first-come, first-served basis, the sooner the form is filled out and filed, the better.
Rest assured, the FAFSA is not a cakewalk. The form includes 10 pages, with more than 100 questions. (It will not raise any issues relating to religion, race, ethnicity, sexual orientation or disability.) Make sure you collect all the pertinent financial information—such as income and assets owned by the student and parents—before embarking on this endeavor.
What sort of income and assets are counted? Among other items, the FAFSA asks about the following:
- Wages, self-employment income, commissions and tips
- Rental income
- Capital gains and dividends
- Qualified plan and IRA distributions
- Alimony payments
- Interest and annuity income
On the other hand, the FAFSA reflects above-the-line deductions claimed on your tax return, but not itemized deductions. Therefore, residents of states with high income taxes do not receive any benefit from their state income taxes.
The answers provided on the FAFSA are used to compute the expected family contribution (EFC). As the name implies, this is the amount that the government figures the family can be expected to contribute to the student’s college education. If your EFC is relatively low, your student stands a better chance of receiving financial aid.
Bear in mind that it is the prior year that counts as the “base year” for this purpose (e.g., the 2015 tax year for the 2017-2018 school year). If possible, try to keep income lower for this base year calculation. The government will give greater weight to the parents’ income than it does to the child.
The FAFSA is sent to all the schools where your child applies for admission. Note that these schools may provide their own aid. In subsequent years, all your child has to do is complete and file an abbreviated FAFSA renewal form. A form typically does not have to be filed in the year your child graduates.
The FAFSA is available at https://studentaid.ed.gov/sa/. This Web site provides some valuable guidance. If you need further assistance, don’t hesitate to reach out to your professional advisors.
This newsletter/advertisement is produced for our clients, friends and associates through an arrangement with WPI Communications, Inc. for the representatives’ use. Although the editorial content is professionally researched, written and edited, neither our firm nor any of its agents, representatives or associates make any representations regarding the accuracy of the content or its applicability to your situation. The information in this communication is not intended as tax or legal advice. In accordance with IRS Circular 230, the information provided herein may not be relied on for purposes of avoiding any federal tax penalties. Any tax advice contained in the body of this material was not intended or written to be used, and cannot be used, by the recipient for the purpose of 1) avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions, or 2) promoting, marketing or recommending to another party any transaction or matter addressed herein. You are encouraged to seek tax or legal advice from an independent advisor.