2017-2018 Academic Year FAFSA Changes
The FAFSA form is available October 1, 2017 for 2018-2019 Academic Year.
1. FAFSA Available Three Months Earlier
In the past the FAFSA form became available on January 1 of the calendar year for the academic year starting in the fall of that year extending into the next calendar year for the second semester of an academic year. For example, for the 2015-2016 academic year the FAFSA became available on January 1, 2015.
Now the FAFSA becomes available on October 1 preceding the calendar year when the academic year starts. The revision starts with the academic year 2017-2018, the form becomes available October 1 2016.
There are two basic advantages to the prior-prior change. One, when families complete the FAFSA they receive a Student Aid Report (SAR) that provides their expected family contribution (EFC). If there are error codes listed they will have more time to correct them.
Two, families will have more time to address the college affordability issue because they know their EFC number ealier in the financial aid process.
2. Tax Reporting Changes to Prior-Prior Year
This revision changes the tax return year for FAFSA reporting from the previous year (known as the base year) to the previous year of the base year referred to as the prior-prior year. The change is authorized under Heath Education Act of 1965 (HEA) Section 480(a)(i)(B).
The revision becomes effective with the FAFSA reporting for the 2017-2018 academic year, form available October 1, 2016 as referenced above.
Strategy Alert: The phase-in of the prior-prior year tax reporting information results in using your 2015 tax information twice; for academic years 2016-2017 and 2017-2018. Moving forward, you should evaluate possible EFC strategy moves before the end of the prior-prior year…the calendar tax year prior to the year before September of freshman year.
Under the current system many families wait to file the FAFSA until after they file their tax return.
Families can lose out on possible state aid and other forms of aid that have early deadlines where filing the FAFSA is required.
3. IRS Retrieval Tool Functionality Updated
The FAFSA now encourages everyone to use the IRT and demonstrates the advantages to do so.
The retrieval tool populates Internal Revenue Service data into the FAFSA resulting in simplification and mistake elimination for parents.
Security problems occurred suspending use of the tool. As a result students and parents will no longer be able to view the actual numeric data populating the FAFSA fields.
However, a completed confirmation message should display “Transferred from the IRS” indicating the items transferred.
There are certain situations that will prohibit you from being able to successfully access the retrieval too such as;
- Both parent and student must have filed a 2016 tax return,
- Marital change cannot occur for parent and/or student,
- Must have a social security number that matches against social security administration data base,
- You must of completed your 2016 tax return and answer no to the amended return question.
4. Ordered List by School No Longer Relevant
Each student can send FAFSA results to 10 schools (FAFSA electronic filing). In the past, all the schools could see the other schools the student listed on their FAFSA. The practice has ended so there is no longer a need to arrange schools in a certain order with one exception.
The school list is shared with the student’s state agency. Therefore, if the student is applying for state financial aid they should list state schools first.
After filing FAFSA the student can go into the FAFSA, delete schools from the list, and add other schools so they also receive student FAFSA information. It is recommended you wait a few days after your results are available so there is time for the first 10 schools to receive the information.
5. Required Department of Education Acknowledgements
The FAFSA completion process now contains a required acknowledgement of Department of Education regulations.
- Department of Education monitors FAFSA for criminal activity.
- The filer must consent to such monitoring
- Unauthorized use of FAFSA information for commercial or private gain is subject to criminal prosecution.
These acknowledgements probably are a result of the previous security breaches involving the IRS Retrieval Tool.
Grandparent 529 Plans Benefit from FAFSA Prior-Prior Change
The change to the prior-prior year tax reporting opens an extended 529 distribution opportunity without adverse financial aid consequences for grandparent owned 529 plans.
The traditional distribution strategy for 529 plans owned by Grandparents is to wait until the calendar year the grandchild entered the final year of college. By then the distribution does not count towards the EFC calculation.
When a distribution occurs from a grandparent 529 plan, the distribution counts as untaxed student income. The amount is assessed at 50% and is added to the student’s financial aid income for the EFC calculation.
In contrast, a Parent owned 529 Plan distributions are not assessed as income in the EFC calculation. The balance as of the FAFSA official filing date is assessed as an asset at 5.64%
However, contrary to common knowledge parental owned 529 plans’ gains in such distributions can be taxed (plus 10% penalty) when used for non-qualifying educational expenses.
Moving to the prior-prior year tax information expands the window for grandparent plans’ distributions without resulting in adverse financial aid consequences.
Now grandparents can initiate 529 distributions the calendar year that the grandchild enters their junior year. The grandchild’s sophomore second semester will be included in the distribution window.
The result is a distribution window of 2.5 years.
2016-2017 FAFSA Academic Year Changes
1. IRA and Pension Distributions
Improved the accuracy of parents reporting IRA and Pension Distributions. When an amount greater than zero is reported in the untaxed income section, there is a prompt to subtract any roll-over amounts from other distributions. If an applicant or parent changes the amount of untaxed portions of IRA distributions or pensions transferred from the IRS by deducting the rollover amounts, the “Transferred from the IRS” notation is removed.
2. Same Social Security Identifiers for Parent 1 and Parent 2
When the same social security identifiers for parent 1 and parent 2 are provided (except all zero’s), the information is likely not accurate. When this occurs, a message edit requirement appears indicating he or she must enter different identifiers. This can appear in several different places arising from the same problem.
3. How to Calculate the Net Worth of Investments (Clarification)
TheDepartment of Student Aid added examples for clairification in the Q & A on how to calculate the net worth. If the net worth value is negative, a zero should be entered.
Asset Protection Allowance Reduction Shields Far Less from From Assessment
The FAFSA calculation includes several allowances that provide relief (a reduction) in the calculation of a family’s EFC number. For example; state income tax allowance, income protection allowance, social security tax, etc.
The asset protection allowance (“APA”) does change each year but this year the change is a major reduction in the amount that families are permitted to shield from the FAFSA asset assessment calculation of 5.64%.
On June 9, 2015, the U.S. Department of Eduction announced this years APL changes for the 2016-2017 academic year. However, the published information was incorrect.
Unfortunately there are articles in circulation that are incorrect because the Department of Education announced corrected asset protection allowance values as of August 3rd, 2015 for the 2016-2017 academic year (for FAFSA form available January 1, 2016).
About FAFSA Submission
The FAFSA (“Free Application for Federal Student Aid”) form typically changes each year when the government announces clarifications and enhancements intended to help simplify the completion process.
FAFSA submissions result in families receiving the Student Aid Report that provides the family’s Expected Family Contribution (“EFC”) number.
The EFC number is a primary component for calculating the family’s financial need; total cost of attendance less EFC equals the family’s financial need.
Rarely are their major revisions to the actual mechanics (“structure”) of the FAFSA process.
Learn about the two other EFC calculation methods beside the FAFSA.
How to