This week, President Obama signed an executive order that will dramatically simplify the financial aid process for many families. Beginning next October, for the 2017-2018 school year, families will be able to file the FAFSA using two years’ prior (“prior-prior year”) data. That means that 2015 income and tax information will be used for the FAFSA for the 2017-2018 school year. This simplifies the FAFSA process in a couple of big ways:
- It allows families to access already-reported tax data via the IRS Data Retrieval Tool, rather than estimating upfront and supplementing with actual IRS data once taxes are filed
- It gives students and families more accurate and more timely aid reports well in advance of application and acceptance deadlines
It also means that 2015 is a very important year, financially-speaking, for families of students in the second half of high school or the first half of college, since 2015’s income will be the basis for two FAFSAs. Remember that income has a much greater impact on financial aid than do assets: Up to 47% of income above certain thresholds is considered available to pay for college, compared with just 5.6% of assets.
What can a family do now to maximize their aid chances? First, reduce income if at all possible. Second, maximize allowances against income. The biggest allowance is for federal taxes paid, so push deductions into 2016.
As of right now, this only applies to the FAFSA, not the CSS PROFILE. But the National Association of Student Financial Aid Administrators is asking its approximately 3,000 member institutions to pledge to use prior-prior year data on all aid applications, regardless of which aid form they use.