The FAFSA’s new timing– fall instead of spring and prior-prior income year– means that many students’ summer jobs will have a bigger impact on their EFC. That’s because any amount of money they made that is still in their bank account when they fill out the FAFSA is an asset that will be assessed at 20%. (Remember, students don’t get an asset protection allowance.) Need-eligible families may want to consider a couple of steps to remove that money in advance of filling out the FAFSA:
- Fund a Roth IRA for the student using some of the money they’ve earned. This removes it from the FAFSA calculation.
- Any money that is going to be spent on qualified college expenses can be put into the student’s (parent-owned) 529 account. This makes it a parent asset, not a student asset, so that it’s assessed at the lower parent rate (5.64% above the asset protection allowance). Plus it makes it more likely that the money won’t be spent on something else before college.
- Families can have the student pay for some fall expenses– sports or activity fees, yearbook, etc.– and reimburse them after filing the FAFSA.
Remember, it’s the balance in the account(s) on the day the FAFSA is filed that counts, so you can treat this like a bit of a shell game.