The FAFSA for the 2017-2018 school year will be available October 1. The FAFSA is the Free Application for Federal Student Aid and it used to qualify the student for federal student aid and usually state aid, too. A by product of the FAFSA is your Expected Family Contribution or EFC, which boils down to what the government thinks you can afford to pay for college. It’s primarily comprised of your income and assets, the student’s income and assets, household size and the number of kids in college. Colleges and universities use your EFC to determine your financial aid eligibility. The formula colleges use seems simple:
The cost of attending the college(COA) -EFC=financial need.
In addition to the FAFSA, some schools (usually private schools) also require the CSS Profile, a more invasive application that delves more deeply into your financials, using a different formula and thereby results in a different EFC from the FAFSA – sometimes drastically different.
For this year and future years, both the FAFSA and CSS Profile will now use the Prior Prior Year’s tax information. For the 2017-2018 school year, that means they will use your 2015 tax return to access your income. So you won’t have to try to estimate your 2016 income this go round. However, you will still have to furnish the value of your current assets as well as your college student’s assets as of the day you fill out the FAFSA. So what counts as assets and why are they so important? Just about any account you keep in the bank: checking, savings, money markets, and CDs will count as a reportable asset. So will brokerage accounts or individually owned stocks, bonds, mutual funds, ETFs, REITS, real estate and college savings vehicles such as 529 plans. Although income is the primary basis of the EFC, for those families whose incomes are within financial aid eligibility range (and that can be a wide range depending on family size and colleges under consideration), having a lot of reportable assets can adversely affect your financial aid eligibility or even knock you out of contention completely. This can be especially important concerning student’s assets since they are assessed at a much higher level than parents’ assets.
So while you won’t be able to change what has been reported on your tax return, you may still have time to put your family in a better position for financial aid by managing your assets and your children’s assets. You need to determine whether this will make sense for you and you must act NOW.