As its name implies, the Free Application for Federal Student Aid (FAFSA) is used to determine eligibility for federal student aid for colleges and universities. Many states and schools also use it to determine eligibility for non-federal financial aid. The FAFSA “open date” for the 2022-23 academic year is October 1, 2021, and there are different filing deadlines for different states and different schools. Although the federal filing deadline is June 30, 2023 (yes, you can submit the FAFSA up until the end of the academic year for which you are seeking aid), some state-based and school-based aid is awarded on a first-come, first-served basis. Therefore, it is best to complete the FAFSA as soon as possible.
Financial information reported on the FAFSA is based on the “prior-prior year” tax return. Thus, if you are submitting a FAFSA this fall or winter for the 2022-23 academic year, you will use information reported on your 2019 tax return. Next year, your 2020 taxes will be used. The following year, your 2021 taxes will be used. Therefore, if you will have a child attending college in the 2023-24 academic year, there may still be time before the end of this year to consider strategies to improve your eligibility for aid.
On December 27, 2020, President Trump signed into law the Consolidated Appropriations Act, 2021, which includes the FAFSA Simplification Act of 2020 (the Act). The Department of Education is still working out, and issuing guidance on, details of the Act, but changes to the FAFSA are being phased in over the next two years. The changes with the biggest financial impact will take place beginning in October 2023, the open date for the FAFSA for the 2024-25 academic year. While that may sound far away, for financial planning purposes, it is not, as next year’s (2022’s) tax return will be used to determine eligibility for FAFSA-based aid for 2024-25.
A couple of notable changes. Under current rules, if anyone other than a parent helps foot the student’s tuition bill, that money gets reported on the FAFSA as untaxed income to the student, which generally reduces aid eligibility. The “new” FAFSA will not ask for this information, which means that grandparents, other relatives, or friends will be able contribute to the student’s tuition without it affecting aid eligibility.
Another notable change is with respect to divorced or separated parents who live apart and have not remarried. In that case, only one parent’s information gets reported on the FAFSA. Currently, that is the parent with whom the student lived more during the twelve months preceding the FAFSA filing date. Under the new rules, the parent whose financial information will be reported on the FAFSA is “the parent who provides the greater portion of the student’s financial support.” Note that the above discussion applies solely to the FAFSA, and not the College Scholarship Service (CSS) Profile, which is more in-depth than the FAFSA and is required by approximately 150 colleges and universities to determine financial aid eligibility.
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