Financially planning for your child’s education can be stressful and daunting, but a new rule from the Department of Education (DOE) is giving students some extra time get their finances in order.
In July, the DOE announced that students graduating from high school in the spring of 2017 will now be allowed to turn in their Free Application for Federal Student Aid (FAFSA) application on Oct. 1, 2016. Previously, students had to wait until Jan. 1 of their graduation year.
This new rule lets students apply three months earlier, a window that can have huge implications.
First, the new regulations calculate student aid based on the family’s income two years prior to the start of college, a change referred to as “prior-prior year” awarding, or PPY. This means students who start college in the fall of 2017 will use their parents’ 2015 tax return to fill out their FAFSA.
In the past, the FAFSA would use your family’s tax information from the previous year, which got confusing since applications were due Jan.1, and taxes didn’t have to be filed until April 18. You’re allowed to give an estimate of your tax return, but some people were uninformed and would wait until they filed their taxes before applying for financial aid. In many states, financial aid is awarded on a first come first served basis, so some students missed out on money by applying late.
The updated rules will also expedite financial aid approval. Currently, about one-third of all FAFSAs are selected for verification, which requires applicants to submit additional documents to support information they provided on their application. Now, since the previous year’s tax return will be used, most of the complicated questions can be filled in automatically with data from the IRS if students apply online. This is done with the IRS Data Retrieval Tool, a federal tool that transfers information directly from tax returns to the FAFSA.
Mark Kantrowitz, a publisher at Cappex (a free website that connects students with financial aid), says the new rules will dramatically decrease the number of applications that need to be verified, ultimately putting money in the hands of students who need it most.
“This will benefit low-income students who often have trouble completing verification because there can be challenges like getting their parents to provide the info twice,” Kantrowitz told Yahoo Finance. “I think we’ll see some improvements in who completes the FAFSA, who gets to enroll in college and who graduates.”
Cegment, a leading provider in enrollment marketing technology and services, conducted a survey to see how enrollment professionals at colleges felt about the change. The results showed that 77% of colleges are planning to deliver their financial aid packages earlier than in previous years.
In the past, colleges would send out awards letters in March or April. This year, many plan to let students know how much financial aid they can expect to get in early March. “Previously, a student would get into a college, but wouldn’t know if they could afford to go,” said Kantrowitz. “Now, by the time a college decides to admit a student early, they will know everything they need to know in order to assemble a financial aid package.”
Kantrowitz adds that this will give students more time to weigh their options before the May 1 response deadline. And the shift could ultimately lower transfer rates because students will feel less pressure and will make the right decision to start with.
For the Type A student who really likes to plan ahead, the new application date will be especially beneficial. Cegment reports that 28% of colleges indicated that they’re planning to institute either “early-action” or “early-decision” programs in response to these changes, and 50% indicated that they are planning more aggressive engagement strategies for high school juniors.
Students can start submitting their FAFSA applications on Oct. 1. As your family navigates the financial aid battleground, here are some additional FAFSA tips from Kantrowitz.
1. Apply annually
It’s important to apply every year, even if you didn’t get anything the previous year. “There are some things that have a dramatic impact on financial aid eligibility,” says Kantrowitz. This includes a change in income or an additional child in college. Don’t assume your award will be the same every year.
2. Low-income families pay extra attention
Low-income students typically file later than those with more money, if at all. But according to the DOE, two million people each year would have qualified for a Pell Grant if they had filed, and 1.3 million would have qualified for the max Pell Grant. In other words, you should apply, no matter what. Additionally, students who apply for financial aid in the first three months receive twice as much grant funding as students who file later.
3. Monitor your income
The FAFSA bases rewards on income, so if you’re going to realize capital gains, like cashing in on investments to pay for college, timing is everything. Rather than selling off stock the year before college starts, sell them before Jan. 1 of your child’s sophomore year of college so it won’t count as income on the tax return information you use on the FAFSA.
4. Save smart
If you save money in your child’s name, it might set you back when it comes to receiving financial aid. In this situation, it’s best to put the money in a custodial 529 college savings account, so it’s legally the child’s, but is treated as parental assets on the FAFSA. According to Kantrowitz, this may get you more favorable treatment in the application process.
Brittany Jones-Cooper is a writer for Yahoo Finance.