#FAFSA

October is the kickoff month for financial aid. That’s when incoming and returning college students can start filing the Free Application for Federal Student Aid (FAFSA) for the next academic year. The FAFSA is a prerequisite for federal student loans, grants, and work-study, and may be required by colleges before they distribute their own institutional aid to students.

How do I submit the FAFSA?     

The FAFSA for the 2023-2024 school year opens on October 1, 2022. Here are some tips for filing it.

• The fastest and easiest way to submit the FAFSA is online at studentaid.gov. The site contains resources and tools to help you complete the form, including a list of the documents and information you’ll need to file it. The online FAFSA allows your tax data to be directly imported from the IRS, which speeds up the overall process and reduces errors. The FAFSA can also be filed in paper form, but it will take much longer for the government to process it.
• Before you file the FAFSA online, you and your child will each need to obtain an FSA ID (federal student aid ID), which you can also do online by following the instructions. Once you have an FSA ID, you can use the same one each year.
• You don’t need to complete the FAFSA in October, but it’s a good idea to file it as early as possible in the fall. This is because some federal aid programs operate on a first-come, first-served basis. Colleges typically have a priority filing date for both incoming and returning students; the priority filing date can be found in the financial aid section of a college’s website. You should submit the FAFSA before that date.
• Students must submit the FAFSA every year to be eligible for financial aid (along with any other college-specific financial aid form that may be required, such as the CSS Profile). Any colleges you list on the FAFSA will also get a copy of the report.
• There is no cost to submit the FAFSA.

How does the FAFSA calculate financial need?

The FAFSA looks at a family’s income, assets, and household information to calculate a family’s financial need. This figure is known as the expected family contribution, or EFC. All financial aid packages are built around this number.

When counting income, the FAFSA uses information in your tax return from two years earlier. This year is often referred to as the “base year” or the “prior-prior year.” For example, the 2023-2024 FAFSA will use income information in your 2021 tax return, so 2021 would be the base year or prior-prior year.

When counting assets, the FAFSA uses the current value of your and your child’s assets. Some assets are not counted and do not need to be listed on the FAFSA. These include home equity in a primary residence, retirement accounts (e.g., 401k, IRA), annuities, and cash-value life insurance. Student assets are weighted more heavily than parent assets; students must contribute 20% of their assets vs. 5.6% for parents.

Your EFC remains constant, no matter which college your child attends. The difference between your EFC and a college’s cost of attendance equals your child’s financial need. Your child’s financial need will be different at every school.

After your EFC is calculated, the financial aid administrator at your child’s school will attempt to craft an aid package to meet your child’s financial need by offering a combination of loans, grants, scholarships, and work-study. Keep in mind that colleges are not obligated to meet 100% of your child’s financial need. If they don’t, you are responsible for paying the difference. Colleges often advertise on their website and brochures whether they meet “100% of demonstrated need.”

Should I file the FAFSA even if my child is unlikely to qualify for aid?

Yes, probably. There are two good reasons to submit the FAFSA even if you don’t expect your child to qualify for need-based aid.

First, all students attending college at least half time are eligible for unsubsidized federal student loans, regardless of financial need or income level. (“Unsubsidized” means the borrower, rather than the federal government, pays the interest that accrues during school, the grace period, and any deferment periods after graduation.) If you want your child to be eligible for this federal loan, you’ll need to submit the FAFSA. But don’t worry, your child won’t be locked in to taking out the loan. If you submit the FAFSA and then decide your child doesn’t need the student loan, your child can decline it through the college’s financial aid portal before the start of the school year.

Second, colleges typically require the FAFSA when distributing their own need-based aid, and in some cases as a prerequisite for merit aid. So, filing the FAFSA can give your child the broadest opportunity to be eligible for college-based aid. Similarly, many private scholarship sources may want to see the results of the FAFSA.

Changes are coming to next year’s FAFSA

Changes are coming to the 2024-2025 FAFSA, which will be available October 1, 2023. These changes are being implemented a year later than originally planned. One notable modification is the term “expected family contribution,” or EFC, will be replaced by “student aid index,” or SAI, to better reflect what this number is supposed to represent — a measure of aid eligibility and not a definite amount of what families will pay. Other important changes are that parents with multiple children in college at the same time will no longer receive a discount in the form of a divided SAI; income protection allowances for both parents and students will be increased; and cash support to students and other types of income will no longer have to be reported on the FAFSA, including funds from a grandparent-owned 529 plan.

Prepared by Broadridge Advisor Solutions. Edited by BFSG. Copyright 2022.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please remember that different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment or investment strategy (including those undertaken or recommended by Company), will be profitable or equal any historical performance level(s). Please see important disclosure information here.

Withdrawals from 529 educational accounts owned by grandparents and others outside the nuclear family will soon have no impact whatsoever on federal financial aid eligibility due to new changes to the forthcoming simplified Free Application for Federal Student Aid (FAFSA). Previously, those withdrawals had to be reported two years later on the FAFSA as student income. Read here for more information on how 529 educational accounts impact financial aid.

This means funds in grandparent 529 plans won’t be counted at all — not when the FAFSA is filled out and not later when distributions are made to cover eligible college expenses.  Keep in mind, however, that grandparent 529 plans are still considered on the CSS Profile (an additional financial aid form used by about 200 private colleges to award their institutional aid).

The new FAFSA form will not be released until October 1, 2022, therefore, until income reporting changes take effect, grandparent 529 plan distributions may count as untaxed income on a student’s FAFSA. We will keep an eye out for when this new rule will apply to your situation and plan. 

With a 529 plan, you can build an educational legacy for your grandchild while taking advantage of tax and estate planning benefits.  If you want to find out more about 529s or how these new rules may apply to your situation, give us a call.

Sources: JP Morgan, Forbes, and Savingforcollege.com

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s website or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

October is the kickoff season for financial aid. That’s when incoming and returning college students can start filing the Free Application for Federal Student Aid, or FAFSA, for the next academic year. The FAFSA is a prerequisite for federal student loans, grants, and work-study, and may be required by colleges before they distribute their own institutional aid to students.

How do I submit the FAFSA?

The FAFSA for the 2022-2023 school year opens on October 1, 2021. Here are some tips for filing it.

• The fastest and easiest way to submit the FAFSA is online at studentaid.gov. The site contains resources and tools to help you complete the form, including a list of the documents and information you’ll need to file it. The online FAFSA allows your tax data to be directly imported from the IRS, which speeds up the overall process and reduces errors.
• Before you file the FAFSA online, you and your child will each need to obtain an FSA ID (federal student aid ID), which you can also do online by following the instructions. (Once you have an FSA ID, you can use the same one each year.)
• The FAFSA can also be filed in paper form. But it will take much longer for the government to process it.
• You don’t need to complete the FAFSA by October 1.  But it’s a good idea to file it as early as possible in the fall because some federal aid programs operate on a first-come, first-served basis. Colleges typically have a priority filing date for both incoming and returning students; the priority filing date can be found in the financial aid section of a college’s website. You should submit the FAFSA before that date.
• Students must submit the FAFSA every year to be eligible for financial aid (along with any other college-specific financial aid form that may be required, such as the CSS Profile). Any colleges you list on the FAFSA will also get a copy of the report.
• There is no cost to submit the FAFSA.

How does the FAFSA calculate financial need?

The FAFSA looks at a family’s income, assets, and household information (for example, family size) to calculate what a family can afford to pay.  This figure is known as the EFC or expected family contribution. All financial aid packages are built around this number.

Tip: Starting with the 2023-2024 FAFSA (which will be available next year starting October 1, 2022), the EFC will be renamed the SAI, or student aid index.

When counting income, the FAFSA uses information in your tax return from two years earlier. This year is often referred to as the “base year” or the “prior-prior year.” For example, the 2022-2023 FAFSA will use income information in your 2020 tax return, so 2020 would be the base year or prior-prior year.

When counting assets, the FAFSA uses the current value of your and your child’s assets. Some assets are not counted and do not need to be listed on the FAFSA. These include home equity in a primary residence, retirement accounts (e.g., 401k, IRA), annuities, and cash-value life insurance. Student assets are weighted more heavily than parent assets; students must contribute 20% of their assets vs. 5.6% for parents.

Your EFC remains constant, no matter which college your child attends. The difference between your EFC and a college’s cost of attendance equals your child’s financial need. Your child’s financial need will be different at every school.

After your EFC is calculated, the financial aid administrator at your child’s school will attempt to craft an aid package to meet your child’s financial need by offering a combination of loans, grants, scholarships, and work-study. Keep in mind that colleges are not obligated to meet 100% of your child’s financial need. If they don’t, you are responsible for paying the difference. Colleges often advertise on their website and brochures whether they meet “100% of demonstrated need.”

Should I file the FAFSA even if my child is unlikely to qualify for aid?

Yes, probably. There are two good reasons to submit the FAFSA even if you don’t expect your child to qualify for need-based aid.

First, all students attending college at least half-time are eligible for unsubsidized federal student loans, regardless of financial need or income level. (“Unsubsidized” means the borrower, rather than the federal government, pays the interest that accrues during school and during the grace period and any deferment periods after graduation.) If you want your child to be eligible for this federal loan, you’ll need to submit the FAFSA. But don’t worry, your child won’t be locked in to taking out the loan. If you submit the FAFSA and then decide your child doesn’t need the student loan, your child can decline it through the college’s financial aid portal before the start of the school year.

Second, colleges typically require the FAFSA when distributing their own need-based aid, and in some cases as a prerequisite for merit aid. So, filing the FAFSA can give your child the broadest opportunity to be eligible for college-based aid. Similarly, many private scholarship sources may want to see the results of the FAFSA.

Where can I find more information?

Our goal is to help you understand the overall costs of college, and the process and best types of financial aid available. Check out our “Definitive Guide to Education Planning” webinar to understand your options, the costs, and the best ways to pay for education.

Prepared by Broadridge Advisor Solutions. Copyright 2021. Edited by BFSG.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

After two years of decreases, interest rates on federal student loans are set to increase almost a full percentage point for the 2021-2022 school year.¹

The interest rates on federal student loans are reset each year after the May auction of the 10-year Treasury note. The rates apply to new federal student loans issued on or after July 1, 2021, through June 30, 2022. The interest rate is fixed for the life of the loan.

Subsidized vs. unsubsidized: what’s the difference? With subsidized loans, the federal government pays the interest that accrues while the borrower is in school, during the six-month grace period after graduation, and during any loan deferment periods. With unsubsidized loans, the borrower is responsible for paying the interest during these periods. Only undergraduate students are eligible for subsidized loans, and eligibility is based on demonstrated financial need.

In case you missed it, check out our A Definitive Guide to Education Planning webinar where we outline your options with student loans.

1) The New York Times, May 28, 2021

2) U.S. Department of Education, 2021

Prepared by Broadridge Advisor Solutions. Copyright 2021. Edited by BFSG, LLC.

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.

For many families, saving for kids’ education has become a priority and for a good reason. The average tuition for the 2021 school year ranged from approximately $11,000 (for in-state colleges) to over $41,000 (for private colleges)¹. That is approximately 2.5 times what the cost was in the early 2000s, so it would be fair to expect this cost to be substantially higher in the future.

For those parents who are eager to start saving for college, BFSG’s Certified Financial Planners™ often recommend 529 accounts. A 529 account is a tax-advantaged savings plan designed to encourage savings for future education expenses.² However, some parents are reluctant to open a 529 account because they are afraid their children may not be able to take advantage of financial aid. This is not entirely true and with the right planning, 529 accounts generally have a marginal impact on the amount of aid you receive.

529 accounts owned by a parent are considered a parent asset for Free Application for Federal Student Aid (FAFSA). The first $10,000 of a 529 account is excluded from FAFSA and only 5.64% of the account’s value beyond that amount will impact a student’s financial aid package. Therefore, this is a small negative impact considering the potential tax-free investment gains that are expected from a 529 account. In addition, the earnings and withdrawals of a parent-owned 529 account will not be reported on FASFA.

On the other hand, 529 accounts owned by relatives such as grandparents are subject to different rules. The account value is not counted as an asset on the FAFSA form as it would for a custodial parent but the withdrawals from the 529 account will be considered non-taxable income for the student and up to 50% of the value of the withdrawal could impact financial aid. For example, if a grandparent pays the private school tuition of $41,000 from a 529 account, that amount may reduce financial aid by as much as $20,500! However, there are effective strategies that can be incorporated to minimize this impact on financial aid eligibility. Please reach out to your financial advisor at BFSG to find the best strategy for your circumstances.

In short, for a typical family, kids’ college education expenses can be the second most expensive investment after a purchase of a home. A 529 account is an effective and useful tool to help you invest and pay for your kids’ education with minimal impact to financial aid eligibility. It is important to invest early to take advantage of tax-free compounding gains and incorporate a strategy to maximize your financial aid package.

Check out our webinar “A Definitive Guide for Education Planning” to learn about the best ways to save for college.

1. Source: 20 Years of college expense (https://www.usnews.com/education/best-colleges/paying-for-college/articles/2017-09-20/see-20-years-of-tuition-growth-at-national-universities)

2. U.S. Securities and Exchange Commission, “An Introduction to 529 Plans” (https://www.sec.gov/reportspubs/investor-publications/investorpubsintro529htm.html#:~:text=A%20529%20plan%20is%20a,of%20the%20Internal%20Revenue%20Code)

Disclosure: BFSG does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to BFSG’s web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. Please see important disclosure information here.