College financial aid deadlines and tax return deadlines have traditionally been terribly misaligned.
Some state aid programs want students to file for financial aid as early as mid-February, even though many people haven’t received all their tax documents, much less filed their taxes by then.
The aid application deadlines are even worse at some colleges and universities. The aid deadlines for students who apply to colleges early are often in the fall of a student’s senior year in high school.
Faced with challenging aid deadlines, parents are forced to file for financial aid using estimated tax return information; but families who do this will receive a financial aid package contingent on a school receiving their final tax numbers. And sometimes those finalized figures will result in schools reducing their aid packages.
An End to the Financial Aid Rush
For millions of students, the crazy deadlines will soon end. Earlier this month, President Barack Obama signed an executive order that will make the financial aid process far less hurried and much more convenient for families.
Beginning with the 2017-2018 school year, families will begin filing for financial aid based on their prior-prior year income. Here’s an example of what this means: Parents of current high school juniors, who expect to attend college in the fall of 2017, will file the Free Application for Federal Student Aid (FAFSA) with figures from their 2015 income tax return rather than use their 2016 income tax filing.
This new policy will result in millions of parents using the 2015 income twice. Families of freshmen, who start college in the fall of 2016, will rely on 2015 income tax figures when they file for aid and they will use the same income tax data when their child seeks aid as a sophomore.
2015: A Doubly Important Year
This transition can pose a problem for families who may have made an unusually high income during 2015. In cases like this, parents can seek what’s called a professional judgment from a school.
When asked, a school can decide that a family is eligible for more aid because of extenuating circumstances. Professional judgments have always been available for families who believed the FAFSA didn’t reflect their financial situation. Circumstances warranting a professional judgment include high medical bills, financial support of grandparents or other relatives, and a recent divorce or separation.
Obama’s executive order will also shift the financial aid process back to as early as October of the teenager’s senior year in high school, which is nearly a full year before the child starts college. Currently the federal financial aid season doesn’t start until January 1. This is the first day that families can complete the FAFSA. Families will now be able to file it beginning in October.
Potential Benefits to an Earlier FAFSA
Because parents will be using an older income tax return, they should be able to quickly complete the FAFSA when it first becomes available.
The federal government’s new move could also prompt schools to generate aid packages earlier, which would be another huge benefit for families. Currently, many students don’t learn what is in their aid packages until March or even April of their senior year in high school. This late notice gives families very little time to decide if a school is financially doable.
Receiving earlier financial aid packages can also give parents more time to evaluate offers, compare competing offers, and appeal the awards.