By Tonya DuBois
I am writing this is January of 2021, as families are both starting off a new year, and also preparing last year’s taxes.
If you are a part of the Class of 2022, then the 2020 taxes you are working on in the coming months will be used when you apply for financial aid. If you are a part of the Class of 2023, then whatever you do in 2021, which will be reflected in the taxes you prepare next year, will have an impact on your college financial aid. So, it’s time to really start paying attention to your income and assets. Below are a few tips as you start off this new year, specifically in regard to preparation for completing the FAFSA (Free Application for Federal Student Aid). And, of course, always consult a professional financial advisor regarding these matters.
1. Know which taxes you’ll need when applying for financial aid. If your student is entering college in Fall, 2022 you will need to reference your 2020 taxes (year prior-prior). Therefore, you need to start paying attention to your income and assets (for the purposes of financial aid) as early as sophomore year.
2. You’ll need to apply 4 years in row for aid, beginning in October of the Senior year of high school, and for each of the next 3 years.
3. In a divorce situation, it doesn’t matter which parent claims the student on their taxes for financial aid purposes.
4. There are some assets that are “reportable” and some that are not reportable on the FAFSA. Your home equity in your primary residence and your 401(k) plans are among the assets that are not reportable. Keep this in mind as you consider where you are investing money each year.
5. On the FAFSA, 529 plans in the student’s or the parent’s name are reportable, but in another relative’s name, with the student listed at the beneficiary, they are not reportable. (Pay attention to distributions from the 529; however, and how that will be reported.)
6. Trusts are reportable – even if restricted and not accessible to the student at this time.
7. When divorced, the FAFSA only requires you to report the income/assets of the parent the student lives with most.
8. If the parent the student lives with most is re-married, then the new spouse’s income/assets are also included in the reporting.
9. For boys to receive federal aid, they are required to be registered with the Selective Service System (aka the Draft).
10. Private colleges often require families to also complete the CSS Profile for institutional aid; familiarize yourself with this form, as the reportable and non-reportable factors differ in several important ways.
BONUS TIP: Even if you feel you won’t qualify for aid, complete the FAFSA anyway. Many schools require the completion of this document, even for merit scholarship consideration. There are online FAFSA calculators that families can use to estimate if they are likely to be eligible for need-based aid.
The cost of private college averages over $200,000 for 4 years. This is an enormous investment that can make attending college cost-prohibitive for many. In addition to applying for federal aid through the FAFSA, there are many other avenues for tuition discounts: state aid, institutional aid, merit or athletic scholarships, etc. If you need assistance identifying ways to qualify for tuition discounts, or strategies to qualify for more, Windstar College Counseling can help.