Big changes are coming to the Free Application for Federal Student Aid, or FAFSA, next year—and there are some important steps you may want to take now, before the end of 2015, if you have a college-bound student in the family.
There will actually be two FAFSAs in 2016. The 2016-17 FAFSA (the first FAFSA filed by students entering college in the fall of 2016) will be available starting Jan. 1, 2016. The 2017-18 FAFSA will be available on Oct. 1.
Because both the 2016-17 and 2017-18 FAFSA will be based on your family’s 2015 tax returns, it’s in your interest to keep your reportable income for 2015 as low as possible if you need financial aid.
So, for example, if you sold some investments this year that resulted in reportable capital gains, consider offsetting those gains by selling something before Dec. 31 that will produce a capital loss. Also avoid taking any taxable distributions from your retirement plans, if at all possible.
There are also some things you can do to defer income until 2016, although those will catch up with you if you need to file a 2018-19 FAFSA, which will be based on your 2016 tax return. For example, if you are expecting a year-end bonus at work in 2015, you could request that it be delayed until early 2016. Or, if you have self-employment income, you could wait until early 2016 to send out invoices, while also paying any bills you owe before year-end to lower your net profit or raise your net loss.
If your adjusted gross income is under $50,000, try to keep it below that threshold. That way you may qualify for what’s known as the “simplified needs test.” If you qualify, any assets you report on the FAFSA (which are also considered in determining aid) will be disregarded. Your family must also meet certain other criteria: the parents must have been eligible to file an IRS Form 1040A or 1040EZ, someone in the household must have received one of several means-tested federal benefits in the last two years (such as SSI, SNAP, TANF, WIC, or the Free and Reduced Price School Lunch program), or one of the parents must be a dislocated worker. The IRS explains who can file a 1040A or 1040EZ here.
Next in this series: How to shelter your assets for maximum FAFSA aid.
Mark Kantrowitz is one of the nation’s leading student financial aid experts. He is the author of several books about paying for college, including Filing the FAFSA, Twisdoms about Paying for College, and Secrets to Winning a Scholarship, and has served as publisher of the FinAid, Fastweb, and Edvisors websites.