FAFSA Prep: Money Moves to Make Before the End of 2015

How to prepare for Prior-Prior Year FAFSA before the end of 2015.

By Kathryn Knight Randolph

November 25, 2015

FAFSA Prep: Money Moves to Make Before the End of 2015

If you’re in college or planning to enroll in college in the next two years, get FAFSA ready. Why? Because the year 2015 is going to count twice towards your financial aid eligibility.

If you haven’t heard yet, President Obama made sweeping changes to the FAFSA a few weeks ago, making financial aid determinant on a Prior-Prior Year Income system. This means that financial aid eligibility will be based on the tax information from two years prior, meaning students and families will no longer have to estimate their tax information as is the practice now. For example, when students file the FAFSA in 2017 – 2018, they’ll be using tax information from this year – 2015.

Additionally, students and their families will be able to file the FAFSA earlier each year, starting on October 1 instead of January 1. As a result, families will know sooner what their financial aid packages look like from each school and have more time and opportunity to consider their choices before making a final decision.

Given these changes, what should students keep in mind as they prepare to fill out the FAFSA for 2015 on January 1?

The year 2015 counts twice. It’s paramount that if you plan to be in college within the next two years that you take steps to maximize aid eligibility now.

So lower the cash you have on hand. That means lowering the amount of cash you and your family have in your various financial accounts. Don’t take distributions from your 401K or realize capitalize gains. In fact, you should maximize contributions to your 401K to make it appear as if you have less cash. Other ways that you can do this are to make large purchases, like buying a car and completing a home renovation, or making a large payment toward consumer debt.

Know the difference between assets that are counted and those that are not. When it comes to the FAFSA, there are certain assets that aren’t examined when determining financial aid. These include retirement accounts, cash value of life insurance policies, your home and other personal property — like cars, clothing and furniture. You can actually shelter your cash on hand by prepaying your mortgage.

Finally, the strategy for maximizing aid eligibility has shifted to sophomore year. In years past, FAFSA filers were encouraged to make changes to their income and cash on hand during the student’s junior year. Now, families will be encouraged to make major money moves during the student’s sophomore year as they plan ahead for the prior-prior year FAFSA.

December is a busy month filled with family obligations and finishing up the fiscal year. With that in mind, make changes and get FAFSA ready either before or during the holiday break. You may find that a little work and attention to finances this month could yield a big payoff once the financial aid package arrives.

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