Did you see a US Department of Education “new FAFSA info” fact sheet that seems nearly impossible to understand?
A few people have stumbled upon it here and felt completely bewildered.
The good news is—you probably don’t need the info in that bewildering government fact sheet.
The specifics in the article I’ve posted here are really all you need to get your kids maximum financial aid going forward.
However, if you’re curious about what the confusing government fact sheet is actually trying to say to your family (or to those you serve as a professional), I’ve laid out the facts of it clearly below.
As I explain the government fact sheet to you, please be aware of this important principle:
It is still a good idea to consider putting the income and assets you safely can into retirement savings during this special timeframe: May of 9th grade to December 31st of 10th grade. Do it by this December 31st of 10th grade deadline, and none of these assets will be noticed by the financial aid application process when your child is a senior in high school. You will still need an easy-to-access emergency fund for yourself, of course, so talk to your financial professional about exactly how to manage this. You can find financial professionals I trust at Thrivent.com.
Here’s why this is helpful.
For years, the money parents have squirreled away in retirement accounts prior to January 1st of their kid’s 10th grade year has not been visible—has not been considered—when calculating federal financial aid. So if you put 15 million dollars into retirement accounts before that important January 1st of 10th grade date, you could still qualify for maximum aid. This is why my book tells you in Chapter 10 (titled May of 9th Grade) to start planning for that important January 1st of 10th grade date 8 whole months ahead of time
This is still the case.
The key is—the confusing government fact sheet is talking about the following year.
Everything they’re saying in the very long, very windy government fact sheet is about your kid’s January 1st of 10th grade to December 31st of 11th grade year. (I call this “the snapshot year” or “the magic year.” It’s the year they’re looking at to determine financial aid.)
Whatever happens before that special year, they know nothing about that. They haven’t gathered that information.
Excellent!
We are greatly advantaged because we know to take advantage of that and plan ahead.
Now, let’s look at that long, windy government fact sheet.
I’m paraphrasing it below—and I’m including a short, red explanation of why I don’t burden parents with thinking about certain items or trying to work around them ahead of time.
Income components
They’re saying that during the “magic year,” they are looking at:
1. Deductions and payments to self-employed SEP, SIMPLE, Keogh, and other qualified individual retirement accounts excluded from income for federal tax purposes. (Bingo—this is why we move the money around prior to January 1st of 10th grade.)
2. Cooperative education employment earnings. (Don’t worry about this. Get as many of these earnings as you can.)
3. Child support the family received. The recipient of the child support will be asked to report the amount of child support received in the last complete calendar year. (Don’t worry about this. Get as much child support as you can.)
4. Combat pay received. (Don’t worry about this. Get as much combat pay as you can.)
5. The net worth of your family business that has 100 or fewer full time employees. (They used to not look at this—since good heavens—you’re not about to sell your business to pay for college and nobody wants you to. Small business is the backbone of the American economy! Sadly, the rule has changed and applicants are now being asked to report the net worth of all businesses, regardless of the size of the business. The net worth of your small business counts against you in financial aid calculations. I think this is terrible. Still, don’t worry about this. Get as much business income as you can.)
6. The net worth of your family farm–but excluding the value of the house you live in on that farm. The net worth of a farm includes fair market value of land, buildings, livestock, unharvested crops, and machinery actively used in investment farms or agricultural or commercial activities, minus any debts held against those assets. (Don’t worry about this. Get as much income out of your farm as you can.)
7. The value of the education savings accounts—think 529 plans or Coverdell accounts—you hold for this particular dependent kid who is applying for financial aid for this year. (Don’t worry about this. Stick as much into these education savings accounts as you can.)
8. They are also looking at “foreign earned income exclusion amounts.” These are included in the calculation of an applicant’s Student Aid Index—but they don’t impact a kid’s ability to get a Maximum Pell Grant if their income is low enough for them to be a candidate for that. (Don’t worry about this. Get as much foreign earned income as you can if that’s a part of your family story.)
During the magic year (January 1st of 10th grade to December 31st of 11th grade), they are not looking at:
Payments made to tax-deferred pension and retirement plans that are not on the federal tax return. (So go ahead and max these out if you have this opportunity—these types of payments won’t hurt future financial aid awards at all.)
Tax-exempt interest income. (So go ahead and max this out if you have this opportunity—this won’t hurt future financial aid awards at all.)
The untaxed portion of individual retirement account distributions—excluding rollovers. (So go ahead and max this out if you have this opportunity—this won’t hurt future financial aid awards at all.)
The untaxed portion of pensions—excluding rollovers. (So go ahead and max this out if you have this opportunity—this won’t hurt future financial aid awards at all.)
Housing, food, and living allowances paid to members of the military and clergy. (So go ahead and max this out if you have this opportunity—this won’t hurt future financial aid awards at all.)
Veterans non-education benefits. (So go ahead and max this out if you have this opportunity—this won’t hurt future financial aid awards at all.)
And—the general categories of “other untaxed income” and “money received by or paid on behalf of the student.” (So if Grandma wants to pay for summer camp, buy basketball shoes, or bring money out of a 529 college savings plan to help pay for young Joey’s college tuition for example—you won’t have to declare that anywhere. She can do that at any time and it won’t in any way diminish future financial aid awards.)
Federal Work-Study (FWS) Program income. (So go ahead and max this out if you have this opportunity—this won’t hurt future financial aid awards at all.)
Institutional grant and scholarship aid included in adjusted gross income (AGI) on a federal tax return. (So go ahead and apply for as many grants and scholarships as you can—it won’t hurt future financial aid awards at all.)
Grant and scholarship portions of grad school fellowships and assistantships. (So go ahead and max these out if you have this opportunity—this won’t hurt future financial aid awards at all.)
AmeriCorps benefits, including awards, living allowances, and interest accrual payments. (So go ahead and max this out if you have this opportunity—this won’t hurt future financial aid awards at all.)
American Opportunity or Lifetime Learning education tax credit amounts claimed on the federal tax return. (So go ahead and claim these—this won’t hurt future financial aid awards at all.)
The payroll tax allowance, which replaces the Social Security Tax allowance that used to be in the old EFC formula. (So don’t worry about this increasing your income if you have this opportunity—just go ahead and enjoy it—this won’t hurt future financial aid awards at all.)
Federal income tax paid. (Oh how nice of them not to count the federal income tax you paid as though it was income you could spend on groceries!)
The employment expense allowance. (So go ahead and max this out if you have this opportunity—this won’t hurt future financial aid awards at all.)
The income protection allowance (IPA). (There’s nothing you can do to make this smaller or bigger, so don’t worry about it.)
“State and other tax allowances” are also no longer treated as allowances against income in the Student Aid Index formula and will no longer be reported on the FAFSA. (So if you have some legal way to reduce your state taxes by $100, don’t worry—they are not going to count that as income. It won’t hurt future financial aid awards at all.)
The value of the house you live in—even if it’s located on a family farm that you own. (So go ahead and get a nicer house or improve the one you have. Having a better house won’t hurt future financial aid awards at all.)
The value of the education savings accounts—such as 529 plans or Coverdell accounts—you hold for your younger kids who are not applying for financial aid for next year. (So go ahead and max out education savings for these younger kids—it won’t hurt future financial aid awards at all.)
All this said—consider “appealing” your child’s financial aid award during the spring of his 12th grade year.
I provide specific instructions on how to do this on pages 272–273 of the book I wrote.
This is officially called, “asking for a professional judgment review.”
It involves contacting an individual college after you’ve received its financial aid award letter.
The staff person reviewing your award can consider many, many life circumstances your family is facing. Pages 272–273 of my book will help you know what to say in a professional judgment review to get best results for yourself.
In closing, be sure you’ve done this!
Read my most important FAFSA news post here. This one resource gives you all the most important FAFSA information you actually need, all in one place.
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Who is Jeannie Burlowski?
Jeannie is a full-time academic strategist, podcast host, and sought-after speaker for students ages 12–26, their parents, and the professionals who serve them. Her writing, speaking, and podcasting help parents set their kids up to graduate college debt-free, ready to jump directly into careers they excel at and love. Her work has been featured in publications such as The Huffington Post, USA Today, Parents Magazine, and US News and World Report, and on CBS News.
Jeannie also helps students apply to law, medical, business, and grad school at her website GetIntoMedSchool.com. You can follow her on Twitter @JBurlowski.
This page was updated on October 8th, 2024. No part of this article was written using AI. This article is for informational purposes only. Nothing herein constitutes tax or investment advice.