There Will Be Two FAFSAs in 2016

In Paying for College on May 16, 2016

If you think the Free Application for Federal Student Aid (FAFSA) is a long and complicated way of applying for financial aid, just wait. There will be two FAFSAs in 2016, and both will be based on 2015 income and tax information.

The 2016-2017 FAFSA application season opened on January 1, 2016. Just as in previous years, the 2016-2017 FAFSA is based on income during the previous tax year, also known as the prior year.

The use of prior-year income tax returns adds complexity because families must file the FAFSA and federal income tax returns at the same time. But, because many colleges and state financial aid programs have very early deadlines, families need to file the FAFSA before they file federal income tax returns, even though the FAFSA refers to specific lines from the federal income tax return.

Starting with the 2017-2018 FAFSA, however, the FAFSA is switching from prior year (PY) to prior-prior year (PPY).

The use of two-year-old income and tax data instead of one-year-old data will allow the FAFSA season to start three months earlier, on October 1, 2016, instead of January 1, 2017. Most applicants will have already filed their federal income tax returns by then, even if they used the automatic 6-month extension. This will eliminate a lot of the conflict between FAFSA deadlines and tax return timing.

This change will also allow more applicants to use the IRS Data Retrieval Tool. The IRS Data Retrieval Tool transfers income and tax information from federal income tax returns into the FAFSA, simplifying the form. This will also save families time and hassle later, since data elements that are transferred unmodified from a federal income tax return to the FAFSA are not subject to verification.

The switch to an earlier start date for the FAFSA will also allow the FAFSA to be filed at the same time as applications for college admissions.

During the transition from PY to PPY, there will be two FAFSAs in 2016. The 2016-2017 FAFSA began on January 1, 2016, and the 2017-2018 FAFSA will begin on October 1, 2016. Both will be based on 2015 federal income tax returns.

Some families have asked what they should do if their 2016 income is lower than the 2015 income when they are filing the 2017-2018 FAFSA. The FAFSA uses the base year income as a proxy for income during the academic year. If 2017 income will also be lower than 2015 income, it is worthwhile to file a financial aid appeal with each college’s financial aid office. Some colleges call it a professional judgment review. It is also worthwhile to appeal for more aid if your income varies a lot from one year to the next. The colleges may ask for copies of the last 3-5 years of federal income tax returns.

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