FAFSA simplification technical question

[SecondCor521]

Hi all,

Single father of two college sophomores looking at the FAFSA simplification rules carefully.

In fall of 2022, we'll file the new FAFSA for my DS20. I'm interested in the maximum Pell Grant / zero SAI rule which is my 2021 AGI below 225% of FPL based on my family size.

I'm trying to make sure my family size is what I think it is.

Clearly I include DS20 - he'll be my FAFSA dependent and my tax dependent in 2021. Clearly I include myself because he's a FAFSA dependent.

Do I include the other college student in my family - DD19? Common sense seems to say yes, but the law seems to say no.

Common sense arguments:

DD19 will likely also be a college student, a FAFSA dependent, and will be filing their own FAFSA in fall of 2022. And on *their* FAFSA, our family size will be three, because I'll include me, DS20, and DD19 in our family size. It seems if my family size is three for DD19, it should also be three for DS20.

Law argument:

The FAFSA simplification act passed seems to say that I should not include DD19 as part of family size on DS20's FAFSA, because they are not me, not the student, and not a tax dependent under section 152 or section 24 of the tax law (which seem to refer to tax dependency, not FAFSA dependency).

I did notice the appeal part, where the Secretary (of Education?) can establish rules for situations where family size has changed due to situations like divorce, so maybe that is the venue I should pursue.

The other option would be to have DD19 be my tax dependent in 2021. That will cost about $957 net in tax and health care costs, but may be worth it to be safe on the FAFSA side of things.

I already called my DS20's financial aid office and the first person with whom I spoke was not aware that the law had been passed. I don't want to come off looking like a dweeb/jerk (too late?).

Any advice or input or thoughts anyone has would be most welcome - either on the technical aspect of the law, or on the interpersonal aspect of how to approach the FA office about this kind of thing.

 

[SecondCor521]

Followup:

I contacted the Department of Education chat service and they indicated that my family size would be three in the scenario I described.

I saved the chat text and will rely on it for completing our FAFSAs in 2022.

 

[Potstickers]

If you have two college sophomores now (20-21), in fall/winter of 21/22 when they are juniors they will file FAFSAs for their senior year using the current methodology, right?

FWIW - I have heard several senior financial aid officers at colleges say that they are working on plans to smooth the transition for currently enrolled students with siblings who are also in college. The new formula is very unfriendly to that situation and to the situation where a student's parents are divorced.

It is going to be a mess. I may go to Tahiti that year.

 

[EastWest Gal]

Makes me glad for only one kid-and too much NW for FAFSA. It was the luck of the draw and in my ER plans to work in a high paying field, and saved a lot.

 

[SecondCor521]

If you have two college sophomores now (20-21), in fall/winter of 21/22 when they are juniors they will file FAFSAs for their senior year using the current methodology, right?

FWIW - I have heard several senior financial aid officers at colleges say that they are working on plans to smooth the transition for currently enrolled students with siblings who are also in college. The new formula is very unfriendly to that situation and to the situation where a student's parents are divorced.

It is going to be a mess. I may go to Tahiti that year.

They're rising sophomores (ish) now, so 2021/2022 will be their sophomore/junior (ish) years.

Yes, I'll work with my kids to file FAFSAs this October (2021) for both of them using the current methodology and my 2020 tax return.

Those FAFSAs will be for the 2022/2023 school year when they'll be juniors / senior (ish).

So yeah, you have it essentially correct (except my kids are not as far along as you guessed).

In October 2022, as a single parent, under the new rules I get a 225% of FPL target for auto zero SAI and max Pell grant. Or I can get SNT at $60K (plus some things). I'll aim for one of those probably. The thing for us college kid aged parents to keep in mind is that those new rules start applying to the 2021 federal income tax return (i.e., this year!).

Enjoy Tahiti!

 

[FANOFJESUS]

Do dividends above $1500 cause a problem with getting aid? Does sell a mutual fund cause a problem with getting aid?

 

[The Cosmic Avenger]

Makes me glad for only one kid-and too much NW for FAFSA. It was the luck of the draw and in my ER plans to work in a high paying field, and saved a lot.

Same, although I had to fill it out the first year (last year), just to see. Then this year I wanted to see if being out of work for 6 months might have gotten our income low enough to qualify, so I started the forms only to find out that for the 2021-22 school year, they're only using 2019 tax data! So I might fill it out next year, but then if I'm still working by then, we've figured that if we save the RMDs from my inherited IRAs towards tuition for the next 3 years, we won't have to pay anything out of pocket.

 

[SecondCor521]

Do dividends above $1500 cause a problem with getting aid? Does sell a mutual fund cause a problem with getting aid?

Well, it depends.

For FAFSA, dividends and capital gains are treated as income. If it's student income, it's "FAFSA taxed" (i.e., reduces aid) pretty severely - 50% I think. If it's parental income, it's also "FAFSA taxed" but at a somewhat lower rate depending on a number of factors.

In addition, there are a couple of FAFSA loopholes that depend on your AGI, whether the student (or someone in the student's family) received government benefits, and whether the parent filled out any of a number of tax schedules. So filling out a Schedule B or Schedule D would impact whether the family could qualify for something called the Simplified Needs Test, which is where the FAFSA ignores both parental and student assets.

I'll just briefly note that at the big picture level, financial aid is disbursed by, broadly speaking, three different rule sets: FAFSA, CSS Profile, and institution rules. The above only discusses FAFSA, because my offspring all go/went to FAFSA schools.

 

[FANOFJESUS]

Well, it depends.

For FAFSA, dividends and capital gains are treated as income. If it's student income, it's "FAFSA taxed" (i.e., reduces aid) pretty severely - 50% I think. If it's parental income, it's also "FAFSA taxed" but at a somewhat lower rate depending on a number of factors.

In addition, there are a couple of FAFSA loopholes that depend on your AGI, whether the student (or someone in the student's family) received government benefits, and whether the parent filled out any of a number of tax schedules. So filling out a Schedule B or Schedule D would impact whether the family could qualify for something called the Simplified Needs Test, which is where the FAFSA ignores both parental and student assets.

I'll just briefly note that at the big picture level, financial aid is disbursed by, broadly speaking, three different rule sets: FAFSA, CSS Profile, and institution rules. The above only discusses FAFSA, because my offspring all go/went to FAFSA schools.

One more question. I am guessing more than $1500 of bank interest could cause a problem?

 

[SecondCor521]

One more question. I am guessing more than $1500 of bank interest could cause a problem?

There's nothing in the FAFSA rules that calls that out specifically with the sole exception that more than $1500 of bank interest would require you to file a Schedule B, and filing a Schedule B is one of the things that disqualifies you from qualifying for the Simplified Needs Test (SNT) under the new rules.

If you don't plan on trying to meet the qualifications for SNT, then $1500 in dividends doesn't really matter. You can still get FAFSA-based aid...depending of course on the rest of your FAFSA financial picture.

 

[SecondCor521]

Update for those interested: The implementation of the FAFSA simplification rules is being phased in and parts are being delayed.

See here for example, but googling "FAFSA simplification delay" will bring up articles:

https://www.insidehighered.com/quicktakes/2021/06/14/fafsa-simplification-delayed-1-year

 

[FANOFJESUS]

Are your dividends under $1500? I am guessing you have most of your money in retirement accounts to make this work.

 

[SecondCor521]

Are your dividends under $1500? I am guessing you have most of your money in retirement accounts to make this work.

They weren't in 2020, so I did file a schedule B in 2020.

Yes, I do have most of my money in my retirement accounts (and a paid off house), which are both treated well by FAFSA.

The rules for playing the FAFSA game are complicated and are in the process of changing over the next few years. It may or may not be worth it to play depending on individual / family circumstances. If you're interested in playing I would recommend reading all the rules carefully when your kids are starting high school as it may take some time to prepare.

 

[FANOFJESUS]

They weren't in 2020, so I did file a schedule B in 2020.

Yes, I do have most of my money in my retirement accounts (and a paid off house), which are both treated well by FAFSA.

The rules for playing the FAFSA game are complicated and are in the process of changing over the next few years. It may or may not be worth it to play depending on individual / family circumstances. If you're interested in playing I would recommend reading all the rules carefully when your kids are starting high school as it may take some time to prepare.

I don't think I can get away from schedule B. I am only shooting for the Pell Grant. That looks like a no.

 

[SecondCor521]

I don't think I can get away from schedule B. I am only shooting for the Pell Grant. That looks like a no.

Pell Grants are awarded based on EFC and the school's cost of attendance - you can google for the charts, which have been accurate in my experience. Even if you file a return with a schedule B, you can still have a low enough EFC. Of course this depends mostly on your overall income.

 

[daylatedollarshort]

They weren't in 2020, so I did file a schedule B in 2020.

Yes, I do have most of my money in my retirement accounts (and a paid off house), which are both treated well by FAFSA.

The rules for playing the FAFSA game are complicated and are in the process of changing over the next few years. It may or may not be worth it to play depending on individual / family circumstances. If you're interested in playing I would recommend reading all the rules carefully when your kids are starting high school as it may take some time to prepare.

I couldn't believe it when I started doing financial aid research and home equity, retirement accounts, small business retirement plans, and small businesses under 100 employees didn't count as assets under FAFSA rules. It seemed too good to be true. Then in California the household income levels were quite high for 100% tuition grants. Having the ACA come along and not having to pay college tuition were really huge pluses for our retirement budget.

 

[FANOFJESUS]

Pell Grants are awarded based on EFC and the school's cost of attendance - you can google for the charts, which have been accurate in my experience. Even if you file a return with a schedule B, you can still have a low enough EFC. Of course this depends mostly on your overall income.

Let's say a family of four had 40k in dividends but that was their only income would they get full Pell grants?

 

[SecondCor521]

Let's say a family of four had 40k in dividends but that was their only income would they get full Pell grants?

Not enough data. It depends on a number of other things: age of the older parent, how many are in college, state of residency, and the COA of the school(s) in question, among possibly other things.

What I'd suggest is the following steps:

1. Go find the FAFSA forecaster with Google.

2. Go through and answer the FAFSA forecaster questions. Note the EFC it calculates.

3. Pick the school you think the kid will go to and the living arrangement you expect for the student (on campus, off campus, with parents). Find it's COA (cost of attendance) - should be findable on the school's financial aid website.

4. Google the Pell grant charts I mentioned earlier. Look up the intersection of the EFC from step 2 and the COA from step 3. That's what Pell Grant the student(s) should get.

Under FAFSA simplification, IIRC the students would get full Pell Grants if the family's income was under 200% of FPL. That particular FAFSA simplification rule seems like it's going to be implemented for 2022 tax returns / the 2023-2024 FAFSA aid year...unless the federal financial aid people change their minds again.

 

[SecondCor521]

FAFSA Simplification has been delayed another year by PL117-103 (HR2471 division R) (https://www.congress.gov/bill/117th-congress/house-bill/2471)

See a couple of articles at this Bogleheads link:

https://www.bogleheads.org/forum/viewtopic.php?p=6572026#p6572026