Early this year, the federal Department of Education announced some changes to the Free Application for Federal Student Aid, commonly referred to as the FAFSA. This is the form students must fill out to receive any type of federal student aid, including student loans and Pell Grants.

Even if you’re not planning to rely on federal aid, your school’s finance department might ask that you fill out this form to access certain school-based funding.

These FAFSA changes covered the 2017-18 school year, starting this fall. But if you’re getting ready to go to college next year, you need to be aware of the changes now, too. There are two big ones:

  • You can submit a FAFSA earlier. You’ll actually be able to submit your FAFSA for the 2018-19 school year starting this October. Since some funding is made on a first-come-first-served basis, you’ll want to file as early as you can, if possible.
  • You’re reporting earlier income information. It used to be that you couldn’t turn in your FAFSA until January 1, because you were reporting on the prior year’s income information. The reason is obvious: you had no way of knowing your full 2016 income until January 1, 2017. But this earlier filing date has been put in place because the FAFSA is now based on the prior-prior year’s income. We’ll explain more about this and what it means shortly.

What Does it Mean For You?

For one thing, this earlier filing date means that you need to get your information together sooner. You’ll need to fill out your FAFSA in October this year.

But, wait that might actually be easier now.

In previous years, you may have had to wait well past the (old) January 1 application opening, in order to receive and gather your W-2s and other tax forms. (Plus, those of your parents if you were/are still a dependent.)

The prior-prior year rule change now makes this easier. That’s because you’re filing based on the income information from the year before last. Which you should already have on hand, since it’s essentially a compilation of records from two years ago.

Resource: Early Retirement and Paying for Kids’ College: Are They Compatible?

So, if we’re considering the school year starting in or after July 2018, you’re filing the FAFSA based on your 2016 income.

And here’s some good news: you may be able to use the IRS Data Retrieval Tool to automatically import that year’s tax information into your FAFSA. That makes it so much easier to fill out the form!

The earlier filing date also means you can get a Student Aid Report a few days earlier.

This report comes within three days of filing your FAFSA. It basically tells you if you qualify for need-based aid programs, which include work-study, Pell Grants, and subsidized student loans.

It’s not a lot of information, but it’s something to go off of early in your college decision-making process.

What About Student Income?

One of the complicated pieces of playing the college aid game is figuring out how certain savings vehicles and gifts will play into your college aid.

For instance, say your grandparents helped your parents save for your college education by opening a 529. They own the account but have named you a beneficiary.

Maybe they decided to open a 529 in their own state to net that state’s income tax deduction for their contribution. At the same time, your parents funded a 529 in your state.

When it’s time to fill out your first FAFSA, neither 529 will count as your parent’s asset. Parental assets have less effect on financial aid than student assets, so that’s a good thing. Your grandparents’ 529 won’t count as an asset whatsoever.

Related: 6 Steps for Giving a 529 Account this Christmas

Qualified distributions from your parents’ 529 won’t affect your financial aid in the next year at all. However, distributions from your grandparents’ 529 will count as untaxed student income for that tax year. Even if you use those funds properly for education expenses, the distribution could ding you down the road when you file the FAFSA.

So, it used to be that financial experts told students to save non-parent-held 529 money until just before their senior year. Then, as long as you’re not planning to file the FAFSA for graduate school, the income boost doesn’t matter. You’ve already got your financial aid settled for your senior year, anyway.

But now that the FAFSA counts the prior-prior year’s income, you can actually take those distributions for your last and second-to-last years of college. The additional income would only count for the year after you graduate. (Just make sure that you really are going to graduate on time before you make this choice!)

The same goes for other types of gifts, including UGMA/UTMA accounts, Coverdell Education Savings Accounts, and straight-up cash gifts from extended family members.

Also, if you start a higher-earning job the summer before your junior year of college, that won’t impact your financial aid in your senior year. So, earn away!

Next Steps

This is all pretty confusing, I know. Then again, most everything related to student loans, financial aid, tuition, and grants can get a little convoluted.

Throw in a few federal changes, and it can have your head spinning. The bottom line is this, though:

  • File your FAFSA as soon as you can. It’s now open on October 1st.
  • If you’re expecting any big monetary gifts for college, ask the givers to hold them until two years before you graduate. That way, you’ll get a better shakeout on your financial aid eligibility.

Sound off below: How do you expect the financial aid application changes to affect you or your child? Do you see any downsides to the new process?


  • Abby Hayes

    Abby is a freelance journalist who writes on everything from personal finance to health and wellness. She spends her spare time bargain hunting and meal planning for her family of three. She has a B.A. in English Literature from Indiana University Purdue University Indianapolis, and lives with her husband and children in Indianapolis.