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The new Simplified FAFSA is here! Here’s a quick video with some tips that will help you get through it with a minimum of chaos and maximum of financial aid. 🔗
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FAFSA: Is it Income?
The FAFSA asks about income numerous ways: it collects your tax return data through the IRS Data Retrieval Tool and then poses a number of additional questions about income. So let’s look at those.
What is “Income” on the FAFSA?
Many families– and also many financial professionals– believe that reducing their adjusted gross income by increasing 401k contributions will result in a lower Expected Family Contribution from the FAFSA.
FAFSA Basics: Parent Income
Parent income tends to be overlooked in FAFSA planning, which is unfortunate because for most families it’s the biggest piece– and one that has some real planning opportunities.
Work Study
A financial aid package often includes work-study as one component. Typically the package includes a dollar sum of work-study income to be used for education costs.
FAFSA Income Surprises
Friends are having a FAFSA nightmare: their daughter’s EFC came back as 60% of their income. They suspect the reason for this is that he consolidated his retirement accounts, rolling several over into a single larger account, and that some or all of that rollover is showing as an IRA distribution.
FAFSA Income
While it’s true that there is an income protection allowance on the FAFSA, it’s extremely low– roughly the federal poverty line for a family of your size. The bigger issue is what is included in income and what is subtracted from it to arrive at “Available Income.”
FAFSA Income Protection Allowance
FAFSA does have a minimal income protection allowance. For parents, it tracks the federal poverty line fairly closely but has an additional variable of number attending college. For students, it’s a flat $6,420.
How to Fill out the FAFSA: Income
This is one of those things that seems fairly straightforward but has a definite peeling the onion feel to it. What is Income for purpose of the FAFSA?
Divorced Parents and Aid Applications
Divorced parents tend to have a number of questions about aid issues and college applications in general. Let’s start with the basics: Do both parents’ incomes count? And what about new spouses’?
Form 1098-T is a tuition statement that students receive from their college. It serves two primary purposes:
Documenting eligibility to claim the American Opportunity Tax Credit or Lifetime Learning Credit
Documenting that the student was enrolled in a college and that 529 withdrawals up to net cost of attendance are therefore qualified
Form 1098-T isn't filed with your taxes; instead, you use the information to file and then keep it for your records.