College affects the daily lives of Gen X parents, either through children who have just graduated from college with student loan debt or through children who will soon be attending college. As their careers become settled and they earn higher incomes, parents with toddlers also focus on college. The idea of funding college moves up their list of goals.
As an industry, financial planning still has room to improve in terms of college planning. While financial services communicate the dates for retirement planning, the opposite seems true for college planning. Here, we discuss many of the dates and explain a few of the ideas associated with college planning.
FAFSA and Associated Timeline
FAFSA is an acronym for Free Application for Federal Student Aid. Parents and students complete this form every year to determine eligibility for financial aid. From the information listed on this form, an Expected Family Contribution is established to help fund the student’s education. For this article, students and parents should know that to file for the 2017-2018 academic year, the FAFSA must be filled out by June 30, 2018. However, the earlier you file, the better your chance of qualifying for grant, scholarship, and work-study money (1). Ideally, you would have filed on October 1, 2016, for the 2017-2018 school year.
Families should complete the FAFSA as close to October 1 of their senior year of high school.
States and colleges have their own deadlines for the FASFA filing (1). You can find the date by visiting FAFSA.edu.gov (2). The dates will not necessarily agree with the federal deadline already discussed. For example, Indiana’s deadline for the 2017-2018 academic year was midnight on March 10, 2017
When checking your desired university’s deadline, make sure you define the deadline. Is it submission of the FASFA or the date when it has been processed (2)?
As you can see, the FAFSA-related dates complicate the situation. The simplest action is to file your FAFSA form as close to October 1 when the application opens for the academic year in the following calendar year. In other words, for the 2018-2019 academic year, file the FAFSA on October 1, 2017. Many states and universities give out money on a first-come, first-served basis.
College Application Deadlines
While families stress about the financial aid they may receive, it is easy for them to forget about the college application deadline. As with the FAFSA, a few deadlines may apply to you. The result of not applying on time may lead the university to not even look at your application (3).
First, understand that the college application can be an early application or regular application. Colleges divide early application into early action or single choice early action. For purposes of this article, send an early application to the university during the first semester of the student’s senior year of high school, typically October to mid-November (3, 4). Early acceptance announcements may occur from November to early February (5).
Universities typically accept regular applications between January 1 and February 1. Students who plan to fill out a regular application should have letters of recommendation and essays completed by mid-November. Students should receive acceptance letters by mid-March or April (4).
SAT and ACT Tests
The ACT and SAT tests cause strike fear in many high school students. A high score means getting into the student’s dream college … or so many think. Many colleges now take a holistic approach to admissions and look at civic engagement, secondary student activities, and work experience as factors influencing admissions. However, the ACT and SAT are still important factors in the admissions process.
As a best practice, students should take one or both tests a couple times starting their junior year of high school. Students can take test several times throughout the year. The best time to take the tests will depend on your needs; typically, a study time of at least 40 hours is recommended for ACT and SAT preparation (6). Depending on class load, extracurricular activities, and scheduling, a student may take one to four months to prepare. Some do not recommend starting too early because the student may forget some of the material.
For general planning purposes, start with two months of lead time for test preparation and then adjust your schedule as the date gets closer.
Parents and College Planning
For parents, college planning will involve time spent reviewing and analyzing assets, as well as cash flow for account contributions.
College Savings Accounts
Parents typically save money in one of three types of accounts for college.
Custodial account- Money placed in this account is the child’s asset(s). A custodian, typically a parent, oversees and invests the money. Contributors do not face deadlines for but funds will be considered higher on the list for college funding. The account also has a greater effect on funding expectations versus, say, a 529. The upside to a custodial account remains the flexibility with which the funds may be taken out. The money must be used for the benefit of the student. On a side note, some states require that the money is turned over to the child (i.e., the custodian is removed) once the child reaches the age of majority – a situation some parents do not favor. No tax advantage may be realized in funding these types of accounts.
Coverdell Educational Savings Account- This type of account is also known as the Educational Savings Account, or ESA. It focuses mainly on college with a cap on the contribution limit of $2000 each year until the student reaches the age of 18. The contributions are not tax-deductible but grow tax-free as long as the money is used for qualified expenses. Contributions can be made until the due date of the contributors’ return (April 15) without extensions (7). Income limits apply to the account. Individuals may contribute if their modified adjusted gross income is below $110,000 ($220,000 for married filing jointly) (7).
529 College Savings Account- The most popular college savings account is the 529. The deadline for most 529 contributions is December 31. However, seven states allow contributions up to mid- to late April for the previous tax year. These seven states are Georgia, Iowa, Mississippi, Oklahoma, Oregon, South Carolina, and Wisconsin (8). Many states offer a deduction or credit for account contributions. Please see your advisor for details related to your specific state.
As we know, April 15 remains a dreaded date for most Americans, as tax returns are normally due. The date does adjust every once in a while, when April 15 falls on a weekend and to accommodate Emancipation Day (normally on April 16), which celebrates the end of slavery in Washington, D.C.
Some parents do not complete their taxes on time and file an extension. When this happens, the taxpayer must complete the filing by October 15. Filing an extension affects the FAFSA. Parents need to send a copy of the 4868 (extension form) with the FAFSA. Often, the university wants copies of W-2’s and a signed draft of your tax return. The institution may offer a temporary extension on the financial aid award until the FAFSA has been updated and completed.
Strategic planning for recognizing income or shifting it from one year to another may have an effect on your capacity to receive aid. In the same way, parents may look at shifting income for other reasons; many of the same tactics apply.
Gifting appreciated stock is one example which shifts income from a parent in a high tax bracket to a child (who sells the security) in a lower tax bracket at a young age. Parents need to gauge how this income shift affects financial aid. The focus should be on the income allowance and trying not to exceed it.
Understand that your income from this year will not affect aid for two years. For example, in the new changes on the FAFSA filing, the form asks for the “prior prior year’s” tax information. A 2015 tax return will become the basis for the 2017-2018 academic year.
Avoid recognizing large amounts of income through retirement account distributions or exercising stock options or capital gains. Offset capital gains with losses.
All the activities listed above normally have a deadline of December 31 at the close of the tax year. Please see your tax advisor for specifics about your situation.
If you have questions or would like to talk more about your student’s college funding, use the “contact us” section to let us know what you would like to discuss and when you are available.
- Nykiel, Teddy. “When Is My FAFSA Deadline.” NerdWallet. N.p., 13 Sept. 2016. Web. 19 June 2017. <https://www.nerdwallet.com/blog/loans/student-loans/fafsa-deadline/>.
- “Student Aid Deadlines.” Student Aid Deadlines – FAFSA on the Web – Federal Student Aid. N.p., n.d. Web. 19 June 2017. <https://fafsa.ed.gov/deadlines.htm#>.
- Services, University Language. “College Application Deadlines at US Colleges and Universities.” The Campus Commons. N.p., n.d. Web. 19 June 2017. <https://www.universitylanguage.com/guides/us-university-and-us-college-application-deadlines/>.
- Services, University Language. “Early Application: Applying to US universities early or regular decision.” The Campus Commons. N.p., n.d. Web. 19 June 2017. <https://www.universitylanguage.com/guides/early-application-applying-to-us-universities-early-or-regular-decision/>.
- Zhang, Dr. Fred. “SAT / ACT Prep Online Guides and Tips.” How long before the SAT should you study and prep?: 3 Factors that Affect the Hours. N.p., n.d. Web. 19 June 2017. <http://blog.prepscholar.com/how-long-ahead-of-the-sat-you-should-begin-studying-and-prepping>.
- “Coverdell ESA Contribution Limits & Deadlines.” 2016 and 2017 Coverdell (ESA) contribution limits and deadlines. N.p., n.d. Web. 19 June 2017. <https://newdirectionira.com/ira-info/contributions/coverdell-esa>.
- Flynn, Kathryn. “7 States Where You Can Still Claim a Prior-year 529 Plan Tax Deduction.” Savingforcollege.com. N.p., 21 Feb. 2017. Web. 19 June 2017. <http://www.savingforcollege.com/articles/6-states-where-you-can-still-claim-a-prior-year-529-plan-tax-deduction-915>.
- “Office of Student Financial Aid.” IRS Tax Transcript FAQ | Office of Student Financial Aid – University of Wisconsin–Madison. N.p., n.d. Web. 19 June 2017. <https://finaid.wisc.edu/557.htm>.