Which year is the “base year” for financial aid calculations?
The FAFSA (Free Application for Federal Student Aid) calculates the expected family contribution (EFC) based on income and taxes from the tax year prior to the award year for which the student is seeking student financial aid. (Award years run from July 1 to June 30 and often align with college academic years.) The prior tax year is often called the base year. For example, if a student is seeking financial aid for the 2015-2016 award year, the base year is 2014.
The prior tax year is usually the previous calendar year. Fiscal-year tax filers, however, should use the tax year that overlaps the most with the previous calendar year.
The prior tax year is used as the base year for financial aid calculations because it is verifiable. The accuracy of the income and tax information reported on the FAFSA can be verified by comparing it with the information filed on federal income tax returns.
FAFSA filing season for the 2015-2016 award year starts January 1, 2015 because one cannot report income and taxes for the prior tax year until the year has ended. Applicants need to file the FAFSA as soon as possible on or after January 1, 2015 to qualify for state and institutional aid, which can have very early deadlines. Accordingly, most applicants will initially report estimated income and tax information on the FAFSA. Later, after federal income tax returns have been filed, applicants are required to update the FAFSA with actual income and tax information. Both the initial estimates and the actual figures are for the same base year.
Note that students must reapply for financial aid each year, since aid is awarded one year at a time. The base year for each subsequent award year will be different. Each base year is the tax year prior to the corresponding award year.
The CSS/Financial Aid PROFILE form, which is used for determining eligibility for institutional aid at about 250 mostly private colleges, asks for three years of federal income tax returns, ending with the base year. Three years of federal income tax returns may also be used if the family appeals for more aid because annual income is volatile, varying significantly from year to year. Some colleges will substitute average income or projected award year income for prior tax year income to smooth out the volatility.
Copyright © 2016 by Edvisors.com. All rights reserved.