Learning, Sharing, and Teaching > Taxes

Does the new tax law make the FAFSA really easy?

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sol:
Prior to 2018, families with high-school aged children who were applying to college (and thus filling out the Federal Application for Federal Student Aid) were required to report income and assets to determine aid eligibility.  Typically, income was assessed at 22-47%, and assets were assessed at 5.65% per year, and families like ours with huge nest eggs were basically ineligible for aid.

One way around this problem was to qualify for either the auto-zero Expected Family Contribution (if family income is below $25k, you owe nothing) or the Simplified Needs Test (income <50k, your assets are excluded).  The problem for us is that in order to qualify for either of these options, your family must file either a 1040EZ or a 1040A.  Since we own rental properties, we have to file a schedule E every year, which means we have to file a 1040.  This means we can't qualify for either of the simplified FAFSA forms.

Then the Republicans passed the Tax Cuts and Jobs Act in late 2017, which did a whole bunch of shitty thing like add 2.3 trillion dollars to the national debt, repeal the individual mandate in the ACA, give a giant tax break to the most profitable corporations, and open ANWR to oil drilling.  As a side effect, it got rid of the 1040EZ and the 1040A.  They don't exist anymore.  There is only the new 1040.

Suddenly, the requirement to file a 1040EZ or 1040A in order to qualify for the simplified FAFSA is impossible to meet for the 2019 tax year.  To my knowledge, there have been no efforts to update the FAFSA rules to reflect this change.  So while it's possible that the FAFSA just stops using the auto-zero EFC and simplified needs test (which would be a huge hidden FU to poor people), I think it's more likely that the FAFSA folks just drop the 1040EZ/A requirement entirely, and rely solely on the income requirements.

This means that a typical mustachian retiree with a million dollar nest egg, low expenses, and a handful of rental properties will suddenly be eligible for significantly reduced college costs.  Getting your AGI down under $50k is pretty easy, even for a large family, if your mortgage is paid off and you're living off of previous Roth IRA contributions (which come out tax and penalty free), taxable brokerage accounts (which are mostly return of principal) and rents (which are offset by depreciation).

Did the Republicans just send my kids to college for free?

robartsd:
Most likely they will list which schedules you are allowed to include with your 1040 in order to qualify for the simplified versions - I bet the schedules needed for your rental empire won't be on the list, so your situation with FAFSA is not likely to change. When FAFSA opens for 2019-2020 in October it will be based on 2018 tax forms, not the new forms. They probably won't publicize any update the rules until we are approaching the opening for 2020-2021 in October 2019 to avoid confusion.


--- Quote from: lhamo on July 17, 2018, 03:56:20 PM ---So basically no way to shield assets from FAFSA calculations any longer.

--- End quote ---
Retirement accounts, primary residence, annuities, and cash value of life insurance are still excluded.

seattlecyclone:

--- Quote from: sol on July 17, 2018, 03:36:59 PM ---The problem for us is that in order to qualify for either of these options, your family must file either a 1040EZ or a 1040A.

--- End quote ---

That's not strictly true. The other option (as defined in this document) is:

--- Quote ---Anyone included in the parents’ household size (as defined on the FAFSA) received benefits during 2016 or 2017 from any of the designated means-tested federal benefit programs: the Medicaid Program, the Supplemental Security Income (SSI) Program, the Supplemental Nutrition Assistance Program (SNAP), the Free and Reduced Price School Lunch Program, the Temporary Assistance for Needy Families (TANF) Program, and the Special Supplemental Nutrition Program for Women, Infants, and Children (WIC);
--- End quote ---

If anyone in your family is on any of these programs you can qualify for the simplified EFC formula regardless of what tax forms you fill out.

sol:

--- Quote from: seattlecyclone on July 17, 2018, 06:38:58 PM ---If anyone in your family is on any of these programs you can qualify for the simplified EFC formula regardless of what tax forms you fill out.

--- End quote ---

Right, I have realized that this is an OR instead of an AND option.  I previously thought you had to do both.

Qualifying for the Free and Reduced Price Lunch program is pretty easy.  My family (of 5) can have up to $54,427/yr of income and still qualify.  That's more than my family typically spends in a year anyway (excluding the mortgage), so apparently I'm about to sign up for reduced price lunches.

protostache:

--- Quote from: robartsd on July 17, 2018, 05:05:44 PM ---Retirement accounts, primary residence, annuities, and cash value of life insurance are still excluded.

--- End quote ---

Family owned businesses are also excluded to the extent the student doesn't own any of it, right?

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