Last week we explained the financial aid base year and the upcoming shift to using the prior-prior year to calculate a family’s ability to pay for college. As we foreshadowed, there are specific financial maneuvers that families may wish to avoid making during a base year, as they will artificially inflate a parent’s or a student’s income.
Financial Moves to Avoid During a Base Year
- Selling stock or cashing in stock options that will result in a large capital gain. Can you try to make these sales before or after the sophomore-to-sophomore year time frame?
- Making a withdrawal from an IRA or other retirement account. These withdrawals must be reported as income on the financial aid application and can make your income look unusually high.
- Receiving an atypically high bonus. Can you defer the bonus to a later year or request another type of benefit in lieu of a cash bonus?
- Having someone outside the student’s custodial household (like a non-custodial parent or a grandparent) pay the college bill. Gifts or bills paid on the student’s behalf from outside the custodial household must be reported as student income on the financial aid application. If divorced parents are going to split the college bill, it may benefit them for the custodial parent to pay for freshman and sophomore year (base years, based on last week’s discussion of the shift to the prior-prior tax year base), while the noncustodial parent pays for junior and senior years (non-base years). That way, non-custodial parent payments never inflate the student’s income.
If your base year income is not reflective of your future income, you can always appeal to each college’s financial aid office to take your circumstances into consideration. A successful appeal would result in basing your child’s financial aid on your current or projected year income, rather than the unrepresentative base year. Colleges are not required to consider your special circumstances, but can at their discretion. Consider notifying the financial aid offices of any of the below situations.
Base Year Grounds for Appeal
- An unusually high capital gain, retirement withdrawal, or bonus did artificially inflate your base year income.
- You’ve lost your job since your base year, and your current income is significantly lower.
- You received child support in the base year, but that support will end when the student turns 18 or graduates from high school in the near future.
The base year concept is critical to the financial aid application process, and its understanding essential to maximizing your financial aid eligibility. This understanding is particularly important to grasp during 2015 as, due to the transition to prior-prior year tax data, 2015 will be a base year for both the 2016-17 and 2017-18 school years. Two years’ worth of financial aid will be based upon the financial decisions you make right now, so please be cognizant of the base year. Try not to make any financial moves that will artificially inflate your 2015 income and, if you do, be sure to appeal to the financial aid offices for special consideration.