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Changes Coming to the Free Application For Student Aid (FAFSA) Part 4 of 4

Changes Coming to the Free Application For Student Aid (FAFSA) Part 4 of 4

June 13, 2021
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What Divorced or Separated Parents Need to Know

If you’ve been following this series, you know that enacted changes will take effect July 1, 2023, which marks the start of the 2023-2024 school year. That means families won’t experience the newly streamlined FAFSA until they are filing out the application beginning Oct. 1, 2022.

Right now, the custodial parent is the one with whom the child has physically lived with for the majority of a 12-month period ending on the day the FAFSA is filed. The custodial parent is the only one who shares their income and assets on the FAFSA. However, under current rules it doesn’t matter which parent provided the most financial assistance or which parent claimed the child on his/her tax return.

This arrangement, however, is going to change, and parents who are separated and divorced need to prepare NOW. Because of the FAFSA’s use of prior-prior tax returns, the tax returns for 2021 will be used in determining who the custodial parent is for the 2023–2024 school year.

The new rule will make where a child physically lives irrelevant when determining who the custodial parent is for FAFSA purposes. Instead, the custodial parent will be considered the one who provided the most financial assistance. This will typically, but not always, translate into who claims the child on their tax return.

So could a parent (with cooperation from the ex) claim the child on their taxes even though they didn’t provide the most support? Would that make the child eligible for more financial aid? Or would the child support payments be a red flag in that scenario?

According to Mark Kantrowitz, a nationally recognized financial aid expert, the answer, to a certain degree, is yes. But, he added, most divorces are not amicable, and the parent paying child support often wants to claim the children as dependents because it reduces their tax liability.

It is likely that the FAFSA will rely on tax returns to determine who the custodial parent is unless parents appeal based on something called the multiple support agreement.

For more details on this important aspect of the FAFSA changes, check out Lynn O’Shaugnessy’s article here:

FAFSA Changes Target Divorcees and Extended Family, Lynn O'Shaughnessy | Mar 09, 2021 https://www.wealthmanagement.com/college-planning/fafsa-changes-target-divorcees-and-extended-family 

And if you have additional questions regarding this or any other planning topic, contact me for your no-obligation, no fee consultation.