Reporting Income on Financial Aid Applications
During financial aid application season, we receive lots of question about family income and its impact on financial aid eligibility. What income is reported on the financial aid applications? What happens if income changes due to a job loss? How do self-employed individuals report their income? To dive deeper into this subject matter and answer some of the most common questions we receive, I sat down with Susan Beard, Director of Student Financial Services at Wheaton College, to hear her guidance.
Julie: What income should I be reporting on the FAFSA® and CSS ProfileTM financial aid applications?
Susan: You will use your federal tax return from two years prior to report your income on the FAFSA and (if needed) the CSS Profile. The CSS Profile will also ask you to report projected estimates of your income for last year and this year.
Julie: If I lost my job recently, and will have lower income, how do I report that to financial aid offices?
Susan: You should still follow the directions on the FAFSA and CSS Profile to report your income from two years prior. However, you should reach out to the colleges to which your student is applying (either via email, letter, or fax) to let them know about your recent decrease in income. While colleges may all handle it a little differently, some may be able to make adjustments to your financial information to be more reflective of your current income and financial situation. Ask the colleges if they have a "projected year income worksheet" that you can complete so that you can communicate the income you expect to receive for the remaining months of the year. The financial aid office will review what you submit and may make a professional judgement to utilize a more current and accurate income for you, rather than using your reported income figure. Most colleges will also follow up with you to find out if you have been able to secure a new job.
Julie: If I am self-employed and my income fluctuates greatly from year to year, how will this affect how I apply for financial aid?
Susan: You should still follow the instructions on the FAFSA and CSS Profile and report your income from two years prior. However, you should let all of the financial aid offices know of your income fluctuation so they have a complete and accurate picture of your family's financial situation. Colleges are aware that a single year snapshot can sometimes greatly benefit or severely penalize a student, so having a longer-term look can be helpful. Colleges do want to have the most accurate understanding of your true financial situation.
Julie: What if I have no other choice but to withdraw money from my IRA or 401K to pay for college? Will that affect my financial aid?
Susan: Many colleges are willing to remove a one-time IRA or 401K withdrawal from your income when evaluating your financial aid eligibility. Any colleges that collect tax returns will be able to see the withdrawal and remove it from the calculation proactively. Other colleges will need the parent to contact the financial aid office and explain the one-time increase in income due to the withdrawal. Keep in mind, this will only be done if the withdrawal is a one-time occurrence. If you withdraw from your IRA or 401K annually to pay for expenses, most colleges will count that as your regular income.