The deadline for submitting the FAFSA for the 2023-2024 academic year is 11:59p.m. CT on June 30, 2023. Any corrections or updates to your filing must be submitted by 11:59p.m. CT on September 9, 2023. In addition to these federal deadlines, each state may have their filing deadlines for aid; the same applies to many colleges and universities as well.

FAFSA stands for Free Application for Financial Student Aid. The application for the next school year becomes available each October 1.

Many students do not apply because it is possible to think that federal financial aid is only for those who might be considered to be poor. The reality is that most Americans are eligible for some type of aid, and not submitting the FAFSA could mean leaving money on the table, so to speak.

Both the submission deadline and the first date of availability are important as some of the aid is distributed on a first come, first served basis.

Benefits of submitting FAFSA on time

Submitting the FAFSA on time, or before the deadline, is beneficial as the earlier you apply, the more financial aid options that may be available.

While some students and families may be intimidated by the process, the FAFSA is generally straightforward and easy to complete.

The FAFSA opens the door to opportunities with federal student loans, offering a number of advantages:

• Generally lower interest rates than private student loans. In fact, almost half of the borrowers who used private student loans could have benefited from lower rate federal loans.
• Federal student loans have a fixed interest rate.
• They do not require that the borrower have a credit history and do not require a cosigner.

The FAFSA can open the door for other aid opportunities including:

• Eligibility for federal grants that do not need to be repaid.
• Possible qualifications for forgivable student loans.
• Eligibility for federal work-study programs that assist both in funding your education and in helping you build a resume.
• The FAFSA may be required in order to be eligible for a number of scholarships, grants and other types of aid from colleges, the state or a number of private organizations.
• Many colleges and universities use the FAFSA as the basis for their aid decisions

College savings strategies

While most college students should complete the FAFSA, ideally parents will start saving for their child’s education as soon as possible. Here are a few strategies to consider.

A 529 plan is an investment account that offers tax-free growth and tax-free withdrawals for qualified educational expenses. Some 529 plans are in the form of prepaid tuition plans, others are college savings accounts.

Under rules updated in the past few years, some K-12 expenses can be paid from a 529 as well. Money left unused for college in a 529 can be used to pay off student loans for the account beneficiary and their siblings, within limits. Additionally, under SECURE 2.0, there is a provision to allow up to $35,000 left unused in a 529 plan to be rolled into a Roth IRA in the account beneficiary’s name.

A 529 can be opened by a parent, grandparent or other relative. There is minimal impact on financial aid eligibility if the account was opened by a parent; the impact is generally greater if the account was opened by a grandparent or other relative.

UGMA (Uniform Gift to Minors Act) and UTMA (Uniform Transfer to Minors Act) accounts are both custodial accounts. These can be a good option for a minor child if you are not 100% sure they will attend college. These accounts are opened for a minor. Once the minor reaches the age of majority in their state, they become the owner of the account.

An UGMA can only hold financial assets while an UTMA can hold both financial and non-financial assets, such as real estate, collectibles and others.

A custodial account can be used for college or other purposes. Earnings in UGMA and UTMA accounts are taxable, but these taxes are waived if the money is used for college. UGMAs and UTMAs will count as assets for your child when completing the FAFSA and can hurt your child’s eligibility for aid under the FAFSA.

A Coverdell Education Savings Account is another type of custodial account designed for educational savings. Unlike with an UGMA or UTMA, there is a limit on the amount that can be contributed of $2,000. For parents above a set income limit, these contribution amounts are reduced.

If the child does not use the money by age 30, any funds left in the account will be distributed to them and taxed. The funds in a Coverdell account can be used for a wider variety of educational expenses than a 529.

How to make the most of college-saving tactics

Funding college takes some planning. Completing the FAFSA is a key part of this process for most families. However, starting a college savings plan as early as possible is also important. Your Wedbush financial advisor can help with this as part of your overall financial planning strategy.

 

Disclosure

These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. The information presented here is not specific to any individual’s personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. The information in these materials may change at any time and without notice.

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Contributions to a 529 plan offered by a non-resident state should consider before investing whether the client or designated beneficiary(s) home state offers any state tax benefits only available in the resident state program.