It seems like in the world of financial aid there’s always one question that bubbles to the surface: what tax year are we basing our information off of?

Families are now subject to submitting tax information for the “prior prior year”. We’re going to dig into what this means, and how families can leverage it to their advantage.

What is PPY?

PPY stands for Prior-Prior Year. This change was made in 2016 and was effective beginning with the 2017-2018 school year.

Two big changes were made with PPY:

The first change was the FAFSA (Free Application for Federal Student Aid) became available for current seniors in high school beginning on October 1 of their senior year. Before PPY, the FAFSA went live on January 1 of their senior year.

The second change involved the tax/income information that was required on the form. With prior-prior year families are now required to disclose tax information from two years back instead of the preceding year.

Let’s look at an example:

If you have a child who will begin college in Fall 2024, you will be required to provide tax/income information for the 2022 tax year on your first FAFSA that is filed. An easy way to remember what tax year needs to be disclosed is to subtract 2 from the year when your child is beginning their school year. In this example, the student begins their freshman year in 2024 (2024 – 2) so the tax year to be reported on the first FAFSA is 2022. For the student’s sophomore year in college, the family will be providing tax/income information for 2023, for junior year 2024, and for senior year 2025.

Why PPY?

This was put in place to make the process a bit easier for families. Before PPY, families had to report tax/income information for the preceding year that had just ended so families were estimating, and it created confusion and stress.

Just a side note, there is a second financial aid form that up to 300 mostly private schools require in addition to the FAFSA called the CSS Profile. This form also follows PPY.

Why is this important for parents with college-bound kids to understand early?

Because there is a two-year look back the first tax year that is reported on the FAFSA begins on January 1 of the student’s sophomore year of high school!

This is shocking to many parents who are just starting to think about the financial fit and affordability of colleges during their child’s senior year in college. They have no idea that things they did two years ago may come back to haunt them when they are applying for financial aid.

For example, some people will create a capital gain that was avoidable or take a distribution from a retirement account that creates a taxable event. This increases their adjusted gross income (AGI) in that tax year which is assessed up to 47% in the financial aid calculation of your expected family contribution (EFC).

What does this mean for families?

This change moved up the college financial planning timeline for parents.

PPY is one of the many planning opportunities for parents when it comes to assessing their financial fit at different colleges. Knowing this information and doing some research during your child’s sophomore year in high school could allow you to put your best foot forward when applying for financial aid down the road.

In this college buying process, knowledge is power. Do your research to understand your family’s financial fit.

Don’t Go It Alone

College-bound families are under an immense amount of pressure to “get it right”. They’re trying to make the best possible school decision for their child, maximize financial aid, reduce student loans, and not feel like they’re spending every penny they have on the remaining college bills. Yikes!

The PPY standard of financial aid applications makes this even harder on families who may have made significant financial moves early in their child’s high school days, not realizing it could negatively impact the amount of financial aid they were eligible to receive.

At Impact Advisors Group, we want to help!

Our goal is to help answer all of the financial aid questions that keep you up at night. That’s because we’re on a mission to help families across the country create a more affordable path to college, and end the student debt crisis as we know it.

You can get started on your financial aid strategy today by signing up for the Free College Money Report (click here to register!). If you choose to upgrade, you’ll also have access to one-on-one sessions with our team of financial aid experts. We believe that you deserve to navigate the financial aid landscape with confidence!