What is PPY?
PPY stands for Prior-Prior Year. This change was made in 2016 and was effective beginning with 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 2022, you will be required to provide tax/income information for the 2020 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 2022 (2022 – 2) so the tax year to be reported on the first FAFSA is 2020. For the student’s sophomore year in college, the family will be providing tax/income information for 2021, for junior year 2022, and for senior year 2023.
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 lookback 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 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.
Enjoy the Journey!