Q&A: FAFSA and 529s

Q&A: FAFSA and 529s

With U.S. Senator Chuck Grassley

Q: When will the Free Application for Financial Student Aid (FAFSA) be available?

A: Around this time last year, Iowans started voicing concerns about the delayed release of the updated FAFSA. It turned into a months-long postponement that threw a wrench into the process for families and college administrators trying to make informed decisions on financial aid packages. I heard firsthand about the hardship this caused for Iowa families, not knowing if their students would be able to enroll and start the fall semester. Typically, families can start filling out FAFSA by Oct. 1, nearly a full year before the next academic year and seven months before Decision Day on May 1. But for the current school year, the FAFSA wasn't ready until early 2024. Even worse, once the FAFSA finally was released, the online application process included technical snags that further gummed up the works for families and colleges. A year ago, I put the Biden administration on notice to get on the stick and focus on fixing FAFSA instead of unloading student debt on American taxpayers. The Department of Education had three years to implement legislation Congress wrote to simplify the application process. I sought assurances that the damaging delays wouldn't happen again and supported legislation, passed in November, requiring the Department of Education to make the FAFSA available by Oct. 1 of each year going forward.

The good news is the FAFSA is now available for families to apply for financial aid for the 2025-2026 school year. Be sure to create a user ID at least three days before completing the online form; FAFSA will ask for 2023 tax information.

Looking ahead, I will continue keeping tabs on federal rules that might impact the ability for students of farm families and small business owners to receive financial aid to attend or continue their educations. I've teamed up with Sen. Joni Ernst to bring Iowans' concerns directly to the U.S. Department of Education. We brought Midwestern common sense to the policymaking table to make it crystal clear to federal bureaucrats that farm assets aren't cash parked in a savings account. Revenue streams change throughout the year; farm families can't sell off their combine or planter to use the money for college without jeopardizing their livelihoods.

Q: What should Iowans know about 529 plans?

A: In addition to my efforts to help lower college costs by enhancing transparency and improving financial literacy for student borrowers, I've also worked to beef up education savings provisions in the federal tax code. As then-chairman of the Senate Finance Committee, I secured measures to encourage parents, grandparents and other family members to contribute to state-run college savings vehicles called Section 529 plans. The 2001 tax law improved the federal tax benefit by exempting distributions from taxation as long as they are used for qualified college expenses. That tax-free treatment was made permanent in 2006. In 2015, I led the effort to quash President Obama's proposal to eliminate the tax-free distribution and instead worked to expand flexibility for the tax-free savings vehicle. During the Trump administration, Congress strengthened 529 plans even more, expanding eligible education expenses to include K-12 private school tuition in the Tax Cuts and Jobs Act of 2017.

Iowa's 529 plans, previously College Savings Iowa, are called ISave 529. These state-administered, tax-advantaged investment accounts allow Iowa families to save for qualified education expenses for their child or grandchild, including tuition, certain room and board, books, supplies, fees, equipment and computers for post-secondary education, certified apprenticeship programs and vocational schools. In addition, ISave 529 can be used to pay for tuition expenses up to $10,000 per beneficiary at K-12 public, private or religious schools. Beginning this year, unused funds from a 529 account that has been open for 15 years or more, are allowed to be rolled over to the beneficiary's Roth IRA (up to a lifetime limit of $35,000) without a tax penalty, as long as the contributions and earnings transferred have been in the account for more than five years.

As families gather during this holiday season, take the opportunity to have a conversation about giving the gift of education to the next generation. The earlier you invest in a 529 plan, the greater the benefit. Iowa taxpayers can deduct up to $5,500 in contributions per beneficiary account from their 2024 state income taxes. Earnings grow federally tax-deferred and qualified withdrawals are tax-free. Don't miss out on a year-end promotion for Iowa families. The State Treasurer's office is celebrating the holidays with an ISave 529 giveaway. Iowans who register before Dec. 31, 2024 will be entered to win a $5,290 ISave 529 contribution. Go to https://www.iowatreasurer.gov/the-treasurers-office/news/isave-529 to learn more details.

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