Filing the FAFSA: What Parents Need to Know

Affording College, Planning & Saving
on January 21, 2014
Retirement income funds
Photos.com
http://pgoamoneyliving.files.wordpress.com/2014/02/retirement-income-funds.jpg?w=150

For parents of college-bound students, determining how to pay for the kids’ education is often the source of major concern, and it’s no wonder: Cost of attendance can average almost $23,000 per year for an in-state, public college and around $45,000 for a private school.

The good news? Almost all students qualify for at least some financial aid, and the best (and sometimes only) way to secure federal, state and institutional aid is through the FAFSA. The Free Application for Federal Student Aid gives schools a quick overview of a student’s economic status to best determine which grants, scholarships and loans he or she is eligible for.

When it comes to the sending kids to college, the FAFSA is as important as the college applications themselves. Here, we provide expert tips to help parents maximize the FAFSA’s full potential.

File Early 

The FAFSA is available online beginning January 1, and it’s best to file as soon as possible. While access to federal funds like the Pell Grant and Stafford Loans will be available even if the FAFSA is submitted later, that is not the case for all aid options. “The FAFSA is used to apply for state aid and college aid, not just federal aid,” explains Mark Kantrowitz, senior vice president and publisher of the Edvisors network. “Some states have very early deadlines, as early as February, and seven states are on a first-come, first-served basis.”

The FAFSA does ask for parental income information, with the ability to us the IRS Data Retrieval Tool to input tax return information directly from the IRS. But that doesn’t mean you should wait until you’ve filed your taxes before submitting the FAFSA. Kantrowitz recommends providing income estimates and then updating the FAFSA once the current year’s taxes have been filed.

Also, adds Kantrowitz, “Do not wait until you’ve been admitted [to college(s)] to file the FAFSA, or you may miss deadlines for state and institutional aid.”

Choose the Right (Divorced) Parent to File 

When a student’s parents are divorced, the custodial parent—the one with whom the student resides more than 50% of the year—is required to complete the FAFSA (and report any alimony or child support payments, if applicable). If both parents share equal custody, the parent who provides the most support should submit the FAFSA. If he or she is remarried, the step-parent’s financial information must be included as well.

“Generally, a student will qualify for more aid if the parent who completes the FAFSA is the one with the lower household income—including the income of both the parent and the step-parent, if the parent has remarried,” says Kantrowitz. “While this can be manipulated, colleges will be suspicious if the custodial parent lives in a different school district or state than the student’s high school. The college may ask for a copy of the divorce decree to verify the arrangement, so parents who want to manipulate who files the FAFSA for financial benefit should go back to court to get a modification of the custody arrangements.”

And new this year: Parents who live together must both provide financial information—even if they are divorced or never married.

Avoid Processing Delays

If you are planning to submit the FAFSA before you’ve filed your taxes, input estimated income data and indicate on the FAFSA that you “will file” your taxes. Then, once you have your most recent tax return, use your FAFSA pin number (assigned to you during the process) to change “will file” to “have filed” and enter the updated information on the application.

“Failure to take both steps in amending your FAFSA increases the likelihood
 that you’ll be asked to verify your information, which involves providing 
copies of documentation to support your numbers,” says Carrie Fellon of Life Stage Financial Solutions. “Failure to provide correct
verification data can result in aid being withheld and your student being 
locked out of enrolling for classes.”

Additionally, says Fellon, make sure you answer all questions on the application. “If a question asks about an asset or source of income
 that doesn’t apply to you, insert a zero rather than leaving it blank. If 
left blank, the application will be considered incomplete and will require
corrections, creating an additional 2-3 weeks of processing time.”

Update Any Major Income Changes

Because the FAFSA considers income over the entire tax year, it will not reflect any recent changes that significantly alter the household income—like a parent losing a job in October, for example. “At this point, it’s important to talk to the
 [specific] colleges’ financial aid offices and let them know of your situation,” says Robert Kelchen, assistant professor of higher education at Seton Hall University. “In 
certain cases, they are allowed to adjust your financial aid eligibility 
based on more updated information than is on the FAFSA.”

Important to note: This step can only be taken once the FAFSA is filed and the student is admitted to the college or university. And each school that the student is interested in attending must be contacted individually to discuss the updated financial situation.

Maximize the Award Offer

First, says Joe Orsolini, a certified financial planner with College Aid Planners, “Be sure to understand what is and what is not included as assets by the FAFSA. Your home and your retirement funds (IRS, 401K, etc) are not 
considered assets in the FAFSA, so don’t shoot yourself in the foot by 
including them.” Bank accounts, stocks, bonds, mutual funds and non-home real estate are the only assets that should be included, he adds.

Ashley Zahn, a project manager with C2 Education, also advises that parents minimize student assets before completing the FAFSA. “The FAFSA formulas require that students 
spend roughly 20% of their assets on college,” she says. “Parents are expected to 
contribute roughly 6% of their assets, so it is better for any
 assets to be
in the parents’ names than in the student’s name.”

When possible, parents should also minimize their debt, Zahn adds. “For families with a large
 amount in savings or assets, it may be a good idea to pay down
 credit debt,
 pay off a car loan or prepay on the mortgage. Not only do they save in 
interest payments in the long run, but this is then money that cannot be 
considered for financial aid purposes. If there is a big purchase in the future,
 move the timetable up. For example, if a family knows they will
 purchase a
 new car in the next year, it would make sense to use savings to
 buy the car
 before filing the FAFSA, because this would reduce assets.”

blog comments powered by Disqus
Follow

Get every new post delivered to your Inbox.