Saving for college
What impact will my child's savings have on federal student aid eligibility?
If you have shifted significant resources into your children's names to lessen your federal income tax burden, this could reduce your children's financial aid eligibility. This includes prepaid tuition and the proceeds of 529 tuition savings plans.
In the calculations for federal financial aid eligibility, the student's savings are taxed at a much higher rate than those savings reports for parents. If you or your child has set aside funds for college expenses, consider using those savings to pay for necessary college expenses — perhaps a new vehicle or prepayment of tuition and fees — prior to filling out the needs analysis form. It might make a significant difference, particularly if those expenditures reduce the student's savings.
Are parents penalized for saving money for college?
No. As a matter of fact, families that have made a concerted effort to save money for college are in a much better position than those that have not. For example, a student from a family that has saved money may not have to borrow as much. Furthermore, the "taxing rate" on savings is quite low — only about 5 percent of the parents' assets are assessed and neither the home equity nor retirement savings are included. For example, a single 40-year-old parent who saved $40,000 for college expenses will have about $1,900 counted as a part of the parental contribution. In a two-parent family, if the older parent is 40 years old (a parent's age factors into the formulation), about $300 would be counted. (Note: The "taxing rate" for student assets is much higher — 35 percent — compared to 5 percent for parents.)
Determining eligibility for federal student aid
I probably won't qualify for aid. Should I apply anyway?
Yes, it's a mistake to self-determine. Let the financial aid officer analyze your aid application. There are a few sources of aid, such as Unsubsidized Stafford and PLUS loans, that are available regardless of need but still require the FAFSA.
What is a simplified needs test?
An alternate method of calculating the Expected Family Contribution (EFC) for families with adjusted gross incomes of less than $50,000 who have filed, or are eligible to file, an IRS Form 1040A or 1040EZ or are not required to file an income tax return. All assets are excluded from consideration.
A student may qualify for either an auto-zero EFC or Simplified Needs Test (SNT) EFC if, in addition to meeting the relevant income criteria, the student or the dependent student's parent(s) received benefits from a means-tested federal benefit program (e.g. SSI, food-stamp program, or free and reduced price school-lunch program).
Only the parent's tax return is considered for auto-zero EFC and Simplified Needs Test EFC determinations. Please note that the maximum Adjusted Gross Income (AGI) of the parents was raised to $20,000 (from $16,000) for an applicant to be eligible for auto-zero EFC.
If you are determined to have a higher amount of financial need, you may be eligible for aid programs such as the federal Pell Grant or the Federal Supplemental Educational Opportunity Grant (FSEOG).
Can I get an early estimate of my financial aid award?
A school that generally does not offer aid until a certain date or until you have completed your financial aid file may still be willing to give a preliminary estimate of the aid you are likely to receive. If you have not yet received an offer of aid from a school in which your child is seriously interested, do not be afraid to contact the school for information. Ask for an early estimate.
Check on your schools' website to see if they have their own calculator. Some institutions have their own financial aid calculators on their site to assist students with early estimates. These calculators may even indicate how the aid might be distributed, such as through grants, federal work study, or loans.
When should I become familiar with the FAFSA?
Parents should consider completing a FAFSA (Free Application for Federal Student Aid) on the web practice worksheet when the student becomes a junior in high school. This will give you an idea of what your Expected Family Contribution (EFC) will be. The results can assist you in selecting affordable colleges.
Where can I obtain the FAFSA documents?
Go to the website of the U.S. Department of Education and download the forms. You can also download the forms from most college or university websites, pick them up at a high school counselor's office or public library, or call the Department of Education at 800-433-3243 to have a form sent to you.
Filing online will greatly speed up the processing time. Electronic filers need a personal identification number, which can be obtained before January. Remember, there is no fee for filing the FAFSA, which will be routed to as many as 10 schools of your choice.
Should I wait until I've completed my tax return to file the FAFSA?
Send in the FAFSA form as soon as possible after January 1. Even if you haven't nailed down your taxes, you can use estimates of your income — as long as they aren't far from the actual numbers. You will have opportunities to provide the corrected numbers later. To fill out the financial aid forms, you will need a copy of your latest federal income tax return plus all pertinent related documents, such as W-2s, 1099s, and bank, brokerage, and mortgage statements. You'll also need the student's Social Security and driver's license numbers, among other things.
Are deadlines important?
Pay attention to deadlines. All schools have grant aid available to those students who qualify, but many have limited funds. Students who pay attention to deadlines have an advantage over those who don't. Even if you have to estimate figures on your FAFSA or institutional applications, you should get them in on time. The sooner you file your application, the better your chances of receiving federal financial aid. Also, you should file your income tax return as early in the year as possible.
Some institutions have scholarship dates that are earlier than the FAFSA deadline. Many students think that they should apply for scholarships at the same time they are completing the FAFSA, but that is incorrect. Students can lose out on these lucrative awards if they don't realize that there may be separate scholarship and FAFSA filing dates.
When completing the FAFSA, what should I be aware of?
The majority of students file the FAFSA online. We strongly recommend electronic filing over the paper application to save time and prevent errors.
What are some common FAFSA filing mistakes?
When filling out the FAFSA, make sure you check off the correct academic year, which would be, for example, 2008–09 for those receiving aid for a school term after July 1, 2008. Legal names, not nicknames, should always be used, and if you are not filing online, legibility is important. A financial aid officer at just about any school can answer any questions. And remember to make a copy of your completed forms before sending them in.
In their rush to complete the FAFSA, families often make costly errors. Here are three of the biggest errors and ways to prevent them:
- Filling out the FAFSA incompletely or inaccurately. Incomplete or inaccurate information can cause delays in processing. Errors can also result in a reduction of the total aid offered to your child. You don't want to miss out on federal Pell Grant or FSEOG funds because of errors in filling out a form.
- Not submitting all of the required applications for all possible sources of aid. For example, many schools require a supplemental application for institutional aid. Confirm, and reconfirm if necessary, that you have submitted all required forms and that the appropriate individual or organization has received them.
- Not submitting application forms by the published priority filing dates. Most schools require you to submit the FAFSA and other financial aid application documents by a priority filing date. Families that miss this date are frequently offered less financial aid or less desirable financial aid than they would have been offered otherwise. Meeting deadlines can prevent you from losing grants or federal work study funds.
TIP: Never leave a question with a dollar sign blank. If it does not apply, enter a zero.
I received a Student Aid Report after I filed my FAFSA. What do I do with this?
This report is sent to you after you have filed your FAFSA for verification of information. If corrections are necessary or additional information is required, please update and return the form. If there are no corrections that need to be made, please keep this form for your records.
What is a Renewal FAFSA?
The renewal FAFSA is a tremendous timesaver because responses from the prior FAFSA are displayed, and you must only answer questions that are likely to have changed from the previous year. All renewal-eligible applicants will now use the web to reapply for aid because paper renewal FAFSAs will no longer be printed and mailed.
Each federal financial aid applicant who meets the eligibility requirements for a renewal FAFSA will receive a renewal reminder email from the Department of Education. If the renewal-eligible student has not applied for aid by the end of the first week in February, a second reminder email will be sent.
Appealing an award
Should I appeal my award?
Should a family determine that the offered financial aid package is inadequate — especially in the case of a parent's or spouse's death or unemployment or other factors that seriously alter a family's financial status — the family can appeal the circumstances that contributed to the EFC. The appeal should be submitted as soon as possible, preferably in person. A financial aid officer will review the components of the EFC and determine whether or not the family's special circumstances warrant a revision of one or more of the EFC components.
Should the financial aid officer decide that the original EFC is not realistic due to the special circumstances, he or she may make adjustments that result in a lower EFC and then revise the offered financial aid package accordingly.
Another reason for filing an appeal is that some private colleges have an appeal policy that states that they will meet or match any award offer from a similar college. Have copies of all your documents on hand when you do talk with the aid officer. If you have updated information, such as a more recent tax return, have that available as well.