FAFSA: Tips to Apply for College Financial Aid

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The Free Application for Federal Student Aid (FAFSA) is used to apply for student financial aid from the federal government, state government and most colleges and universities.

All students should file the FAFSA every year, even if they did not get anything other than low-cost federal student loans last year. Financial aid formulas are complicated and change every year, so it is difficult to predict in advance whether you will qualify for financial aid without applying. (But if you don’t apply, you definitely won’t get any aid.) Parents have a tendency to underestimate eligibility for need-based financial aid and overestimate eligibility for merit-based financial aid.

There are several aspects of the financial aid formula that make it difficult for families to predict how much financial aid their child will receive. A few of the more significant sources of complexity include:

The number of children in college has a big impact on aid eligibility.
The calculated parent contribution is divided by the number of children in college. Parents who don’t qualify for financial aid when their eldest child enrolls in college might qualify when they have two children in college. Increasing the number of children in college from one to two is like dividing the parent income in half.

The cost of the college also has an impact on eligibility for student aid.
A student who doesn’t qualify for much aid at an in-state public college may qualify for a lot more financial aid at a higher-priced private nonprofit college. Demonstrated financial need is defined as the difference between the annual cost of attendance (COA) and the expected family contribution (EFC). The cost of attendance is the total sticker price of the college, including tuition and fees, room and board, books and supplies, transportation and miscellaneous expenses. The EFC is a measure of the family’s financial strength, as determined by the FAFSA or other financial aid application forms. So, there are two ways to increase financial need and, therefore, eligibility for need-based financial aid. One is to have a lower EFC. The other is to enroll in a more expensive college.

If the parents are divorced or separated and do not live together, only the custodial parent is responsible for completing the FAFSA.
The custodial parent is the parent with whom the student lived the most during the 12 months ending on the date the FAFSA is filed. If the student lived with both parents equally, then the custodial parent is the parent who provided the most financial support to the student. Generally, the student will qualify for more financial aid if the custodial parent is the parent with the lower income. However, if this parent remarries, the income and assets of the stepparent must also be reported on the FAFSA, regardless of any prenuptial agreements, reducing eligibility for need-based aid. But, if this stepparent provides more than half support to children from a previous marriage, those children can be counted in the household size even if they do not live with the parent, and, consequently, in the number of children in college if they are enrolled in college on at least a half-time basis.

If a 529 college savings plan is owned by a grandparent, aunt, uncle, non-custodial parent or anybody other than the student or the custodial parent, it is not reported as an asset on the FAFSA, but qualified distributions will be counted as untaxed income to the beneficiary (the student). This will reduce eligibility for need-based financial aid by as much as half of the distribution amount. In contrast, 529 plans that are reported as an asset on the FAFSA have a much smaller impact on eligibility for need-based financial aid.

The FAFSA is more heavily weighted toward income than assets. A $10,000 increase in parent income will reduce eligibility for need-based financial aid by about $3,000 and a $10,000 increase in student income will reduce eligibility for need-based financial aid by about $5,000. In contrast, $10,000 in student assets (except for a custodial 529 college savings plan account, which is treated as though it were a parent asset) will reduce aid eligibility by $2,000. A portion of parent assets is sheltered by the financial aid formula and the remaining reportable assets are assessed according to a bracketed scale. In a worst-case scenario, $10,000 in parent assets will reduce aid eligibility by $564. A $10,000 distribution from a grandparent-owned 529 plan will reduce aid eligibility by as much as $5,000.

File the FAFSA as soon as possible after January 1. Don’t delay filing the FAFSA for any reason. Don’t wait to file the FAFSA until after you’ve filed your federal income tax returns or been accepted for admission to a college. Students who file the FAFSA in January, February or March receive more than twice as much grant money, on average, as students who file the FAFSA later. Some states and colleges have very early FAFSA deadlines for their own financial aid funds. For example, nine states award financial aid on a first-come, first-served basis, three states have February deadlines and eleven states have March deadlines. The earlier you file the FAFSA, the fewer deadlines you will miss.

Beware of paying a fee to complete the FAFSA. The FAFSA can be completed online at www.fafsa.ed.gov for free, without professional assistance. There are several sources of free help:

The U.S. Department of Education sponsors the Federal Student Aid Information Center, which runs a toll-free hotline to answer questions about federal student aid and the FAFSA. Call 1-800-4-FED-AID (1-800-433-3243) for free help.

Mark Kantrowitz is Senior Vice President and Publisher of Edvisors.com, a free comprehensive guide to planning and paying for college. He is also coauthor of the book  “Filing the FAFSA: The Edvisors Guide to Completing the Free Application for Federal Student Aid” (2015-2016 Edition), available for digital download at edvisors.com/fafsa.book.