Tips for Completing The FAFSA
Tis the season for the annual college financing rite of passage, October 1, 2016 means it is time to complete the FAFSA for the 2017-2018 academic year. What do you mean October 1st???
The US Department of Education announced a big change to the FAFSA Financial Aid application process last year. The opening date (Oct. 1, 2016 is the first day the FAFSA is available, not the deadline as is being erroneously reported by some media outlets) to submit your FAFSA has moved up to October 1, 2016 (from January 1, 2017) for the 2017-2018 academic year and all subsequent years. The change was made to more closely align the awarding of financial aid with the college admissions process. The net benefit; (1) families will be able to submit applications earlier, (2) use the previous years tax returns and (3) financial aid awards will be known earlier to assist in making informed admission decisions.
Tip #1: Don’t leave money on the table
Many families do not bother to complete the Free Application for Federal Student Aid (aka, the FAFSA) because they do not believe they will qualify. Don’t make this mistake! What many fail to understand is that most colleges and universities will not consider you for institutional awards (scholarships, grants, etc.) if you have not completed the FAFSA. Don’t leave free money on the table. Get your pencils sharpened and file the FAFSA on or soon after October 1, 2016.
Tip #2: Get Your FSA ID before Oct 1st.
October 1st is right around the corner. To submit your FAFSA both parents and students will need a FSA ID. This ID is necessary to sign and submit your application. If you don’t have a FSA ID (which replaced the FAFSA Pin #) avoid the October 1st rush and request yours today at Federal Student Aid.
Get it soon. The FAFSA system will be flooded with requests on and around October 1st. Avoid potential filing delays – remember many institutions award financial aid on a first come first serve basis.
Tip #3: List Your Earnings Correctly
Getting ready to fill out the 2017-18 FAFSA or CSS Profile? When you do make sure to double-check your figures for accuracy. Make sure the amounts are accurate and don’t reflect over inflated assets (a common mistake). Check for these common errors:
Make sure the figures you report on the FAFSA and CSS profile (a little over 300 schools require this second financial aid form) match. Failing to do so will trigger a financial aid audit, delaying your financial aid award and in many cases requiring you to send copies of your filed tax returns to college financial aid offices.
List your earnings correctly. Questions 88 and 89 ask – “How much did your parent(s) earn from working in 2015? The question and directions are somewhat vague and you want to enter the largest number possible (to maximize your award). Why? The FAFSA formula uses this figure to calculate an allowance (the amount you are allowed to shelter against reported income (roughly $7,000 for public schools and $40,000 for private schools). What should you do? Look at your W-2 and enter the amount from Box 5 – your income before 401k contributions are removed. If self-employed enter the profits from your business not the gross income.
Listing earnings incorrectly won’t break the bank, but doing so will likely net you a couple of hundred dollars each year. Add this up over four years and it will significantly reduce your out of pocket cost to attend college.
Tip #4: Know What Assets Count
The FAFSA methodology does not consider the home you live in, your retirement plans or insurance as investments. When answering the “What is the net worth of your parents’ investments, including real estate” (Question #91) don’t include your primary residence. Your primary residence is a protected asset on the FAFSA and does not need to be included. Your other real estate holdings – a second home, rental property, vacation property, etc. are not protected and do need to be included when answering this question.
Do not include the value of your retirement accounts. This is a protected asset. Do not include the value of qualified retirement plans, such as 401(k) plans, 403(b) plans, pension plans, annuities, traditional IRAs, Roth IRAs, Keogh, profit sharing, SEP and SIMPLE plans. Doing so will likely increase your Expected Family Contribution (EFC). Note: Tax free contributions to a qualified retirement plan and distributions from a qualified retirement plan are usually reported as income.
529 Plans Special Rule of 2009. Reporting a 529 plan as a student asset is a common mistake.
Per FAFSA Directions: “Investments also include qualified educational benefits or education savings accounts (e.g., Coverdell savings accounts, 529 college savings plans and the refund value of 529 prepaid tuition plans). For a student who does not report parental information (independent student), the accounts owned by the student (and/or the student’s spouse) are reported as student investments in question 41 (Student Assets). For a student who must report parental information (dependent student), the accounts are reported as parental investments in question 91 (Parent Assets), including all accounts owned by the student and all accounts owned by the parents for any member of the household.”
Incorrectly counting a 529 plan as a student asset will likely increase your Expected Family Contribution (EFC). Rather than being counted in the parent assessment at a rate of 5.64%, it is assessed at a student rate of 20% in the EFC calculation.
Tip #5 Value Real Estate Correctly
Parents who own a rental or second home shouldn’t enter its market value (a common mistake). Instead, enter its net worth – the value minus any debt owed on it. When valuing such property’s start by using the IRS definition of the properties quick-sale value – 80% of the property’s fair market value – or what it could quickly sell for.
Tip #6 Don’t List your business if you don’t have to.
Question #92 asks “What’s the net worth of your parents’ current businesses? The answer for the vast majority of family’s who file the FAFSA is probably nothing, even if they own one. Since 2005 families who control more than 50% of a business with 100 or fewer full-time employees are exempt from reporting.
Tip #7 Avoid Common Errors
- Using commas instead of decimal points – all amounts need to be rounded to the nearest dollar.
- Adding an extra zero, for example writing $700,000 instead of $70,000. Happens more often than you think…
- Using nickname(s) instead of your legal name(s), i.e., Jeff instead of Jeffrey.
- Transposing letters or digits. Most commonly with Social Security and Phone numbers.
- Don’t miss deadlines. Pay attention to the deadlines that schools post on their web sites. Some colleges and states have very early deadlines for filing the FAFSA. Some award aid on a first-come, first-served basis until the money runs out.
- Don’t file the wrong year’s FAFSA. Note: When filing your FAFSA you will notice two options – The 2017 – 2018 School Year (July 1, 2017 – June 30, 2018) = next academic year and The 2016 – 2017 School Year (July 1, 2016 – June 30, 2017) = current academic year