For the best chance at getting college aid, know the process

If you have a child in college -- or one planning to go in the next year -- it’s time to go through the onerous process of filing out financial aid applications.

The good news is that there is aid available. So if the stock market wrecked your college finance plans, you can apply for a rescue, even for a child who is already in school.

The bad news is that the application is a pain. Going too fast or carelessly can cost you.

“The theory is that money goes to the people who need it,” said Kalman A. Chany, a New York-based financial aid consultant. “The reality is that money goes to the people who best understand the process.”

Here’s some guidance from some authorities.

First of all, any student hoping to get aid must complete the Free Application for Federal Student Aid, or FAFSA. This come be done online at www.fafsa.ed.gov. (Beware a similarly named site with a .com suffix. It’s a for-profit company that will charge for the privilege of filling out the form.)

Students applying to private colleges may also need to fill out the CSS Profile form, which will ask for additional information and can be used in awarding scholarships, grants and other aid.

These applications determine the “expected family contribution,” or EFC, which is what the government (or, with private colleges, the school) believes the family can afford to pay from its own resources. That amount is subtracted from the cost of the college to determine the student’s need.

It’s important to find out the aid application deadline for your particular college as well as for federal or state programs, and then apply early.

That’s because most schools have an early financial aid application deadline, and students who comply get first crack at assistance money.

It’s not necessary to get your application in on the first day, said Chany, author of “Paying for College Without Going Broke.” But students should complete aid applications before their target school’s “priority” aid deadline, he said.

At many schools, that deadline is in late January or early February. It’s wise to check with all the schools the student is interested in and complete the forms for all of them before the earliest deadline.

Some, however, are finding they have to apply later.

Though many private scholarships are long ago granted, some federal aid, including Pell Grants and student loans, is available even after a the academic year has started.

If, perhaps as a result of the financial crisis, you need to obtain assistance for your child for this school year, you should complete the 2008-09 FAFSA form. If you want aid for the coming school year, fill out the 2009-10 FAFSA too.

If you possibly qualify, it’s worth filling out the extra form.

If you’ve had a serious reversal that’s jeopardized your ability to pay for college, it’s also important to contact the school’s financial aid office, said David Jaffe, president of College Pursuit, a financial aid advisory firm in New York. Financial aid counselors have the authority to boost aid for kids -- even in the middle of a year.

“If somebody is out of a job or their investments have been wiped out, you need to let the school know that you are looking for help and you mean grants, not loans,” Jaffe said. “The squeaky gate gets all the attention. You need to be the squeaky gate.”

Financial aid pros’ next piece of advice: Don’t report “exempt” assets.

The biggest mistake parents make when filling out the FAFSA is failing to read the instructions carefully enough to know they don’t have to record everything when asked to list total assets. That’s because some assets, including money set aside in retirement plans and home equity, are exempt. If you include them, it will cost you thousands of dollars in aid.

Some business assets are also exempt, said Scott A. Anderson, president of College Financial Strategies in Davenport, Iowa. Make sure you know the rules before filing out the application.

Also, be sure to report any losses of income. If there’s any good news from last year’s stock market debacle, it’s that capital losses reduce parental income and help a lot in aid computations -- particularly for middle-income parents. Once your income exceeds certain thresholds, every extra dollar of income can cost up to 50 cents in aid, Anderson said.

Children of divorced parents need record the income and assets of only their custodial parent on the FAFSA form. (Many private colleges require information about each parent’s income on the CSS Profile form. But federal aid formulas -- used by all public schools -- count only the parent with custody.)

What if custody is 50/50? It might be worth shifting that balance slightly at college time. “Give the parent with the lowest income and assets a few extra days,” Jaffe said. “It’s one of the few loopholes left.”

Finally, pay off debt. Cash can help you in life, but the more cash you have on hand when filling out financial aid forms, the more financial aid authorities figure you can afford to pay for college.

Each dollar you have in savings costs you roughly 6 cents in aid. But here’s an interesting twist. Financial aid formulas generally don’t look at your debt. Consequently, it makes sense to use your cash to pay down debts before applying for aid, Chany said. If you have credit card debts, for instance, take some of the cash you have in savings to pay them off. That will get you more aid -- and you’ll pay less interest. Both ways it’s a win.

“This is a very difficult year for a lot of families,” Chany said. “Aid is going to be more important than ever, so you need to be careful with the forms so you get all that you can.”

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kathykristof24@gmail.com

Kathy Kristof is a personal-finance author and syndicated columnist.