If you have a child headed to college or headed back to college, you have an onerous job to do this month. It’s time to fill out federal financial aid forms, preferably online.
You may think you’re too wealthy to get financial aid and filling out the so-called Free Application for Federal Student Aid is too much of a hassle under those circumstances. Do it anyway.
In addition to qualifying students for scholarships and work-study awards, this form is required for any student who wants to get a federal student loan, which is a relatively cheap and flexible way to finance college and to allow your child to build a credit rating while still in school. Besides, you may be surprised at what aid you can get, experts say.
“People underestimate their ability to qualify for aid,” said Lauren Asher, associate director for the Project on Student Debt, a nonprofit student advocacy group based in Berkeley. “And the people who are most likely to underestimate their ability to qualify for aid are the people who are most likely to qualify.”
Half the students who could get aid don’t -- simply because they don’t apply, added Monisha Perkash, vice president of advisory products for SimpleTuition.com, a website that offers college planning products.
These students often limit their college search to institutions that they think they can afford -- typically junior colleges and state colleges and universities, rather than high-priced private schools. The folly is that high-priced private schools often provide so much aid that they become more affordable than less prestigious colleges, she said.
But the only way to find out is to fill out the FAFSA, which is the entry point for all need-based aid. And that’s not easy.
The FAFSA includes more than 100 questions and work sheets, some of which are exceptionally confusing. The good news, if you are a relatively low-income parent and can fill out the form online, is that the process will be far simpler this year.
That’s because the federal government revamped its online application and now uses technology that automatically eliminates questions that you don’t have to answer, given your responses to previous questions.
It also expanded the number of people who are considered 100% need-eligible. These individuals will be required to fill out only a portion of the traditional form to qualify for aid.
However, if you are one of the millions who earn too much to get fast-tracked, you’ll have to slog through the entire form. And you can’t delay. Some types of institutional and state-offered aid begin to evaporate in February and March. If you procrastinate you miss out.
That said, “make haste slowly,” advised Kalman A. Chany, author of “Paying for College Without Going Broke,” published by the Princeton Review. “You will get more money by doing things to your best advantage than you would by trying to be the first person to get the forms in. You have to meet the deadlines, but you don’t have to be first in line.”
What you need to do
Your first step for federal aid is to go to www.fafsa.ed.gov, Chany said, and be careful. Do not simply Google “FAFSA” because that search is likely to lead you to a host of commercial sites that will urge you to pay them a fee to help you fill out the form. The form is free. If they ask for a credit card number, you’ve strayed to the wrong site.
Open the FAFSA work sheet. It will give you an inkling of what will be on the overall form, but it’s a significantly shortened version, Chany said.
Still, it can help you start pulling together the right financial information for both the student and parents. It also tells you how to obtain a personal identification number that allows you to sign your FAFSA form electronically, which will speed the processing.
Look for the easy way out
If you are unemployed, receiving some sort of government aid (such as food stamps) and earn less than $30,000, you are considered 100% need eligible. If you earn less than $50,000 and are eligible to file a simplified tax return, there’s a simplified means test.
The online form will allow you to skip dozens of questions, if you meet either criteria and you don’t mess up this one question: “If you filed the full-length 1040, were you qualified to fill out the 1040EZ or 1040A?” If you say “no” you have to fill out all the questions. If you say “yes” you skip ahead.
You may assume that you are not eligible to fill out the simpler forms because your tax preparer uses the full 1040, Asher said. However, the preparer may have chosen the longer form because it gave you the ability to take more deductions and credits (and thus pay less tax) even though you were eligible to use the shorter form.
You can generally use the simpler forms if you earn less than $100,000; don’t have significant investment income; and don’t get income from rents, alimony or partnerships. For more complete information on choosing the right form to file, go to www.irs.gov. Use the search bar to look up Publication 17, which links to instructions on “which form should I use?” If you can use the shorter forms -- even if you didn’t -- you should say “yes” to the eligibility question on the FAFSA. It will save you a ton of time.
Not done with taxes?
Another misconception is that you need to complete your 2009 tax return to fill out the FAFSA, said Asher. You don’t. And if you wait to complete the FAFSA until your taxes are done you’re likely to miss out on aid.
How do you answer the questions that ask what’s on your 1040? Estimate, she said. You’ll have to revise your form later, but estimate now.
In figuring net worth, don’t list exempt assets
If you read the instructions carefully, they’ll tell you that the equity in your home and the money in qualified retirement accounts, such as IRAs, 401(k)s and 403(b) plans, are exempt from financial aid calculations.
When answering the questions about net worth on the FAFSA, you should exclude those accounts from your calculation. Many people are tempted to disclose their real net worth, which would naturally include the value of their retirement plans and the equity in their homes. Don’t. If you do, it could cost you a small fortune in aid.
Also be careful to list assets only once.
Another tricky section of the form asks for information about the cash you have on hand -- that’s usually the amount you hold in bank savings and checking accounts. You need to list this on the line that asks for it but exclude this amount from the net worth figure to avoid double-counting.
(Chany adds that you would be wise to pay off your credit cards with any cash you have before filling out the aid form. That will save you interest, of course, but it will also qualify you for more aid.)
The form asks for income information from both parents, but divorced families generally need to provide income information for only one parent. That parent should be the one the child lives with most of the year.
It doesn’t matter who claims the child as a dependent on tax returns, Chany said. If the student lives almost the same amount of time with both parents, Chany advised that he or she should spend an extra day or two with the poorer parent in the year applying for aid to be able to legitimately list that parent on the FAFSA and thereby qualify for the best scholarships and grants.