Most people (and my daughter especially) are still moving a little slowly this week, the 2nd one back from all the ‘holiday revelry’.  Not so me.  Once the ball dropped, I got buried in financial aid applications.  Which is where I presently find myself.  And after preparing quite a few already,  I’ve got good news and bad news.  First the good news:  it’s exactly the same form as last year’s.  Now the bad news:  it’s exactly the same form as last year’s.

For those who are new to the college process, January 1 was the first day that the new Free Application for Federal Student Aid (the ‘FAFSA’), became available.   The FAFSA is a federal application, consisting of roughly 100 questions about your family’s income, assets, investments, household members, student’s assets, etc.  Your answers will be used by the Department of Education (based on roughly 1200 pages of regulation – seriously) to determine how much you can afford to pay for college for one child for one year.  This number (which is usually much higher than you can realistically afford to pay) is called your Expected Family Contribution (EFC) and it is shared with every school on your child’s college list.

For their part, the schools’ financial aid officers will then review your application and EFC to determine whether and by how much they should discount their tuition price for you through grants and scholarships (financial aid).   And these discounts can be significant.  In the fall of 2013, the average ‘tuition discount rate’ for incoming freshmen (the amount the list price is reduced through financial aid) was 45%, an all-time high, according to the National Association of College and University Business Officers.  Thats why so many high – “six figure earners are routinely qualifying for five-figure awards” (WSJ).

Please understand that the FAFSA application itself is not difficult per se – and let’s face it, neither is filling out an IRS1040.  What is difficult (on both) is understanding the complex rules, regulations and loopholes that go into the government’s formulas!  The College Board estimates that about 90% of forms have these type of big money ‘mistakes’ on them, and the Department of Education states that 40% of families leave money on the table.

Therefore the number one mistake you can make with regards to the FAFSA is ‘blindly’ submitting it without first understanding how it works — and more importantly — understanding how you can make it work for you.   Remember, once you hit ‘submit’, you will be TOLD how much you will be expected to pay for one year of college for one child.   And believe me, without any prior planning, this number is usually shocking (and not in a good way).  Inadvertantly overstating the equity in your investment property or mis-identifying a parent asset as a student asset, for example, can wind up costing you thousands of dollars of  hidden discounts (financial aid) that you would have otherwise been eligible to receive.

For those who do plan ahead, what you’ll be expected to pay can often be reduced… significantly.  My point is this:  while you can certainly complete your own tax return without specialized guidance,  you probably shouldn’t — and the same is true when it comes to filing the various financial aid and Institutional scholarship applications required to receive a tuition discount.  Note that in addition to the FAFSA, many colleges also assign you an Institutional EFC, which is determined by how you respond to financial and lifestyle questions on the CSS Profile, a far more involved and invasive financial aid application developed by the College Board and required by 300 plus universities and colleges (including, for the first time, the University of Miami). 

If you are still reading this, I have to assume that you are planning to send your student to college some day. If you are just beginning to consider strategies to foot the bill or to reduce your EFC, the time to act is now.  If you are not sure what an EFC is (let alone what yours will be), the time to act is definitely now – well before (as in years before) you hit ‘submit’ on any of these forms.

At this time of the year I receive too many panicked phone calls from parents of 12th graders  who are in an emergency.  Some have already hit submit.  Some of those folks I can still help, but it’s much more difficult — and some, I have to help find a way to ‘eat’ the first year (or first child) while we plan properly for the next.

The priority financial aid deadline for many schools for first-time applicants is often February 1st, and we urge all families to meet that deadline.  Financial aid is often awarded on a first-come, first-served basis, and we are expecting a record number of applicants to be vying for money from a shrinking award pool (yes, colleges are looking for ways to cut costs).

The FAFSA (and it’s evil twin the CSS Profile) requests income information for 2013.   Since most families have not completed their taxes yet and may not even be sure of their year-end numbers at this time, it is appropriate and EXPECTED that you will use estimates on the FAFSA.  Once your taxes are completed and submitted, you can make adjustments to your form.  Note that you will not receive a final offer until you have filed your taxes so this is not a year to procrastinate with the IRS.

If you are a 12th grade parent, you’re in a code red state of emergency… And if you have an 11th grader, you should take heed, as your financial aid base year has just begun.  The time to make adjustments to your holdings to ensure that you qualify for the maximum amount of aid is now — certainly before your form is filed and ideally before your base year so that your plan is in place before the ‘look back’ period.

Let me close with this: Financial aid is not what it used to be.  The business model has changed; and as I said earlier, families with six-figure incomes often and yes, routinely, qualify for five-figure awards.  I know this to be true not just because the Wall Street Journal has said so (see above),  but because I see it happen every year.  The financial aid process is not about filling out a form.  It’s about knowing the various rules, landmines and loopholes to ensure that you receive your fair share.  I’ll be discussing these rules and the entire college admissions and funding process (including the financial aid formulas) at my workshop in Pembroke Pines next month.  Call my office at 954-659-1234 or go to registration page (LearnCollegeFunding.com) for more details and to register.  There is absolutely no cost to attend, but missing out on this info could cost you a fortune.

If you are the parent of a college-bound teen, I urge you to join me for this class.

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