For the newly initiated, the Free Application for Federal Student Aid (FAFSA) has traditionally become available at 12:00 am ET on New Year’s Eve. And completing one by the time college game day kicks-off the next day is a long-standing College Pete New Year’s Day tradition. Cheers to him!

The FAFSA is not only the most mis-pronounced acronym in the college process, it might also be the most misunderstood.

The College Board has estimated that 90% of FAFSAs submitted have mistakes in them.

This is critically important because from your responses to the 100 or so questions the FAFSA contains, the government will generously (tongue in cheek) calculate for you the amount that you can afford to pay for one year of college for one child (known as your Expected Family Contribution).

What’s more, AFTER they make that determination, but well before you can respond to it, they’ll be kind enough (again tongue in my cheek) to share that number with the colleges on your child’s list.

Simply put, the FAFSA is the gateway to the Federally-supported financial aid programs such as Pell Grants, Work Study, and loans. And here is where the confusion really takes shape because—although the Federal financial aid system boasts the largest aggregate pool of scholarship/grant monies available, and is the focus of most of the news, noise and political debate—it is NOT where most middle class families will find their scholarships/grants. Furthermore, the federal system is comprised of 80% loans (many of which would be considered predatory in the private sector)!

Consider this: 40% of families who make more than $100,000 will qualify for a need-based grant… and those grants are often large, five-figure ones… but exactly none of these will come from the federal system.

The real grant money for college is found within the colleges themselves.

So why bother with a FAFSA at all then? Well, MOST colleges require that you complete at least the FAFSA,in order to even be considered for one of their endowment awards! If you plan to send your child to college, then you should absolutely plan to submit a FAFSA. Which brings up another important misunderstanding about the FAFSA.

You actually have to plan to do the FAFSA (at least if you want to maximize your scholarship chances). But the FAFSA (as its name implies) is free and quite frankly, the form itself is not difficult to complete per se. Neither is a 1040.

What is difficult (on both) is making sure that you are properly positioned to respond to the questions on both in a way that leads to the most defensible, favorable outcome you can legally and ethically achieve. And the only way to do that on the FAFSA is to understand the factors behind the seemingly innocuous line items.

So, just what goes into the federal financial aid calculation?

Well, that’s the multi-billion dollar question, isn’t it. The answer lies in about 1200 pages of regulations spelled out under Title IV of the Higher Education Act. The Act, which was originally written in 1965 and has been re-written no less than 8 times since, is currently undergoing further modification (which we explained in an article we wrote a month or so ago). I don’t have space here to go into all 1200 pages worth of potential loopholes and landmines, but I can share with you a few tips:

Be careful to properly distinguish your assets from your children’s: the calculation ‘penalizes’ money saved in your child’s name more so than it does money saved in your name. By the way, your pre-paid tuition plan (like all 529s that you may be using to save for college) is your asset, not junior’s.

If you own a business, the value of that business is based on the number of people you employ full-time. No matter what you have told your banker, if you employ fewer than 100 FTEs, the value of your business is 0 if you are more than a 50% shareholder.

On the FAFSA, the equity you have in your primary residence should NOT be included in your estimation of your net worth; nor should any soft assets that you’ve acquired such as art, coins, your car(s), boat(s) or similar property.

If you are sending a child to college this coming Fall, you will be asked for information from your 2015 tax returns. You don’t need to have completed them to complete the FAFSA. You CAN and you should use defensible estimates and get your FAFSA done BEFORE the priority deadlines at the colleges on your child’s list (usually FEB 1). You should then get your taxes finished on time – no extensions for you this year!

Bottom line – the number one mistake you can make with regards to the FAFSA (or anything college-related today) is blindly pressing submit without first understanding how it works — or more importantly — how to make it work for you. With FAFSA, once you hit ‘submit’, it may be too late. You will be told what you can afford… and I know from experience that you’re not likely to like what they tell you. I also know from experience that if you plan ahead, you can often reduce that number… often significantly.

ONE FINAL IMPORTANT NOTE to parents of 10th, 11th and 12th graders: 12th graders – you are up!

Your financial aid applications should be completed in the next 30 days! 11th graders, you will be able to complete your FAFSAs in October of 2016 – THIS IS A CHANGE to the process that was enacted in the most recent legislative session.

IT MEANS THAT YOU (like me because my daughter is in 11th grade) WILL ALSO HAVE TO USE INFORMATION FROM 2015 as well as 2016! FOLKS, WE’RE ON DECK. And finally, 10th grade parents, you are now officially ON THE CLOCK, since colleges will look at 2016 to determine your eligibility.

Peter will be preparing and submitting our clients’ financial aid applications pretty much round-the-clock for the next week or so. As well, for those members who want to understand the nuances of the process, Peter will be hosting a specialized question-by-question FAFSA guidance web class for you and for the parents of students attending our partner high schools. We’ll be sending out web class invites to members next week.

Finally, Peter and I are hosting a free college planning program at the SW Regional Library in Pembroke Pines on January 13th. In it, we’ll be covering the steps that you need to take to make sure that your child is on the right path to finding and gaining acceptance to colleges that are capable of meeting your budget. The program is free, but space is limited. You can learn more and reserve your seat and materials here.

The college process is not what it used to be – today it is a multi-step; multi-year process.– but that doesn’t mean that it has to overwhelm or bankrupt you. If you have the right information, and act upon it, you will find that getting into and getting a discount at a great college is easier than you thought!

Best wishes for a happy, healthy and prosperous New Year!

– Jill (and Peter) Ratzan

P.S. We just published our 3rd book. This one is all about exactly what’s happening in Higher Education right now – and more specifically – what you can do to make sure that you (or your children) maximize every opportunity.

Go pick up your Amazon copy of NOT! Your Parents College Plan today!

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