Happy New Year! For many, today marks the first ‘real’ day back after the holiday revelry. Most people — my wife/partner included — like to spend that first week of the New Year slowly easing back into to their routine. Not so me. Once the ball drops in NYC, I get buried in FAFSAs. I’ve prepared quite a few already and 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 contains roughly 100 questions about your family’s income, assets, investments, household members, student’s assets, etc. Your answers will be used by the government, and in turn the school financial aid offices, to determine how much they believe you can afford to pay for college for one child for one year. The form is available at http://www.fafsa.gov. It does not cost anything to complete and submit the FAFSA.
Note: Do NOT go to fafsa.com, as this is a fee-based website — and using it is often the first, though not the worst (I’m getting to that), mistake made by the masses.
The FAFSA form itself is not difficult per se – and let’s face it, neither is filling out a 1040. What is difficult (on both) is understanding the complex rules, regulations and loopholes that go into the government’s formulas! When it comes to funding your child’s education, 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 aid that you would have otherwise been eligible to receive. Yes, even for high – six-figure earners.
I know this from personal experience with my practice; but remember, it was The Wall Street Journal that confirmed that six-figure earners were routinely qualifying for five-figure awards. The College Board estimates that about 90% of forms have big money ‘mistakes’ on them, while the Department of Education states that 40% of families leave money on the table. So…
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. 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). But for those who plan ahead, that number 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.
The reality is that every single student planning to go to college will some day have to fill out at least a FAFSA in order to be considered for Federal and Institutional Financial Aid — and there’s more than $150 billion up for grabs. And don’t forget that in Florida, students who wish to qualify for the state’s Bright Futures merit scholarship must also file this form, regardless of whether they plan to apply for additional scholarship aid.
A word to the wise: If you are considering strategies to reduce your EFC, the time to act is now. If you are not sure what an EFC is, the time to act is definitely now - well before (as in years before) you hit ‘submit’ on any of these forms. You are planning to send your student to college some day – that’s a fact — but that is not the same as having a real plan to do so. At this time of the year I receive far too many panicked phone calls from parents of 12th graders (unfortunately many of whom have been reading my articles for years and know they should have acted sooner) 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.
The FAFSA (and it’s evil twin the CSS Profile) requests income information for 2012. 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 government will use your 2013 inome to determine your family’s eligibility for scholarships). 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. 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 (which they have), but because I’ve seen 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 the proper amount of assistance. I’ll be discussing these rules and the entire college admissions and funding process (including the financial aid formulas) at my workshop in Pinecrest next week and in Weston the following week. Click here 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.
Happy New Year and Best Wishes for a safe, prosperous and joyous 2013!
P.S. While 66% of my readers will receive a significant discount on college — need, merit or some combination — if they know how and where to look; a full 100% will need a realistic plan or blueprint to pay for the balance without sacrificing their savings, lifestyle and/or saddling their children with onerous debt.
P.P.S. Forward this post to a friend. Tell them to come to my class. They’ll thank you for it!