A few years back, a frustrated Arne Duncan (our Secretary of Education) told Congress, “You basically need a Ph.D to figure that thing out!” . Mr. Duncan was referring to the 106 question Free Application for Federal Student Aid, or “FAFSA.” And he’s a Harvard guy!
A little closer to home: One mom at last week’s packed class told me that it had taken her five attempts just to read through the form that would ultimately determine her daughter’s eligibility for financial aid, and she still wasn’t sure if she and her spouse (or her ex-husband and his spouse) were the appropriate household to use on the application.
Confounding the matter is the fact that the FAFSA, which is arguably the single most important document in determining how much and what type of financial aid a family will receive, has failed to keep up with the changing composition of our families and our lives. Confusion is widespread and can lead to an inaccurate portrayal of a family’s finances — one that does not fairly reflect its needs.
At last week’s class in Pinecrest, I took a few minutes to answer some individual concerns. Many of the questions are shared issues for many middle class families so I thought I’d summarize five of the more common ones here. Quick disclaimer: my responses are necessarily general and should be considered as a guideline, not a recommendation — remember, no two families have exactly the same circumstances. Finally, although it may not always be immediately clear what information should be provided, the guidelines are available through the Department of Education.
First – the student is the applicant. Any reference to ‘You’ or ‘Your’ on the FAFSA and on the CSS Profile refers to the student!
Next, on the matter of children with separated or divorced parents: Dept. of Ed. guidelines require that the applicant report the household dynamics of the legal parent who provides more support, which is interpreted as the household where the student lives the majority of the time. Two notes: 1) the other parent’s household is largely ignored on the FAFSA, but WILL LIKELY be counted in the CSS Profile formula and 2) children with divorced same-sex parents face additional difficulty when applying for aid and should contact a specialist to review their situation.
The Small Business Loophole: For most business owners I see in my practice, the proper value of their business is “zero.” Why? The rationale buried in the directions has to do with the number of employees your business has. Those with fewer than 100 employee shoud be exempt, but I’ve seen CPAs make this mistake and lose tens of thousands of potential financial aid.
Independent Students: I get so many questions from parents who want to ‘emancipate’ their children so that the parents’ assets will not be counted in the formulas. In most cases, this won’t work. The Dept. of Ed. has 6 criteria to determine whether a student can be considered ‘independent.’ And trust me, you don’t want to answer ‘Yes’ to these questions, at least not yet (like, for example, whether your child is married or has dependents of her own).
Work-Study: This is not a trick question… you probably realize that most colleges do not give out 100% free money. Most schools award a combination of free money and loans/work study. You should check ‘yes’, indicating that you wish to be considered. You can always appeal later or decline the work study offered, but it’s harder to ask for it later. Besides, if your kid works 10-20 hours a week and makes a few extra shekels, that’s a good thing.
5) Retirement, checking, savings and cash balances: Aside from questions about your income, these are the most important questions. You don’t have to disclosing the value of your retirement accounts – IRAs, 401Ks, and so forth, nor the value of your primary residence. The FAFSA specifically tells you not to include those assets, so don’t! You do need to enter the total amounts of cash holdings you have as of the day you are filing SO make any large payments (like mortgage etc.) BEFORE you file. As for other non-retirement assets, there is an asset protection allowance, and certain annuities and insurance products could also be exempt. Consult a qualified college advisor sooner rather than later if you have more than $50,000 worth of assets.
Tomorrow (1/18), I will be conducting a workshop for parents at The Sagemont School in Weston. It’s free, full of this type of information and open to the public — and it’s the last class I’m teaching before the priority financial aid deadlines. If you have college-bound children, I hope to see you there. If you don’t, please send this on to someone who does — they’ll thank you for it. Click here to register.
p.s. One last tip: As soon as I sent out last week’s note about there being no changes on this year’s FAFSA, naturally I found one. Unlike in years past, the 2012 application gives you the opportunity to view select information about the schools chosen, including graduation rates. That sounds good, right? EXCEPT – the rates provided by FAFSA are the 6-year rates, not 4-year as was the standard time back in the day. This 6-year ‘new normal’ is not only abhorent, it’s expensive. And it blind-sides most families. The Education Trust publishes 4, 5, and 6 year rates on their site and is a must-stop when researching the colleges on your student’s list.