As the price of a college education continues to skyrocket, many American families rely on significant outside help to foot the bill. Consider that the average cost of tuition and fees at an out-of-state public university is now nearly $ 24,000 per year, according to the College Board. For private schools, tuition and fees average $ 32,410.
For students who have not secured lucrative scholarships, need-based financial aid can play a vital role. Much of the key to receiving a generous package lies in the Free Application for Federal Student Aid form, better known as FAFSA. This is the document that schools use to determine federal aid, including Federal Direct Loans and Pell Grants. Many institutions also use it to decide whether students are eligible for one of their own scholarship funds.
Most of the time, parents don’t give the FAFSA much thought before the deadline. However, by understanding how the form works, you will have a better chance of meeting the help criteria. It’s also important to look beyond the form itself and realize that finding the right school can be just as important to your prospects for help as what you put in the document.
Here are some basic steps to make sure you get the best possible mix of scholarships, loans, and work-study programs.
Key points to remember
- With the cost of tuition soaring, parents and students need to make the best possible use of financial aid, scholarships and other financial aids available as needed.
- Completing the Free Federal Student Aid Application (FAFSA) form is essential, as this is what schools use to determine federal aid, as well as to determine if students are eligible for scholarship funds. specific to the school.
- To qualify, a family must file and not assume they won’t qualify, file early, minimize taxable income, carefully consider the name under which college savings have been listed, and also remember that FAFSA isn’t the whole picture when it comes to financial aid.
1. Drop off early
Perhaps the easiest thing you can do is complete the FAFSA as early as possible in the year. This is because many federal loans and grants are made on a first come, first served basis. Even though the university has a much later deadline, it helps to submit the document as soon as possible after October 1 (the new earlier FAFSA filing date).
Many parents assume they have to put the FAFSA on hold until they file their income tax return from the previous year. Unfortunately, this can seriously compromise your chances of getting assistance as needed. The new rules allow you to complete financial aid documents using data from the previous year. You can do this automatically by using the IRS Data Recovery Tool on the FAFSA official website, which is available approximately three weeks after filing the form.
The earliest date you can file the Free Applications for Federal Student Aid form, also known as FAFSA.
2. Minimize your taxable income
The FAFSA is the primary tool that universities rely on to determine the applicant’s ‘expected family contribution’ (CEF), which is the estimated amount that the student and their parents can contribute towards the costs of school fees and other expenses. All other things being equal, a lower CFE will translate into more need-based aid.
When calculating the family’s share of expenses, the most important factor is their level of income. It goes without saying that this helps to keep the amount of taxable income as low as possible during the base year.
Thanks to the Consolidated Appropriations Act 2021, as of July 2023, the term âStudent Aid Indexâ (SAI) will replace EFC on all FAFSA forms. In addition to some changes in the way the LIT is calculated, the change attempts to clarify what that number really is – an index of eligibility for student aid, not a reflection of what a family can or do. will pay for post-secondary expenses.
How can a family accomplish this feat without hurting themselves in the short term? One solution is to postpone the sale of stocks and bonds if they generate a profit, as the profits will count as income. It also means delaying early withdrawals from your 401 (k) or IRA. Also, ask your employer if you can defer cash bonuses when they don’t negatively impact your child’s financial assistance.
3. Clarify who âownsâ your assets
If you’ve saved money for your children’s college education over the years, you’ll be in much better shape when they graduate from high school. But all of these savings have a small catch: some of that money will be included in your CEF. An important thing to consider about FAFSA is that schools expect students to contribute more of their assets to higher education than parents will.
Therefore, your application will fare much better in most cases if education savings accounts are in a parent’s name. So if you set up a Uniform Gift to Minors Act (UGMA) account for your child to avoid gift taxes, you might reduce your chances of getting help as needed. It is often best to empty these accounts and put the money in a 529 Education Savings Plan or Coverdell Education Savings Account. Under the current rules, these are both treated as property of the parents, as long as the student is classified as a dependent for tax purposes.
4. Don’t assume you won’t qualify
Having a substantial family income does not always mean that financial aid is beyond your reach. It is important to remember that the needs analysis formula is complex. According to the US Department of Education, factors such as the number of students attending college and the age of the parents can affect your price. It’s always a good idea to fill out the FAFSA just in case.
Also, keep in mind that some universities will not offer their own financial aid, including academic scholarships, if you do not complete the FAFSA first. The assumption that the form is reserved for low- and middle-income families often closes the door to such opportunities.
5. FAFSA is not everything
While the FAFSA is an essential tool in determining aid based on need, some families place too much emphasis on the document. The point is, most financial aid counselors have the power to use resources however they see fit. The expected family contribution usually plays a big role, but it might not be the only factor they will consider.
The more an institution values ââa student’s skills and experiences, the more likely it is to woo him with an attractive aid package. The key is to find colleges that are right for you and contact the financial aid office about your child’s prospects for federally subsidized grants or loans. (For example, Harvard has several specific programs for academically excellent students.) This, in addition to its academic reputation, can help families choose whether a school is worth pursuing.
The bottom line
Generous financial aid can reduce a large portion of college tuition costs. The best way to improve your child’s chances of getting one is to report early and do everything you can reasonably can to reduce your family’s estimated contribution.