What You Should Know About FAFSA


 If there’s anything that’s more fun than doing your taxes, it’s filling out the FAFSA. (Sarcasm intended.)

“Many people say it’s worse because it’s harder to understand from a ‘what are they asking me’ point of view,” says Cozy Whitman, an expert at College Inside Track. The company helps families navigate the complicated college process and find the right fit for their child.

Whitman recently sat down with Florida Prepaid to explain the why, when, what and how of the Free Application for Federal Student aid (aka FAFSA). Here’s what she said.

The Why

No matter your financial status, or whether you have a Florida Prepaid Plan or Florida 529 Savings Plan, fill out the FAFSA. It serves multiple purposes.

First, it determines need-based aid at the federal government level. Even if students do not qualify for federal aid in the form of grants, the FAFSA is the application for federal student loans. Parents may actually want their students to take out federal loans, which are low interest and no shenanigans, Whitman said, and can help students build credit or put some skin in the game. These “Federal Direct Loans,” formerly called Stafford loans, do not need to be need based.

A final, crucial reason to fill out the FAFSA is that colleges and universities will use FAFSA results to determine their own financial aid packages. Some institutions may even add money to students’ merit-based financial packages, but only if they have filled out the FAFSA.

The When

Whitman said the best time to fill out the FAFSA is in October of your child’s senior year of high school. Although you’ll fill out the FAFSA every year they are in college, the first time is the hardest. (She recommends printing your final application to make the process easier next year, since most data will not change).

While you can fill out the FAFSA between October 1 and June 30, Whitman advises you not to delay.

“In the first year, it’s important to submit early because need and merit aid typically are awarded on a first-come, first-served basis,” she said. “If you hold off till March, it’s possible their need bucket is now empty.”

Fun fact: If your child plans to go to graduate school, you — or they — will fill out the FAFSA again. But this time, the formula will no longer include family information.

The What

Gather your documents, set aside about 90 minutes per child and head to FAFSA.gov. You might not need to gather your tax documents, because the site offers a data retrieval tool that will grab your Adjusted Gross Income. (College Inside Track recommends using the data retrieval tool because it reduces the likelihood of an audit.)

You will definitely need details about any 529 Savings you have. As 529s are considered a parent asset, you must enter the sum of all 529s for all children. Whitman said assets are assessed at a rate of 5.64 percent (compared with the largest factor: your income, assessed at up to 47 percent, depending on the age of the parent). Checking and savings account information will also be required. If a family has an UGMA or UTMA, that information will be required and considered a student asset.

According to educationdata.org, 86 percent of college students benefit from some form of financial aid.

What’s not assessed? Retirement — at least the bulk of it. You are not required to include total 401k or Roth IRA savings on the FAFSA, although you will be asked how much you contributed to a retirement-based program in the previous year. The formula will take your retirement contributions for that single year and add it back to your AGI, to form a new “income” number.

“It has a reputation as being a complex form,” Whitman said. “It’s not overly complex, it’s just poorly written. If you have a fairly straightforward financial situation, it is not going to be a huge investment of your time.”

Whitman said each section of the FAFSA has a help section that people will benefit from exploring. A few other points:

  • You can save your progress and finish filling the form out later, but carefully hang on to the parent and student pins you create. They get lost remarkably often, and that is no fun.
  • If you are divorced, only one parent will fill out the FAFSA. The determination is where the child lives 51 percent of time, not who claims the child as a dependent. If it’s truly 50-50, choose the parent with lower household income. Note that if either parent is remarried, regardless of contribution plans, both the parent and step-parent incomes will be included in the formula.
  • If the family has a business with more than 100 employees, the form will require an asset valuation of business. If the family owns rental properties, the form will require market values of those properties. All assessed values should be pulled the time of application, not six months prior.

The How

Your formula will be submitted to the Federal Department of Education for evaluation, which will return a “Student Aid Report.” Whitman said many clients don’t even know how to find the expected family contribution on the document.

“The formula for need is same at every school,” Whitman said. “The total cost of the institution, minus the formula the FAFSA says is the expected family contribution, equals the demonstrated need.”

Some examples: If your institution costs $28,000 per year to attend and your expected family contribution is $50,000 per year, the formula results in a negative number and you would have no demonstrated need. But if your institution — in the next scenario, clearly a private one — costs $70,000 a year, there would be a demonstrated need of $20,000. Different universities have different gifting policies. Some may cover 20 percent of need, some 40 percent, some 80 percent. The rest needs to be made up with loans or tuition payments.

“I think it’s important for families to know the expected family contribution has no real relation to what you could actually pay,” she said. “It’s almost never what you actually pay, depending on whether you pay in-state tuition or private fees.”

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