Student Financial Aid - Filling out FAFSA
Planning for a child's college education can be one of the most stressful and daunting tasks a parent will face. It can be similar to making up a will...it's one of those things you know you SHOULD be doing immediately, but somehow it gets put on the back burner. Here's a statistic that might urge you into action...for 2009-2010 the average tuition increase was 4.4% at private colleges and 6.5% at public universities. This wasn't a fluke year either; the ten-year historical rate of increase is approximately 6%. This is much higher than both the general inflation rate and the average increase in personal income (source: SavingForCollege.com). For the majority of college students and their parents, financial aid is either a planned part of the college payment strategy, or it's simply a necessity. Whatever level of planning you've done for this big step in your child's life, if they are approaching college age, it pays to do your homework about the financial aid process.
Most people have questions about how to fill out the Free Application for Federal Student Aid (FAFSA) form. This is the standard form that needs to be filled out by each student, no matter where they are planning to attend college. The form should be filled out as soon as possible after January 1 of the year the student will be attending school. So, if your student will be a college freshman in the fall of 2011 (i.e. they are a senior in high school right now), this is the time to be completing the FAFSA. While federal aid is awarded mainly based on financial need, some programs are also awarded partly on a "first-come, first-served" basis. The student can indicate up to 10 colleges for their FAFSA information to be sent to. The college financial aid office takes it from there; they will use the information included on the FAFSA to award financial aid to your student. This financial aid can include scholarships and grants that come directly from the school, as well as from Federal programs.
Completing the FAFSA can be an intimidating task for anyone, especially those who have never done it before. Completing it online is the easiest way to go about it. Each screen asks a specific question and you just work your way through the process. An important thing to keep in mind is that the FAFSA questions are geared towards the student, so when a question refers to "you" or "your" it means the student, not the parent (who in reality is most likely the one filling out the form!). Once you have completed all the student questions, then you will move on to the questions about the parents finances.
Speaking of questions, here are a few we hear frequently at our office...
You said I'm supposed to complete this as soon as possible, but it's only January 11 - I don't have my taxes done yet! That's okay...especially if you are completing FAFSA online, it's easy to file now using estimates of your income and then go back and make corrections after your taxes are done. This way you can get your student's information into the system as soon as possible and have the greatest chance of receiving aid. Do make sure that you later go back and adjust your numbers to match your tax return. Most schools have an audit process where they will select a certain number of students whose parents will have to provide a copy of their tax return to the school in order to be matched to FAFSA.
What information has to be provided to FAFSA? First, FAFSA will ask you to provide information on the student's and parents' income, including the income earned from working, total adjusted gross income from the tax return and income tax due from the tax return. If your student isn't required to file a tax return, there is a place to indicate that as well. It will also ask for certain other, untaxed sources of income, such as the untaxed portion of unemployment benefits received in 2010, pre-tax contributions to retirement plans, and child support received. Next, FAFSA will ask for the balances in both the student's and the parents' bank accounts as of the day FAFSA is completed and for the values of other assets and investment owned by the student or their parents. An important thing to know about the asset questions is that you DO NOT have to include the value of your residence, family farm, or small business (if it employs less than 100 people) on the FAFSA. This is great news, since these items make up the bulk of many parents' assets.
So, how do they determine how much we will have to pay? The school's financial aid department will come up with a financial aid package for your student. They will calculate an "Expected Family Contribution (EFC)" based on the information provided on the FAFSA. The EFC is not the exact amount you will end up paying, rather it's a reference point for the school to use when making up the financial aid package. Assets and investments in the student's name are factored into the EFC at a rate of 20%, while parents' assets and investments are only factored in at a rate of 3-6% of their value. College savings plans, such as a 529 Plan, are considered parent assets whether they are owned by the student or the parent. If they are owned by someone other than the student or the parent (like a grandparent) they are not included on the FAFSA at all.
Happy number crunching...and as always, please contact our office if you would like further information.
Lacey Carroll, CPA | 01/11/2011