Over the past decade, college tuition rates rose an average of 5% per year. The average bachelor’s graduate in 2015 had over $35,000 in student loan debt. To graduate without burdensome debts, students must maximize their aid options. This means understanding the Free Application for Federal Student Aid (FAFSA), and using their knowledge to maximize student aid.
Starting with the 2017-2018 FAFSA, maximizing federal aid is easier than ever. The U.S. Department of Education now allows access to the FAFSA three months earlier (October rather than January). Applicants will also use an earlier year for income and tax information. This means it’s easy to incorporate FAFSA into the college application timeline.
What is the FAFSA?
The FAFSA is the Free Application for Federal Student Aid. It’s a dense form that students must complete to receive federal student aid.
The form ensures that federal student aid goes to students with the greatest need. However, this does not mean that only low-income families should fill out the form. Filling out the FAFSA is the only way to receive access to low-cost federal student loans. The FAFSA also gives families access to some scholarships, grants, and work-study programs. Some schools require a completed FAFSA for a student to apply for merit-based aid.
What do I need to fill out the FAFSA?
Filling out the FAFSA may seem daunting, but proper preparation will help families complete the application with minimal stress. One of the most important ways to ease the stress is to gather documents from the appropriate time. Use the chart below as a reference guide to understand the appropriate documents.
|School attendance window||FAFSA form||FAFSA availability||Income and tax year||Assets and liabilities||Born before this date for independent student status||Homeless or self-supporting and at risk of homelessness after this date for independent status|
|July 1, 2016-June 30, 2017||2016-2017||January 1, 2016-June 30, 2017||2015||As of filing FAFSA||January 1, 1993||July 1, 2015|
|July 1, 2017-June 30, 2018||2017-2018||October 1, 2016-June 30, 2018||2015||As of filing FAFSA||January 1, 1994||July 1, 2016|
|July 1, 2018-June 30, 2019||2018-2019||October 1, 2017-June 30, 2019||2016||As of filing FAFSA||January 1, 1995||July 1, 2017|
|July 1, 2019-June 30, 2020||2019-2020||October 1, 2018-June 30, 2020||2017||As of filing FAFSA||January 1, 1996||July 1, 2018|
Here’s a checklist of items you’ll need before filling out the FAFSA.
- Social Security number
- Alien registration number (if you are not a U.S. citizen)
- Student’s federal income tax returns from the appropriate year
- Student’s prior year W-2 or other earning statements from the appropriate year
- Student’s records of untaxed income from the appropriate year
- Student’s bank statements (checking, savings)
- Student’s non-retirement investment account statements (after tax brokerage, 529 accounts, Coverdell ESA accounts, CDs, money market accounts)
- Student’s record of non-taxed income (including income gifts that come from 529 plans owned by grandparents, income gifts to pay tuition, etc.)
- Student’s records for investment real estate
- An FSA ID to sign electronically
Dependent Students Only
- Parent’s federal income tax returns from the appropriate year
- Parent’s W-2 or other earning statements from the appropriate year
- Parent’s records of untaxed income from the appropriate year
- Parent’s banking and checking account statements
- Parent’s non-retirement investment account statements (after tax brokerage, 529 accounts, Coverdell ESA accounts, CDs, money market accounts)
- Parent’s records for investment real estate (not personal home)
Most students will be considered dependents. This is true even if a student is self-supporting for a period of time prior to starting college.
To be classified as independent, a student must meet one of these qualifications:
- Student turns 24 prior to January 1 of FAFSA start year (see chart above)
- Student is starting postgraduate studies
- Student is on active military duty (not for training purposes or for state service only)
- Student is a military veteran
- Student supports dependent children
- Student is a legally emancipated minor
- Parents died after age 13, foster child after age 13, or dependent or ward of the state after age 13
- Student is homeless or self-supporting and at risk of homelessness after July 1 in the year prior to start year (see chart above)
When are the FAFSA deadlines?
College students need to fill out the FAFSA every year that they want to receive federal financial aid. A traditional student who spends four years in school can expect to fill out the FAFSA four times through their college career.
Starting with the 2017-2018 FAFSA, the U.S. Department of Education extended the FAFSA deadlines. Previously, the U.S. Department of Education released the FAFSA on the January 1 prior to the attendance window. Applicants could complete the form from January 1 through the end of the attendance window.
Now, the U.S. Department of Education releases the FAFSA on October 1 prior to the attendance window. You may complete the FAFSA from the date it is released until the end of the attendance window. You can retroactively receive grants and loans for the school year provided that you complete the FAFSA by the end of the attendance window.
Deadlines for state and institutional aid
State and institutional aid organizations are not as lenient as the U.S. Department of Education. Most states require aid applicants to complete their FAFSA as soon after October 1 as possible. You can check your state-specific deadline on the FAFSA website.
Most states have just one FAFSA deadline, even if you plan to attend school on a delayed schedule. Often states give out aid on a first come, first served basis. Do not delay completing the FAFSA. You can work out changes based on your attendance after you’ve completed the FAFSA.
In general, you want to file the FAFSA as soon as you can to maximize institutional aid. Many universities grant institution-specific aid shortly after accepting students. Submit your FAFSA to all potential schools soon after you apply. Even if a school hasn’t accepted you yet, you should allow them to see your FAFSA responses.
Filling out the FAFSA alone may not be enough to get aid from your state or school. Many states require that you fill out additional forms to receive state-based aid. The most common form is the College Scholarship Service (CSS) profile. The CSS profile considers more data, and it offers students and their families the opportunity to flesh out their financial situation.
The CSS profile and other financial aid applications DO NOT replace the FAFSA. To get any federal student aid, you must fill out the FAFSA. You may also need to fill out additional forms. The Edvisors Network maintains a comprehensive list of state-based scholarships and grants. Students can research the forms that their state requires.
Students who are seeking college-based aid may have to complete institutional applications. These applications may be in addition to the FAFSA or in lieu of it. If aid details aren’t clear from the school’s website, contact the financial aid department to learn more. Many students find that their best chance at institutional aid comes right after applying to the school.
What happens after I fill out the FAFSA?
Three to five days after you complete the FAFSA, you will receive a Student Aid Report via email. This report is what schools will use to determine your eligibility for federal (and sometimes other) student aid.
Decoding your Student Aid Report
The most important number on the FAFSA is your Expected Family Contribution (EFC). Your family’s EFC is the amount parents and students are expected to allocate toward educational expenses. This amount can vary from zero dollars to more than the expected cost of college. This number is in the upper right-hand corner of the Student Aid Report.
In general, the lower your EFC, the more federal aid you will receive. Your specific eligibility for federal aid depends on your school’s cost of attendance.
The Student Aid Report also includes a Data Release Number (DRN). You will need this four-digit code to allow your school to change certain information on your FAFSA.
In addition to these two numbers, you will see your responses to questions on the FAFSA. If you find a mistake, you will need to correct it on FAFSA.gov. You can use your FSA ID to log in and submit changes. If your situation changes (such as the number of people in your parents’ household or your dependency status), you will need to update your FAFSA because it will change your EFC.
Schools submit awards packages to you
The U.S. Department of Education will send your Student Aid Report to any schools you have listed on your FAFSA. If you apply for another school after completing the FAFSA, you should log in to FAFSA.gov to submit your Student Aid Report to that school.
Once you’ve been accepted to the school, the school will use the EFC and their cost of attendance to determine your eligibility for federal aid. The school will send you a report that includes your eligibility for federal grants, subsidized and unsubsidized loans, and work-study programs. They may also send you details about other financial awards that you’ve received from the state or the institution.
You may need to contact the financial aid office at a school to see if you’re eligible for any scholarships or grants that they didn’t list. Be proactive in meeting other financial aid deadlines defined by your school’s financial aid office. Completing the CSS profile or institutional applications may allow you to earn more scholarships or grants or better loan rates. Check with schools where you’ve been accepted and your state’s website to learn more.
You can receive awards packages from multiple schools, even if you haven’t enrolled. Compare the awards packages to find the most cost-effective education. The federal aid will remain the same in every package, but the state and institutional aid can have a huge effect on your out-of-pocket costs.
Accept or decline aid
Once you choose a school, you will need to decide whether or not to accept the various forms of aid. Most people will accept grants and scholarships since those do not need to be paid off.
You will need to decide if accepting federal work-study or loans is best in your circumstances. You can work closely with a financial aid officer from your school to understand the pros and cons behind these options.
Once you make a decision, you’ll have the option to accept aid (including loans) through an online platform offered by your school.
How is my federal aid package determined?
Federal aid is awarded based on expected family contribution (and to a lesser extent the cost of attendance at your chosen university). A lower expected family contribution means you’ll get more aid, including subsidized loans and possibly a Pell Grant for low-income students.
The expected family contribution accounts for four variables:
- Student’s income (and spousal income for independent students)
- Student’s non-retirement assets (and spousal income for independent students)
- Parent’s income (for dependent students)
- Parent’s non-retirement assets (for dependent students)
Parents and students can shelter a limited amount of their income and assets from the EFC. The sheltering limits change each year, and they are published within the FAFSA application.
Students are expected to contribute 50% of their income after sheltering. They are expected to contribute 20% of nonsheltered assets to their educational expenses. Students cannot shelter as much income or net worth as parents.
Parents are expected to contribute 22% to 47% of income after sheltering. They are expected to contribute 12% of nonsheltered assets.
Using the EFC and an expected cost of attendance, the U.S. Department of Education appropriates funds. The FAFSA4caster will help you determine your current EFC and an expected aid package based on current costs of attendance. This is a useful tool for students who are more than one year out from starting college.
Full-time students with an EFC less than $5,200 can expect to receive a Pell Grant worth between $600 and $5,185.
Students who demonstrate financial need (those with a cost of attendance greater than their expected family contribution) will be eligible for either direct subsidized or direct unsubsidized loans. Both loans for undergraduate students have an interest rate of 3.76%. Graduate students will pay 5.31% on their direct unsubsidized loans.
The federal government places limits on direct borrowing. The limits are in the table below. If you need to borrow more money, you will have to look to federal PLUS Loans (higher interest rates), private loans, or covering educational expenses through other means.
|Year||Dependent Student Limit||Independent Student Limit|
|First Year Undergraduate||$5,500 (up to $3,500 subsidized)||$9,500 (up to $3,500 subsidized)|
|Second Year Undergraduate||$6,500 (up to $4,500 subsidized)||$10,500 (up to $4,500 subsidized)|
|Third Year + Undergraduate||$7,500 (up to $5,500 subsidized)||$12,500 (up to $5,500 subsidized)|
|Undergraduate Student Total Limits||$31,000 (up to $23,000 subsidized)||$57,500 (up to $23,000 Subsidized)|
|Graduate Students||N/A||$20,500 (unsubsidized only)|
|Graduate Student Total Limits||N/A||$138,500 (up to $65,500 in subsidized loans). Aggregate amount includes totals from undergraduate studies.|
How can I maximize my federal aid?
You must use accurate information when you complete the FAFSA. However, careful planning and understanding the FAFSA can help you maximize your aid. Keep these steps in mind as you apply for aid.
Avoid common FAFSA errors
It’s easy to make errors when you’re filling out a 100+ question application, and the wording on the FAFSA can be unclear. These are mistakes to avoid.
- Factor deductions out of your adjusted gross income (AGI): Questions 36 and 85 on the FAFSA ask for adjusted gross income.
- A lot of people forget to take out their deductions when they report AGI. Your AGI should not include contributions to certain retirement accounts, contributions to a health savings account, or college tuition, fees, or student loan interest (with limitations). Use these directions to be sure you’re using the right numbers.
- Some income from work is sheltered: Questions 39, 40, 88, and 89 ask about income earned from work.
- This is not the same as your adjusted gross income. The FAFSA uses this number to determine how much of your income can be sheltered. The more income you earn from work, the more you can shelter. Use these formulas to list the correct number.
- Understand the value of your investment assets: Questions 42 and 91 request the value of your investment assets.
- Don’t include retirement accounts or educational accounts. The value of real estate should factor in debt (and your personal home should be excluded). Cash value in life insurance policies are not considered investment assets.
- Your business and farm values are likely zero: Questions 43 and 92 ask for the value of investment farms or small businesses.
- Most families will have a value of zero. Unless you employ more than 100 employees or your family has less than 50% of the voting rights, you don’t need to declare this. Likewise, farms can be excluded if you live and work on the farm.
If you’re not sure, what a question means, use the guide Completing the FAFSA to understand the definition. The wording of questions leads a lot of people to overestimate their EFC.
In addition to avoiding errors, careful planning can help you reduce your EFC and maximize your aid.
Reduce your assets
One of the best ways to reduce your EFC is to reduce the assets that you declare on the FAFSA. You can do this without destroying your wealth. These are a few options to consider.
- Pay down consumer debt (reduces available cash).
- Don’t cash out a life insurance policy.
- Carry debt on rental properties rather than a personal house (your personal house isn’t an asset that the FAFSA considers, but rental properties are).
- Accelerate needs-based purchases (reduces cash for spending you would have done otherwise).
- Contribute money to retirement accounts.
Reduce your income
Smart income planning will help keep your EFC low. These are a few ideas that can help reduce the amount of income counted on the FAFSA.
- Ask grandparents to delay financial help until the last year of school. Gifts from relatives are untaxed income that need to be declared on the FAFSA. The last year of school won’t appear on the FAFSA, so a gift in the last year goes a long way.
- Avoid realizing capital gains (selling a rental property or a brokerage account) until the last year of college. Capital gains cannot be sheltered, and they are counted toward income. Most families should not realize capital gains during the college years to avoid FAFSA penalties.
- Contribute to a pre-tax retirement plan like a 401(k) or a Traditional IRA.
- Contribute to a health savings account.
Increase your ability to shelter income and assets
The FAFSA allows families to shelter some portion of their income and assets. Taking full advantage of these shelters may lead to more aid. These are a few things to consider.
- Parents with small businesses should hire their students for up to $6,400 worth of work. This reduces parents’ income by $6,400 and increases the student’s income up to the sheltered amount for dependent students.
- Parents of dependent students should keep assets in their name. Dependent students have to contribute 50% of available assets as opposed to 12% of parents’ available assets.
- Delay college until independence. Students who get married or wait until age 24 to start college will not have to consider their parents’ income or assets.
- Invest more in the family farm or business. A family farm or family business can help you build wealth, and you don’t have to declare these on the FAFSA.
Avoid high-cost strategies
Some families get tricked into high-cost strategies that don’t pay off. These are a few that you should avoid.
- Don’t take out a whole life insurance policy. A whole life insurance policy reduces your available cash, but it comes at a high commission cost. Don’t bother purchasing one unless you actually want whole life insurance coverage.
Don’t try to shelter assets in a trust. A trust where you or your child is a named beneficiary needs to be declared on the FAFSA. It’s difficult to get around this. Unless you have a specific need for a trust, don’t create one.
How can I use FAFSA to plan for college costs?
The FAFSA is not a college-cost planning tool, but you can use other tools to plan for upcoming college costs. College Navigator offers free information on current college costs. Using it with estimated aid from the FAFSA4caster will give high school students a good idea of their aid options. You could also consider using a paid tool like EFC Plus for an easier college-planning tool.
Parents and students looking to keep student loan debt low will benefit from using the Family Budget Analyzer, which can help you find places to cut expenses. A college cost projector will help you know the costs that your family needs to cover. Sallie Mae also offers a long-range planning calculator that can help you estimate your total indebtedness upon college graduation.
Understanding the FAFSA is one small part of planning for college costs. It will pay for you to understand it, but federal aid is just one component of the college-planning picture. Most students will need to devote time to finding a cost-effective education and applying for grants and scholarships to supplement federal aid.
The post The Ultimate FAFSA Guide: Maximize Federal Student Aid for College appeared first on MagnifyMoney.