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10 FAFSA Myths That Will Hurt Your Financial Aid Package

Student aid or FAFSA®. It's one acronym that’s enough to make some parents cringe. The Free Application for Federal Student Aid is a must for all prospective college students. However, some students never complete it. Others miss deadlines or make mistakes on the application because of so many FAFSA myths and misconceptions. Here are 10 FAFSA myths that can hurt your financial aid package.

What You Need To Know

The Free Application for Federal Student Aid (FAFSA®) helps parents and students determine potential student aid for college. There are many myths surrounding this form and deadlines. Regardless of what you think of the form and your ability to financially qualify for aid, you should fill out the form or, at the very least, complete the estimator. As financial advisors, we hear a lot of parents repeat student aid myths. We debunk those myths and explain how the process works including how a 529 plan impacts a student's financial aid package, how income impacts aid values, and how the financial aid packages are calculated. All you need is 5-10 minutes to complete the student aid estimate to get a better understanding of what your student's financial aid package may look like.

Don't make these financial aid mistakes

If you're planning to send your child to college, complete the financial aid paperwork even if you think you won't qualify. You can be offered grants, work-study, and loans. Tap into the knowledge of your financial advisor for potential college funding strategies as part of your overall wealth management plan. Here are 10 student loan mistakes we see parents and students make.

  1. Assuming you (parents) make too much money.
  2. The Student Aid Index is what I'll pay for college.
  3. My parents have too much saved for retirement.
  4. I'm not going to fill out the form because I won't qualify for financial aid.
  5. A 529 college savings plan won't hurt my eligibility.
  6. I need my recent taxes to fill out the FAFSA.
  7. I haven't been accepted to a college yet, so I should wait to apply for aid.
  8. I can wait to fill out my form until spring.
  9. I support myself, so my parent's income doesn't matter.
  10. You only need one FAFSA application.

Now, learn the facts about each of these financial aid myths.

Students Walking On College Campus

1. Assuming you (parents) make too much money.

Since the FAFSA is tied to how much money you make, many families never fill out the form, assuming they make too much money to qualify for aid. However, many factors go into determining financial aid, so don’t write off the process so quickly.

While the form asks about your income, there is no income cut-off to qualify for federal student aid. The Department of Education says you’ll qualify for some type of aid like low-interest student loans.

Plus, income is not the only factor in determining your aid.

The other factors that determine your financial aid eligibility include the size of your household and the age of your oldest parent. It all depends on how your personal information fits into the mathematical formula that determines financial aid eligibility.

You can get an estimate of how much federal student aid you may receive in 5-10 minutes. Estimate your financial aid.

2. The Student Aid Index is what I’ll pay for college.

The Expected Family Contribution or EFC, is a part of the mathematical formula used to calculate how much college will cost. However, it’s not the only factor. The cost of your college also plays a role in your financial package.

If you’re filling out the FAFSFA, you already know the formula is not as easy as A+B+C. But it does involve subtraction!

For need based aid, it's Cost of Attendance – Student Aid Index (SAI) = Financial Need.

The SAI is an index number schools use to determine how much aid you would get if you attended that school. It is not a dollar amount of how much aid you will get or what you are expected to pay.

If you get a negative SAI, it indicates a higher financial need. The student loan estimator helps you gauge what your SAI may be.

Why would you use it for a middle school student? It’s a good tool to estimate the cost of college based on your future earnings. That way you can financially plan for college earlier. Some parents create 529 plans soon after their child is born.

Student Loan Application

3. My parents have too much saved for retirement.

Retirement savings are not a factor in determining federal financial aid. It’s not considered an asset. However, contributions have an effect on your eligibility.

You have to report assets like your bank and brokerage accounts, CDS, stocks, bonds, mutual funds, money market accounts, college savings plans, stocks, stock options, bonds, trust funds, real estate, and other investments.

You don’t have to report the home where you live and retirement plans.

Knowing those two categories helps you make smart financial planning decisions. Again, consult your financial advisor to manage your money.

4. I’m not going to fill out the form because I won’t qualify for financial aid.

While it takes time to fill out the FAFSA, that doesn’t mean you should skip it if you think you won’t get any aid. You need it to determine other loan options and private scholarship eligibility.

Remember, there is an estimator that you should complete. It only takes 5-10 minutes. Complete the Federal Student Aid Estimator.

Bottom line – you’ll be asked for your FAFSA many times during the college planning process. Take the time to fill it out. You might be surprised by the results.

529 Plan And Fasfa

5. A 529 college savings plan won’t hurt my eligibility.

If a prospective college student has a 529 plan, it counts as an asset on the FAFSA form, even if it’s in the student’s name. While a 529 plan affects your ability to pay for college, financial aid experts say the impact is minimal.

There are exceptions to every rule. Only the parent lists the 529 plan as an asset if they’re the account holder. If a grandparent, friend, or other relative took out the account, you don’t list the 529 on the FAFSA.

So, let’s assume your 529 plan counts as an asset. How much will it hurt you?

Remember that mathematical formula we talked about that determines your financial aid? The federal formula counts a parent’s assets up to 5.64%. What does this mean? That every year, up to 5.6% of a parent’s assets are available to pay for college. According to the American Institute of CPA’s, student assets are assessed at 20%.

This is why speaking with your financial advisor before you open a 529 plan and during the college planning process is important.

6. I need my recent taxes to fill out the FAFSA.

You can submit the FAFSA for the next school year as early as October 1. That means you won’t have your taxes done yet. That’s ok. You don’t need them. You use the previous year’s taxes.

There are three deadlines to consider:

  1. The school(s) deadline.
  2. State deadline (where you live).
  3. The federal deadline.

Each state has different deadlines. Search for the latest deadlines for your state.

7. I haven’t been accepted to a college yet, so I should wait to apply for aid.

The FAFSA submission dates were moved up to coincide with the college application process, so it’s expected that you don’t know where you’ll attend college when you fill out the FAFSA. Plus, some funds are limited, so the earlier you apply, the better.

You can fill out the form in your senior year of high school, and the earliest submission date is October 1. While you need to list a college on the form, you can also list all the schools of interest.

Then, the schools you list on the form will use your FAFSA to determine your financial aid package.

If you add a school to your list later in the year, you can always add the school to your FAFSA.

8. I can wait to fill out my form until spring.

You may not have as much time to complete your FAFSA as you think. Again, some funds are offered on a first-come, first-served basis, so it’s best to fill out the form early.

There are three deadlines to consider when filling out FAFSA - your school, state where you live, and the federal deadline.

Bottom line – don’t wait. Start the process early. As early as October 1.

9. I support myself, so my parent’s income doesn’t matter.

Even if you fill out your own tax return because you support yourself, you may be a dependent for financial aid purposes. The FAFSA forms ask questions to automatically determine your dependency status. You'll be asked things like if you were born before January 1, 2001, marriage status, if you're a veteran or active duty, and more.

If you're a dependent, you need to include your parent’s financial information.

10. You only need one FAFSA application.

You need to fill out the FAFSA every year. That’s because the form relies on personal information like your income and the size of your household. Since employment and life circumstances change, you are required to fill out FAFSA every year.

If you have questions, get help filling out the FAFSA. Investing time to learn the process is an investment in your child’s future.

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