10 FAFSA Myths That Will Hurt Your Financial Aid Package
FAFSA. 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. Some students never fill it out, miss deadlines, or make mistakes because there are so many FAFSA myths and misconceptions.
1. My 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, there are many factors that 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 age of your oldest parent. It all depends on how your personal information fits into the mathematical formula that determines financial aid eligibility.
2. The estimated family contribution 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! To make it simple, it’s C-E=F. (Cost of Attendance – Expected Family Contribution = Financial Need)
First, the financial aid office determines your cost of attendance and your expected family contribution. Your family contribution is subtracted from your cost to go to school. The final figure is used to determine your financial need and aid package.
Before you completely dismiss the potential for aid and skip the FAFSA form, check out the FAFSA4caster. It’s a forecast of your potential aid. The form is recommended for high school juniors, or as early as middle school students.
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. Work with your certified financial advisor on college funding strategies.
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 certified financial advisor to manage your money. CNN Money outlines ways to reduce your assets on the FAFSA so you get more college aid.
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 the FAFSA4caster to estimate your eligibility.
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.
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. It affects your ability to pay for college, although, 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.
While we’re talking about the exceptions, it’s important to note that there is a lot of misinformation surrounding 529 plans and grandparents. Talk with your financial advisor before a grandparent starts a 529 plan because it can hurt the student’s eligibility once that student withdraws money.
According to the American Institute of CPA’s, if your adjusted gross income is less than $50,000 and you meet other requirements, you also don’t count the 529 as an asset.
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 5.6-percent. What does this mean? That every year, up to 5.6 percent 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-percent.
This is why it’s important to speak with your financial advisor before you open a 529 plan and during the college planning process.
6. I need my recent taxes to fill out the FAFSA
The deadlines recently changed for FAFSA to more closely align with college application dates. With the earlier dates, you can fill out all the forms at one time.
You can submit the FAFSA as early as October 1 for the next school year. 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.
For example, if you’re attending school in 2018-2019 and applying for aid October 1, 2017, you’ll use your 2016 tax return.
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 to you.
Then the schools you list on the form will use your FAFSA to determine a financial aid package for you.
If you add a school to your list later in the year, you can always add the school to your FAFSA.
8. The FAFSA deadline isn’t until June
You may not have as much time to fill out 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. Check your school’s website for its deadline, your state may have another one, and then there’s the federal deadline of June 30th.
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. If you’re a dependent, you need to include your parent’s financial information. The FAFSA forms ask questions to automatically determine your dependency status.
If you have questions about this, read the dependency questions.
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 size of household. Since employment and life circumstances change, it’s required that you fill out FAFSA every year.
If you have questions, get help filling out FAFSA. Investing time to learn the process is an investment in your child’s future.
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