This Could be the Most Important Action of your College Planning Strategy - FAFSA
January 1st is almost upon us and that’s an important date for many families who have college bound children. That is when they can begin filing the Free Application for Federal Student Aid, better known as FAFSA. The FAFSA can play an essential role in helping defray the costs of a college education. And with some colleges now costing over $260,000, the need for college planning is greater than ever. So let’s explore why you should familiarize yourself with the FAFSA and how it might benefit your college planning strategy.
What is it - The FAFSA is a form that will determine your eligibility for federal need-based financial aid (undergraduate and graduate) and is required by any institution that awards federal aid. This includes federal loans, which generally have benefits over private loans, federal grants, and work-study programs in which students earn money through school employment. Some schools will also require the CSS Profile, in addition to the FAFSA, to award their own institutional aid.
A number of people might feel that completing the FAFSA is a waste of time based on their income or assets owned. This is misguided. The FAFSA goes well beyond just qualifying you for need-based federal aid. The FAFSA is also used to determine your eligibility for many state aid packages, eligibility for private scholarships and certain school awards. Lastly, having multiple children in school at once can dramatically increase your likelihood of receiving need-based aid and therefore makes filing the FAFSA that much more important.
When should I file – You can file as soon as January 1st and the deadline is June 30th. Most state and college deadlines are much earlier. Since some aid is first come first serve it can’t hurt to complete the FAFSA application as soon as possible. If you’re a dependent, you’ll be asked for your parents’ federal tax information from the previous year. If your parents haven’t filed their tax return when completing the FAFSA, don’t worry. You can provide estimates based on the previous year’s return and correct any inaccuracies when they do file.
The rules change for students who are high school seniors next fall (2016) and applying to college for the 2017-2018 school year. They will be able to file the FAFSA as early as October 2016 using 2015 tax information due to the new “Prior, Prior” rules. Since tax returns should be completed by that point the need to amend income information should be minimal. Going forward, as is the case currently, you’ll need to file the FAFSA every year to determine your financial aid eligibility for the next school year.
What to expect – Your FAFSA can take up to four weeks to process if mailed and two if filed online. You can check if your FAFSA application has been processed at FAFSA.gov. After which the student and the selected schools will receive a Student Aid Report. The information provided to the schools is the same as provided to the student and includes the student’s expected family contribution or EFC. The EFC is the minimum amount a student is expected to contribute towards their education. Schools will use this to determine eligibility for need-based financial aid.
If the student has already applied and been admitted to a school marked on the FAFSA then they will also receive an award letter from that school. The award letter will detail the student’s financial aid package. At that point it will be important to understand what type of aid the student has received, the contingencies attached to that aid, and how future circumstances might impact aid eligibility.
The entire financial aid process can feel overwhelming, and rightfully so. There are varying requirements imposed by each institution and a multitude of factors that will determine your aid eligibility. But a sound college planning strategy should go beyond just trying to optimize financial aid.
Families can benefit by understanding the college admissions process, tax strategies and how to best utilize their personal resources. You need to be proactive, start planning early and determine your best strategy to pay for college so you can preserve your hard earned income and assets for retirement. With the right guidance you’ll be glad you did!
Tushingham Wealth Strategies
“Personal CFO” Services that Integrate College and Retirement Planning into one Strategy
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Phone – 866-505-9016